The Fight Against Cartels: A Transatlantic Perspective

Abstract

The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred. JEL Codes: K21, L44, K42, L21

How do antitrust regimes impact on cartel formation and managers’ labor market? An experiment

“…We use the subscript ' m ' (manager) to denote this case. Following Dargaud et al (2013) , we assume this sanction is equivalent to a monetary reduction of the manager's remuneration (e.g., the reputational damage caused by the fine). Assume that the fine is a percentage ∈ (0 , 1) of the managers' wage and is independent of cartel duration.…”

“…We bypass this issue by assuming that the time horizons of shareholders and managers are equal.8 Thus, in the absence of managers' coordination, shareholders might incur losses (if the fixed-wage component is strictly positive, a > 0 ). Indeed, in the best scenario (wherein the managers' contract is purely variable, i.e., a = 0 ), shareholders get a zero payoff.9 We recognize this assumption may not be entirely realistic, but treating recidivism differently would introduce significant complexity into the analysis.10 This assumption is different fromDargaud et al (2013) , who assumed that no fine is paid in the deviation period. However, as pointed out byBuccirossi and Spagnolo (2007) , in neither the US nor in the EU, "defecting from the cartel agreement is deemed an alleviating circumstance", with the fine imposed on deviators being the same as on those that abided by the agreement.…”

Cartel Punishment and the Distortive Effects of Fines

“…All derivations and omitted proofs are available upon request.15 In an unpublished companion working paper(Dargaud et al, 2013) we used a similar approach to model in a stylized way the "punish-the-firm" versus "punish-the-person" controversy and analyse its economic consequences.…”