Fines Against Hard Core Cartels in Europe: The Myth of Over Enforcement

Combe, Emmanuel; Monnier, Constance

doi:10.2139/ssrn.1431644

Cited by 16 publications

(20 citation statements)

References 24 publications

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“…The main conclusion of this analysis is that we find a much higher proportion of deterrent fines than Combe and Monnier (2011), who concluded that only one out of 64 fines (1.6%) of their sample lies above the relevant deterrent benchmark. 19 Our analysis differs from theirs along several dimensions, including the characterization of the deterrence benchmark and the modeling of the dynamics of cartels.…”

Section: Deterrence Properties Of the Fines Imposed By The Ecmentioning

confidence: 59%

“…This comparison shows that fines imposed by the EC are above the deterrence level on average but with a large variance. Our own methodology revisits the recent contribution of Combe and Monnier (2011), yet our empirical results differ from theirs. A preliminary analysis of the reasons for this difference was done in Allain et al (2011).…”

Section: Introductionmentioning

confidence: 85%

“…Combe and Monnier (2011) consider 64 cartel cases in the EU and compute restitutive (compensatory) and dissuasive (deterrent) fine benchmarks, in part directly from the court evidence and in part based on Connor (2010). They use the latter benchmarks to gauge the actual fines imposed on the cartels they consider.…”

Section: Deterrence Properties Of the Fines Imposed By The Ecmentioning

confidence: 99%

“…Our methodology follows that of Combe and Monnier (2011) who compare in each case the actual fine with their definition of both the compensatory fine, which corresponds to the annual excess profit as a percentage of cartel sales times the duration of the cartel, and the deterrent fine, which corresponds, in their approach, to the compensatory fine divided by the annual probability of detection. Clearly, since the profitability of a cartel (namely ∆π) is reduced if the price elasticity of demand is high, deterrence will be easier if demand is elastic.…”

Section: Deterrence Properties Of the Fines Imposed By The Ecmentioning

confidence: 99%

See 3 more Smart Citations

Are cartel fines optimal? Theory and evidence from the European Union

Allain

Boyer

Kotchoni³

et al. 2015

International Review of Law and Economics

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Section: Deterrence Properties Of the Fines Imposed By The Ecmentioning

confidence: 59%

Section: Introductionmentioning

confidence: 85%

Section: Deterrence Properties Of the Fines Imposed By The Ecmentioning

confidence: 99%

Section: Deterrence Properties Of the Fines Imposed By The Ecmentioning

confidence: 99%

See 2 more Smart Citations

Are cartel fines optimal? Theory and evidence from the European Union

Allain

Boyer

Kotchoni³

et al. 2015

International Review of Law and Economics

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“…Rotemberg and Saloner (1986) present a model to show that collusion generally occurs in instances where there is evidence of unusually large demand and associated returns (thus where the benefit is substantial enough to motivate, and in some instances appears to justify, the collusive behaviour) (Rojas, 2012). In general however, companies willing to be associated with cartel-like behaviour are motivated by the forecasted illegal profits and potential gains from the venture, with total disregard for societal damage (Combe & Monnier, 2011). Chotibhongs and Arditi (2012) find that firms involved in collusive behaviour may increase their bid to allow other participating parties to be awarded a contract, or refrain from entering a bid at all.…”

Section: Introductionmentioning

confidence: 99%

The impact of regulatory fines on shareholder returns

Strydom

Ward

Müller

2015

SAJBM

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Corruption has been shown to undermine the efficiency of market-based economies by allowing participants to profit from illegal rent-seeking activities, which decrease public support for business and increase the cost of capital (Zingales, 2015). Over the past decade, the Competition Commission in South Africa has investigated and issued punitive fines amounting to around R8bn to companies engaged in non-competitive behaviour. Using event study methodology, we examine the impact on the share prices of listed companies upon the announcement of an investigation, a fine, and the payment of the fine. We find that shareholder returns were unaffected at the initiation and payment stages of the process, but that the returns were positively affected at the conviction stage. A buy-and-hold longitudinal study was also undertaken to determine if an ex-post portfolio consisting of stocks of convicted companies out-performed an equal-weighted all share benchmark, as well as a portfolio of matched companies which had not been fined. The results reveal that both the portfolio of fined companies and the matched portfolio of non-fined companies out-performed the market benchmark over a 24-year period. However, the portfolio consisting of convicted companies underperformed the portfolio of companies which had not been fined. We conclude that the market anticipated the fines and that the quantum of fines levied was less than expected. We also find that the non-competitive behaviour of convicted companies did not benefit their shareholders in the long-term.

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Compliance, Detection, and Mergers and Acquisitions

Ghosal

Sokol

2013

Manage Decis Econ

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Firms operate under a wide range of rules and regulations. These include, for example, environmental regulations (in which some industries have increased regulatory exposure) and finance and accounting (where all industries have reporting requirements). In other areas, such as antitrust cartels, enforcement is unregulated, and antitrust leaves the market as the default tool to police against anticompetitive behavior. In all of these areas, detection of noncompliance by a firm can result in significant penalties. This issue of noncompliance has implications in the merger and acquisitions (M&A) context. In a transaction between an acquiring firm (buyer) and a target firm (seller), there is asymmetric information about the target's quality. In our framework, we link a target's quality directly to the strength of its regulatory compliance. In an M&A transaction, an acquirer seeks information about the target's compliance, as a compliance failure may result in substantial penalties and sanctions, post-acquisition. In the presence of quality (compliance) uncertainty about target firms, low-quality targets can masquerade as high quality. This would tend to give rise to an M&A market with Lemons-like characteristics, resulting in low transaction prices and dampening of M&A activity. We examine how M&A transactions in such regulatory areas -environmental, finance and accounting, and antitrust compliance problems -might function to alleviate quality uncertainty.

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Fines Against Hard Core Cartels in Europe: The Myth of Over Enforcement

Cited by 16 publications

References 24 publications

Are cartel fines optimal? Theory and evidence from the European Union

Are cartel fines optimal? Theory and evidence from the European Union

The impact of regulatory fines on shareholder returns

Compliance, Detection, and Mergers and Acquisitions

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