Fighting Cartels: Some Economics of Council Regulation (EC) 1/2003

Abstract:     
This paper investigates the effectiveness of the new Council Regulation (EC) 1/2003 which replaces the mandatory notification and authorization system by a legal exception system. Effectiveness is operationalized via the two subcriteria compliance to Art. 81 EC Treaty and the probabilities of type I and type II errors committed by the European Commission. We identify four different types of Perfect Bayesian Nash Equilibria: full-compliance, zero-compliance, positive-compliance and full-deterrence. We show that the Commission can, in principle, hit the full-compliance equilibrium, where the cartelizing firms fully obey the requirements of Art 81(3) EC Treaty and both error probabilities are zero.

Number of Pages in PDF File: 29

Keywords: competition law, cartel law enforcement, legal exception, imperfect decision making, type I error, type II error

JEL Classification: K21, K42, L40

working papers series