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The Distortive Effects of Antitrust Fines Based on Revenue

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  • Vasiliki Bageri
  • Yannis Katsoulacos
  • Giancarlo Spagnolo

Abstract

In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterize their comparative static properties, and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules-of-thumb that appear to have the potential to substantially reduce social welfare.
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  • Vasiliki Bageri & Yannis Katsoulacos & Giancarlo Spagnolo, 2013. "The Distortive Effects of Antitrust Fines Based on Revenue," Economic Journal, Royal Economic Society, vol. 123(11), pages 545-557, November.
    • Handle: RePEc:ecj:econjl:v:123:y:2013:i:11:p:f545-f557
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    1. Yeon‐Koo Che & Kathryn E. Spier, 2008. "Strategic judgment proofing," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 926-948, December.
    2. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    4. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
    5. Iwan Bos & Maarten Pieter Schinkel, 2006. "On The Scope For The European Commission'S 2006 Fining Guidelines Underthe Legal Maximum Fine," Journal of Competition Law and Economics, Oxford University Press, vol. 2(4), pages 673-682.
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    Cited by:

    1. Jensen, Sissel & Kvaløy, Ola & Olsen, Trond E. & Sorgard, Lars, 2013. "Crime and punishment: When tougher antitrust enforcement leads to higher overcharge," Discussion Paper Series in Economics 4/2013, Norwegian School of Economics, Department of Economics.
    2. Yannis Katsoulacos & Evgenia Motchenkova & David Ulph, 2020. "Penalising on the Basis of the Severity of the Offence: A Sophisticated Revenue-Based Cartel Penalty," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 627-646, November.
    3. Florence THEPOT & Jacques THEPOT, 2017. "Collusion, Managerial incentives and antitrust fines," Working Papers of LaRGE Research Center 2017-06, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
    4. Berkay Akyapi & Douglas C. Turner, 2022. "Cartel Penalties Under Endogenous Detection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(3), pages 341-371, November.
    5. Katsoulacos, Yannis & Motchenkova, Evgenia & Ulph, David, 2015. "Penalizing cartels: The case for basing penalties on price overcharge," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 70-80.
    6. González, Xulia & Moral, María J., 2019. "Effects of antitrust prosecution on retail fuel prices," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    7. Svetlana Avdasheva & Dina Korneeva, 2017. "Why Enforcement against Excessive Pricing in the Russian Federation is not Sufficiently Successful?," Public administration issues, Higher School of Economics, issue 5, pages 117-133.
    8. Vasiliki Bageri & Yannis Katsoulacos, 2023. "Measuring the effects of information exchange on incentives to collude using calibrated simulations (with an example of the South African oil industry)," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 1846-1875, June.
    9. Garrod, Luke & Olczak, Matthew, 2016. "Collusion, Firm Numbers and Asymmetries Revisited," MPRA Paper 74352, University Library of Munich, Germany.
    10. Umut Aydin & Nicolás Figueroa, 2019. "The Chilean Anti-cartel Experience: Accomplishments and Challenges," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 54(2), pages 327-352, March.
    11. Bos, Iwan & Davies, Stephen & Harrington, Joseph E. & Ormosi, Peter L., 2018. "Does enforcement deter cartels? A tale of two tails," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 372-405.
    12. Katsoulacos, Yannis & Motchenkova, Evgenia & Ulph, David, 2020. "Combining cartel penalties and private damage actions: The impact on cartel prices," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    13. Yannis Katsoulacos & Evgenia Motchenkova & David Ulph, 2016. "Measuring the Effectiveness of Anti-Cartel Interventions: A Conceptual Framework," Tinbergen Institute Discussion Papers 16-002/VII, Tinbergen Institute.
    14. repec:tin:wpaper:20150141 is not listed on IDEAS
    15. Napel, Stefan & Welter, Dominik, 2023. "Umbrella pricing and cartel size," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    16. Kaplow, Louis, 2018. "Price-fixing policy," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 749-776.
    17. Garrod, Luke & Olczak, Matthew, 2018. "Explicit vs tacit collusion: The effects of firm numbers and asymmetries," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 1-25.
    18. Aditya Bhattacharjea & Oindrila De, 2021. "India’s Cartel Penalty Practices, Optimal Restitution and Deterrence," IEG Working Papers 424, Institute of Economic Growth.

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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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