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Antitrust Enforcement Under Endogenous Fines and Price-Dependent Detection Probabilities

13 Pages Posted: 23 Apr 2010  

Harold Houba

VU University Amsterdam, Department of Econometrics; VU University Amsterdam, Tinbergen Institute

Evgenia Motchenkova

VU University Amsterdam - Department of Economics; TILEC

Quan Wen

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

Date Written: April 21, 2010

Abstract

We analyze the effectiveness of antitrust regulation in a repeated oligopoly model in which both fines and detection probabilities depend on the cartel price. Such fines are closer to actual guidelines than the commonly assumed fixed fines. Under a constant detection probability, we confirm the long-run neutrality result with respect to fixed fines reported in Harrington (2005) and extend his result to the case where fines are directly proportional to illegal gains. In addition, we report that the profit-maximizing cartel price lies below the monopoly price when policy design features non-constant price-dependent detection probability. This offers partial support for current practice.

Keywords: Repeated Game, Cartel, Antitrust, Competition Policy

JEL Classification: C72, L41, K21

Suggested Citation

Houba, Harold and Motchenkova, Evgenia and Wen, Quan, Antitrust Enforcement Under Endogenous Fines and Price-Dependent Detection Probabilities (April 21, 2010). TILEC Discussion Paper No. 2010-020. Available at SSRN: https://ssrn.com/abstract=1593549 or http://dx.doi.org/10.2139/ssrn.1593549

Harold E. D. Houba (Contact Author)

VU University Amsterdam, Department of Econometrics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

VU University Amsterdam, Tinbergen Institute ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

HOME PAGE: http://personal.vu.nl/h.e.d.houba/

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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