Imperfect Competition Law Enforcement
CeNDEF Working Paper No. 04-07
35 Pages Posted: 4 Feb 2003
Date Written: June 2004
Competition policy is a subject of heated debate. Antitrust authorities, seeking to battle anticompetitive behavior in complex cases to the best of their abilities, often find themselves advised by rival economic theories and disputed empirical analyses. As a consequence, there is a real possibility that authorities may occasionally err, missing true violations of competition law or finding firms liable that have indeed done nothing but good competition. In this paper, some consequences of such imperfect antitrust enforcement on firms' strategies are considered. It is found that the incidence of anti-competitive behavior increases in the enforcement error. This is due to a decrease in expected fines, but particularly also to industries colluding precautionary when they face the risk of false allegations. Moreover, the larger the enforcement error, the more likely it is that authorities are over-zealous - in the sense that welfare is better served by an antitrust authority that is lenient.
Keywords: Antitrust enforcement, imperfect information, competition policy
JEL Classification: L40, D40
Suggested Citation: Suggested Citation