Optimal Fines in the Era of Whistleblowers - Should Price Fixers Still Go to Prison?
Laboratory of Economics, Antitrust, Regulation (LEAR)
Stockholm School of Economics (SITE)
December 12, 2005
Lear Research Paper No. 05-01
We review current methods for calculating fines against cartels in the US and EU, and simulate their deterrence effects under different assumptions on the legal and economic environment. It is likely that European fines have not had significant deterrence effects before leniency programs were introduced. Previous simulations of the effects of fines ignore the different type of deterrence that leniency programs bring about, and, therefore, grossly overstate the minimum fine likely to have deterrence effects. With schemes that reward whistleblowers, the minimum fine with deterrence effects falls to extremely low levels (below 10% of the optimal Beckerian fine). Strategic judgement-proofness can and should be prevented by suitable regulation or extended liability. Criminal sanctions, in the form of imprisonment, certainly bring benefits (and costs) in terms of cartel deterrence, but the firms' limited ability to pay does not appear any longer such a strong argument for their introduction.
Number of Pages in PDF File: 53
Keywords: Antitrust Amnesty, Cartels, Collusion, Corporate crime, Debt, Deterrence, Extended liability, Fines, Law enforcement, Leniency, Immunity, Imprisonment, Judgment proofness, Optimal fines, Optimal sanctions, Optimal liability, Organized crime, Political economy, Rewards, Sunk cost bias, Whistleblowers
JEL Classification: K21, K42, L20working papers series
Date posted: December 28, 2005
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