Sad Souam

"Optimal antitrust policy under different regimes of fines"

JEL codes: D21; L14
Keywords: Antitrust policy, asymmetric information; collusion deterrence, regime of punishment

Abstract: This paper shows how antitrust laws against price-fixing can be enforced efficiently in the presence of asymmetric information between the authorities and the industry, and under different regimes of pecuniary punishment. We consider two regimes of fines that are often used in practice. The first involves a fine based on revenues of the industry while the second is related to the damage caused to consumers. The analysis shows that since investigation is costly, it is optimal from a welfare point of view to tolerate some degree of collusion in both cases. Comparing the deterrence levels, we show that no regime is a priori better than the other. In addition, we show that for industries where the possibilities of collusion are small, the first system dominates the second in terms of efficiency. Conversely, for high possibilities of collusion, the second system is better.