Anti-trust and the Beckerian Principle: the Effects of Investigation and Fines on Cartels
July 10, 2013 Leave a comment
This Spring seminar series concludes in style on Friday 12th July as our very own Frederick Wandschneider (CCP and ECO) presents his latest research on ‘Anti-trust and the Beckerian Principle: the Effects of Investigation and Fines on Cartels‘ which he has undertaken alongside Subhasish Modak Chowdhury. An abstract for his seminar can be found below.
In order to deter collusion and punish wrongdoers, antitrust authorities employ different combinations of ‘magnitude of fine’ and ‘likelihood of detection’. According to Becker (1968) these tools are substitutable. Since detection depends on costly investigation, it is optimal to minimize detection efforts and impose high fines. Recently the UK Office of Fair Trading followed this proposition and increased the maximum fine that it can impose on a colluding firm from 10% to 30% of its relevant turnover. It is not known, however, from a behavioral perspective how effective this type of policy design would be in a market. We address this issue through a market experiment to study the effects of magnitude and likelihood of fines on cartel activity, prices and collusive stability. We find support for the Beckerian principle only when leniency is not present. In the presence of a leniency program, however, a regime encompassing low detection rates and high fines is even more desirable as this reduces the propensity to collude and lowers the overall incidence of cartelized markets. It also achieves higher consumer welfare and triggers price defections.
The CCP seminar series will return in Autumn 2013 with a new line-up of presenters from a variety of disciplines. The Autumn programme will be available to download from our CCP seminar page in the coming weeks and you can also revisit previous seminar series by following the relevant links.