Penalising on the Basis of the Severity of the Offence: A Sophisticated Revenue-Based Cartel Penalty

Abstract

In Katsoulacos et al. (2015) we examined the welfare properties of a number of monetary penalty regimes for tackling cartels, including revenue-based penalties, the most widely used regime. We showed that for a typical industry overcharge-based penalties welfare-dominate the others. However these penalties are subject to criticisms on the grounds of high implementation costs and lack of transparency/uncertainty. In this paper we propose a new sophisticated revenue-based penalty regime in which the penalty base is the revenue of the cartel but the penalty rate increases in a systematic way with the cartel overcharge. Thus, the proposed regime formalises how revenue can be used as the base while taking into account the severity of the offence. We show that this hybrid regime can replicate the desirable welfare properties of overcharge-based penalties while having relatively low levels of implementation costs and of uncertainty, concluding that the proposed penalty regime deserves very serious attention from Competition Authorities.

Combining cartel penalties and private damage actions: The impact on cartel prices

“…We analyse an infinitely repeated model of cartel formation and pricing behaviour under complete information as developed in Katsoulacos et al (2015Katsoulacos et al ( , 2019 . Specifically, we employ a homogeneous products constant marginal costs symmetric Bertrand framework.…”

“…The value of ρ is public knowledge. The second is the linear sophisticated revenue-based regime introduced in Katsoulacos et al (2019) . Here the penalty rate applied to a cartel's revenue varies in direct proportion to the cartel's proportional overcharge.…”

“…There is an extensive literature analysing the effects of public cartel enforcement in isolation from private damages, see e.g. Rey (2003) , Buccirossi and Spagnolo (2007) , Schinkel (2007) , Bageri et al (2013) , Katsoulacos and Ulph (2013) , Bos et al (2018) , Katsoulacos et al (2015Katsoulacos et al ( , 2019 . Similarly, the isolated effects of treble damage awards in private antitrust law suits have been analysed in Salant (1987) , Baker (1988) , Block et al (1981) and Besanko and Spulber (1990) .…”

“…Here the proportional overcharge is defined as the absolute overcharge (difference between the cartel price and the but-for price) divided by the but-for price. As we have argued elsewhere - Katsoulacos et al (2015Katsoulacos et al ( , 2019 -the first form of penalty regime is taken by many scholars who analyse revenue-based penalties to characterise the existing penalty regime in many countries. 8 The 2 Furthermore, each method is costly for firms: not only do lawyers and managerial attention create additional costs, but also the bad publicity the firm gets.…”

“…second can be thought of as characterising, albeit in a very stylised way, the more recent guidance by the UK Competition and Market Authority CMA (2018) under which the baseline penalty rate can vary between 0% and 30% depending on the seriousness of the infringement. From the existing literature we know that, in the absence of private damages, under the first form of revenue-based penalty the cartel price will be above the monopoly price -see for example Bageri et al (2013) , Katsoulacos and Ulph (2013) , and Katsoulacos et al (2015) -while under the second it will be below the monopoly price - Katsoulacos et al (2019) . Turning to the two methods for calculating damages, the first is what we call the traditional measure of damages applied by courts.…”