The Power of Screens to Trigger Investigations

Abstract

Screens based on data can be important tools to detect conspiracies of various types and have started to be used by Competition Authorities worldwide to actively detect such behavior (Abrantes-Metz and Bajari (2009)). Screens can also be used during prosecution and penalization stages. Screens have been developed and implemented to search for a wide variety of competition problems, including bid rigging, price fixing, stock prices and commodities prices manipulations, revenues management, market allocation schemes, and stock options backdating. There are four desirable properties of a good screen: (i) it should minimize the number of false positives and negatives; (ii) it should be easy to implement; (iii) it should be costly for agents to disguise such behavior; and (iv) the screen should have empirical support. In this article we discuss two examples of investigations in accounting and financial markets triggered by the use of empirical screens: stock options backdating and odd-eights avoidance by NASDAQ dealers. We then present the results from screens applied to a potential Libor rate conspiracy and manipulation and question whether such findings would suffice to trigger an investigation into the matter.

Keywords: Screens, Conspiracies, Manipulations, Detection, Investigations

JEL Classification: C32, K21, K22