Abstract

http://ssrn.com/abstract=1964751
 
 

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Antitrust Enforcement and Marginal Deterrence


Harold Houba


VU University Amsterdam - Department of Econometrics; Tinbergen Institute

Evgenia Motchenkova


VU University Amsterdam - Department of Economics; TILEC

Quan Wen


Vanderbilt University - College of Arts and Science - Department of Economics

November 22, 2011

Tinbergen Institute Discussion Paper No. 11-166/1

Abstract:     
We study antitrust enforcement in which the fine must obey four legal principles: punishments should fit the crime, proportionality, bankruptcy considerations, and minimum fines. We integrate these legal principles into an infinitely-repeated oligopoly model. Bankruptcy considerations ensure abnormal cartel profits. We derive the optimal fine schedule that achieves maximal social welfare under these legal principles. This optimal fine schedule induces collusion on a lower price making it more attractive than on higher prices. Also, raising minimum fines reduces social welfare and should never be implemented. Our analysis and results relate to the marginal deterrence literature by Shavell (1992) and Wilde (1992).

Number of Pages in PDF File: 31

Keywords: antitrust enforcement, antitrust law, cartel, oligopoly, repeated game

JEL Classification: L4, K21, D43, C73

working papers series





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Date posted: November 28, 2011  

Suggested Citation

Houba, Harold and Motchenkova, Evgenia and Wen, Quan, Antitrust Enforcement and Marginal Deterrence (November 22, 2011). Tinbergen Institute Discussion Paper No. 11-166/1. Available at SSRN: http://ssrn.com/abstract=1964751 or http://dx.doi.org/10.2139/ssrn.1964751

Contact Information

Harold E. D. Houba (Contact Author)
VU University Amsterdam - Department of Econometrics ( email )
De Boelelaan 1105
1081 HV Amsterdam
Netherlands
HOME PAGE: http://staff.feweb.vu.nl/hhouba/
Tinbergen Institute ( email )
Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
HOME PAGE: http://staff.feweb.vu.nl/hhouba/
Evgenia Motchenkova
VU University Amsterdam - Department of Economics ( email )
De Boelelaan 1105
1081 HV Amsterdam
Netherlands
TILEC ( email )
Warandelaan 2
Tilburg, 5000 LE
Netherlands
Quan Wen
Vanderbilt University - College of Arts and Science - Department of Economics ( email )
Box 1819 Station B
Nashville, TN 37235-1819
United States
615-322-0174 (Phone)
615-343-8495 (Fax)
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