Capture, Politics and Antitrust Effectiveness

Abstract

We study the ex-ante budget devoted by a Political Principal to a Competition Authority in charge of collecting evidence on the Industry's behavior. The Industry can capture both the Principal (lobbying) for a reduced budget, and the Authority (side-contracting) so as to avoid fines. Authority's capture is costly to the Principal when side-contracting is sufficiently efficient. Collusion proofness induces high-powered incentives for the Authority, hence fostering the Authority's willingness to spend the allocated budget. For intermediate values of side-contracting's efficiency, in this moral hazard setting we find that the optimal budget increases as side-contracting gets more efficient. Only when side-contracting's efficiency reaches high enough values the budget decreases, thus generating a discrepancy between the Authority's and the Principal's desired level of information gathering. Finally, a complementarity between lobbying of the Principal and capture of the Authority arises.

Keywords: Budget, Law Enforcement, Three-tier Hierarchy, Moral Hazard, Collusion-Proofness, Lobbying

JEL Classification: D72, D73, D82, K21