‘The Incidence of Fines on Cartel Dynamic Pricing’

Friday 27th November sees the long-awaited return of our delightful former colleague Anna Rita Bennato (Oxford Brookes University) who will be presenting ‘The Incidence of Fines on Cartel Dynamic Pricing‘, which she has co-researched with Franco Mariuzzo (ECO and CCP). An abstract for her seminar can be found below.

Abstract

With Regulation 1/2003 the European Commission D-G for Competition has introduced administrative fines on corporation turnover to punish any breach of Article 101 and 102 of the Treaty. To confine obvious adverse effects of a too harsh punishment fines have been limited to a thirty per cent cap of the undertaking’s worldwide turnover (Guidelines 2006/C 210/02). However, the assessment of the gravity is made on a case-by-case basis for all types of infringement. As a general rule, fines are calculated as a proportion of the value of sales.

In this paper we study the distortion in pricing that stems from the application of fines on turnover in an environment where cartels choose their optimal pricing under uncertainty and business cycles. Our model shows how in a dynamic setting fines may resemble the effect of an ad-valorem taxation. The effect of fines on prices varies depending on the position on the cycle (expected demand growing or falling).

We test our model using 328 weekly data on the Joint Executive Committee (JEC) and the econometric methodology suggested by Borenstein and Shepard (1996). While JEC was a legal cartel, in a counterfactual exercise we simulate the effect of the cartel being detected and fined on turnover.

 

Anna’s presentation takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03. 

‘The Affordability of Utilities’ Services in the EU: Extent, Practice and Policy’

CCP’s Autumn Seminar Series continues on Friday 13th November with our very own David Deller (CCP) evaluating ‘The Affordability of Utilities’ Services in the EU: Extent, Practice and Policy‘. The seminar is based on an extensive research project that David has undertaken with Catherine Waddams (CCP) for the Centre on Regulation in Europe (CERRE). The findings of the project are available here, and an abstract for the seminar can be found below.

Abstract

The affordability of utilities (energy, water, telecoms and transport) is a major issue on European policy agendas. This seminar reports the key findings from a recent research project into this topic conducted for the Centre on Regulation in Europe. Key results are highlighted from the most comprehensive mapping of utility affordability in the EU yet compiled and analysis of household-level expenditure data from countries including the UK, France and the Republic of Ireland. Major findings are the stark differences in expenditure shares devoted to utilities between ‘old’ and ‘new’ Member States and the pitfalls of using high-level affordability metrics to evaluate the performance of policies designed to improve utility affordability. The empirical results will be complemented by overviews of different metrics that can be used to evaluate utility affordability and the effectiveness of policies used to tackle fuel poverty.

 

David’s presentation takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03. 

‘Endogenous antitrust enforcement and strategic cartel pricing: Experimental evidence’

The next presentation in our Autumn seminar series takes place on Friday 6th November, with the return of Carsten Crede (CCP and ECO) who will be presenting ‘Endogenous antitrust enforcement and strategic cartel pricing: Experimental evidence‘, a joint project with Liang Lu (CCP and ECO). An abstract for his presentation can be found below.

Abstract

We experimentally examine the effects of endogenous antitrust enforcement, i.e. an enforcement that increases in the cartel overcharge, on cartel prices and stability. With a novel experimental design, we capture the non-profitability-related strategic effects of cartel pricing as a reaction to the endogenous punishment. By allowing self-selection of the cartel into expected low punishment, endogenous enforcement is effective when both fine and detection probability are sufficiently high. However, it may render deterrence less effective if fines are not sufficiently high, suggesting that the substitutability with respect to deterrence between fines and detection probabilities is limited. Nevertheless, both enforcement elements have welfare implications due to strategic effects: whereas high fines directly reduce cartel formation and undermine stability, high detection probabilities decrease the longevity of existing cartels and with it their economic harm.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 2.03. To find out about the other seminars in this series, visit the seminar pages on our website.