The economic impact of cartels and anti-cartel enforcement

Stephen Davies and Peter Ormosi
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Stephen Davies: Centre for Competition Policy and School of Economics, University of East Anglia
Peter Ormosi: Centre for Competition Policy and Norwich Business School, University of East Anglia

No 2013-07v2, Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) from Centre for Competition Policy, University of East Anglia, Norwich, UK.

Abstract: Evaluations of the consumer harm caused by cartels are typically partial because they do not attempt to quantify the impact of deterrence, or acknowledge that the CA does not root out all anti-competitive cases. This paper proposes a broader framework for evaluation which encompasses these unobserved impacts. Calibration of this framework is challenging because one cannot rely on estimates for cases which have been observed to make deductions about those that have not – an example of the classic sample selection problem which is endemic across much of the empirical Industrial Organisation literature. However, we show how empirical findings, already available in the existing literature, can be plugged into a Monte Carlo experiment to establish bound estimates on the magnitudes of cartel-induced consumer harm. Lower bound (i.e. cautious) estimates suggest that (i) the harm detected by the CA really is only the tip of the iceberg, accounting for only a small fraction (at most one sixth) of total potential harm; (ii) deterrence is at least twice as effective as detection as a means for removing harm; and (iii) undetected harm is at least twice as large as detected harm. Under less cautious, but very plausible, assumptions, all three effects could be much greater than this.

Keywords: cartels; anti-competitive harm; deterrence; detection; selection bias; Monte Carlo simulation (search for similar items in EconPapers)
JEL-codes: H11 K21 L44 (search for similar items in EconPapers)
Date: 2014-01-01
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Citations: View citations in EconPapers (4)

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