Opportunistic competition law enforcement

Michiel Bijlsma and Roel van Elk ()
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Roel van Elk: CPB Netherlands Bureau for Economic Policy Analysis

No 110, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: We analyse the interplay between investigation policies, deterrence and desistance in a model where a competition authority monitors multiple sectors and faces a budget constraint that prevents it from deterring cartels in all sectors simultaneously. Most studies of competition law enforcement treat competition authorities as all-knowing, unwavering and benevolent. They do not behave opportunistically, do not face asymmetric information and choose their actions to optimize social welfare. In this paper, we drop one of these assumptions, and study a competition authority that can not commit to a particular investigation strategy. As a consequence, a competition authority’s decisions to investigate will be driven by the (ex-post) desistance effect instead of the (ex ante) deterrence effect of an investigation policy. The resulting opportunistic behaviour may lead to a suboptimal investigation strategy. We find that, in the absence of commitment, developing a sector specific reward scheme based on the number of captured cartels can improve welfare.

JEL-codes: L13 L41 L44 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-com and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:110

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