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Does enforcement deter cartels? A tale of two tails

Iwan Bos, Stephen Davies, Joseph E. Harrington and Peter L. Ormosi

International Journal of Industrial Organization, 2018, vol. 59, issue C, 372-405

Abstract: This paper investigates the deterrent impact of anti-cartel enforcement. It is shown theoretically that if enforcement is effective in deterring and constraining cartels then there will be fewer cartels with low overcharges and fewer with high overcharges. This prediction provides an indirect method for testing whether the enforcement of competition law is effective. Using historical data on legal cartels to generate the counterfactual, we find significantly less mass in the tails of the overcharge distribution, compared to illegal cartels. This result is robust to controlling for confounding factors, and we interpret this as the first tentative confirmation of effective deterrence.

Keywords: Anti-cartel enforcement; Deterrence; Cartel overcharge (search for similar items in EconPapers)
JEL-codes: C46 K14 K21 L41 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:372-405