Measuring the Effectiveness of Anti-Cartel Interventions: A Conceptual Framework

Abstract

This paper develops a model of the birth and death of cartels in the presence of enforcement activities by a Competition Authority (CA). We distinguish three sets of interventions: (a) detecting, prosecuting and penalising cartels; (b) actions that aim to stop cartel activity in the short-term, immediately following successful prosecution; (c) actions that aim to prevent the re-emergence of prosecuted cartels in the longer term. The last two intervention activities have not been analysed in the existing literature. In addition we take account of the structure and toughness of penalties. In this framework the enforcement activity of a CA causes industries in which cartels form to oscillate between periods of competitive pricing and periods of cartel pricing. We determine the impact of CA activity on deterred, impeded, and suffered harm. We derive measures of both the total and the marginal effects on welfare resulting from competition authority interventions and show how these break down into measures of the Direct Effect of interventions (i.e. the effect due to cartel activity being impeded) and two Indirect/Behavioural Effects -on Deterrence and Pricing. Finally, we calibrate the model and estimate the fraction of the harm that CAs remove as well as the magnitude of total and marginal welfare effects of anti-cartel interventions.

Quantifying the Deterrent Effect of Anticartel Enforcement

“…This result feeds directly into the assumptions employed in this current paper on the sampling differentials, as will be seen in Section III.B. The other, Katsoulacos et al (2016), shares the same conceptual objective as ours, but its approach is very different in at least two respects. First it abstracts from any heterogeneity among cartels, and thereby sidesteps the key issue of selection bias.…”

Simulating Collusion: Challenging Conventional Estimation Methods

“…Davies and Ormosi (2013) and Davies et al (2018) use simulations to estimate a quantification of harm deterred by antitrust policies, taking into account potential sample selection bias. Based on Harrington and Chang (2009), Katsoulacos et al (2016) develop a framework for evaluating the effects of policy instruments on welfare, simulating different intervention variables and allowing for repeat offenders. Gärtner (2022) uses MC simulations to show the existence of a preemptive push into leniency application (Harrington (2013)).…”

Cartel Prosecution: The Larger the Tip, the Smaller the Iceberg

“…Using a model of birth-and-death and focusing on recidivist cartels, Katsoulacos et al (2016) found that the unmeasured effect is between 1.5 and 2.9 times as large as the detection effect.…”