Antitrust Enforcement and Marginal Deterrence

Tinbergen Institute Discussion Paper No. 11-166/1

31 Pages Posted: 28 Nov 2011  

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

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2011

Abstract

We study antitrust enforcement in which the fine must obey four legal principles: punishments should fit the crime, proportionality, bankruptcy considerations, and minimum fines. We integrate these legal principles into an infinitely-repeated oligopoly model. Bankruptcy considerations ensure abnormal cartel profits. We derive the optimal fine schedule that achieves maximal social welfare under these legal principles. This optimal fine schedule induces collusion on a lower price making it more attractive than on higher prices. Also, raising minimum fines reduces social welfare and should never be implemented. Our analysis and results relate to the marginal deterrence literature by Shavell (1992) and Wilde (1992).

Keywords: antitrust enforcement, antitrust law, cartel, oligopoly, repeated game

JEL Classification: L4, K21, D43, C73

Suggested Citation

Houba, Harold and Motchenkova, Evgenia and Wen, Quan, Antitrust Enforcement and Marginal Deterrence (November 22, 2011). Tinbergen Institute Discussion Paper No. 11-166/1. Available at SSRN: https://ssrn.com/abstract=1964751 or http://dx.doi.org/10.2139/ssrn.1964751

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)

Paper statistics

Downloads
81
Rank
168,893
Abstract Views
450