Am I a Price-Fixer? A Behavioral Economics Analysis of Cartels
CRIMINALISING CARTELS: A CRITICAL INTERDISCIPLINARY STUDY OF AN INTERNATIONAL REGULATORY MOVEMENT, 2010
Posted: 13 Jan 2010 Last revised: 25 Feb 2010
Date Written: January 12, 2010
This article considers why executives risk prison, their careers, and their status in the community, and violate the antitrust laws. The generally accepted approach today is that price-fixers behave as “rational” profit-maximizers. Executives engage in a cost-benefit analysis to see if the benefits from the crime are worth taking the risks. To achieve optimal deterrence, the economic theory goes, the antitrust penalty should equal the violation’s expected net harm to others (plus enforcement costs) divided by the probability of detection and proof of the violation. Despite increasing antitrust fines and jail sentences, cartels continue to exist. Before the United States responds with greater fines and jail sentences, it makes sense to evaluate several assumptions underlying optimal deterrence theory. In reviewing the behavioral economics literature, policymakers will have a better grasp of the situational and dispositional factors that promote price-fixing.
Keywords: Cartels, Antitrust, Competition Law, Behavioral Economics, Optimal Deterrence Theory
JEL Classification: B25, K42, L41
Suggested Citation: Suggested Citation