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The Bankruptcy Wildcard in Cartel Cases

Andreas Stephan

University of East Anglia (UEA) - Centre for Competition Policy


Centre for Competition Policy Working Paper No. 06-5
Journal of Business Law, pp.511-534, August 2006

Where fines are the only available sanction against cartels there is a trade-off between increased deterrence and the increased risk of insolvency. Higher fines are unacceptable to the European Commission because of the costs and uncertainties associated with bankruptcy. These concerns have led to the emergence of a 'financial constraints' discount which is applied with a lack of transparency and may be strongly influenced by the EC treaty objectives of protecting employment and social justice. Such bankruptcy discounts encourage infringing firms to paint as gloomy a picture of their financial situation as possible to reduce their cost of collusion. They also provoke cartel members into raising prices further, safe in the knowledge that they will never incur fines high enough to threaten their financial viability. The existence in the US of a parallel 'loose' bankruptcy discount allows international infringing firms to cite sanctions previously incurred in the US as grounds for 'financial constraints' in Europe. The effect is lower fines to the detriment of EC deterrence and international enforcement.

Number of Pages in PDF File: 35

Keywords: Cartels, deterrence, bankruptcy, EC, US

JEL Classification: L13, L41, K21, K42

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Date posted: July 2, 2006 ; Last revised: December 18, 2009

Suggested Citation

Stephan, Andreas, The Bankruptcy Wildcard in Cartel Cases (2006). Centre for Competition Policy Working Paper No. 06-5. Available at SSRN: https://ssrn.com/abstract=912169 or http://dx.doi.org/10.2139/ssrn.912169

Contact Information

Andreas Stephan (Contact Author)
University of East Anglia (UEA) - Centre for Competition Policy ( email )
Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom
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