Analysis of Current Penalty Schemes for Violations of Antitrust Laws

Peter Kort and Evgenia Motchenkova

MPRA Paper from University Library of Munich, Germany

Abstract: The main feature of the penalty schemes described in current sentencing guidelines is that the fine is based on the accumulated gains from cartel activities or price-fixing activities for the firm. The regulations suggest modeling the penalty as an increasing function of the accumulated illegal gains from price fixing to the firm, so that the history of the violation is taken into account. We incorporate these features of the penalty scheme into an optimal control model of a profit-maximizing firm under antitrust enforcement. To determine the effect of taking into account the history of the violation, we compare the outcome of this model with a model where the penalty is fixed. The analysis of the latter model implies that complete deterrence can be achieved only at the cost of shutting down the firm. The proportional scheme improves upon the fixed penalty, since it can ensure complete deterrence in the long run, even when penalties are moderate. Phase-diagram analysis shows that, the higher the probability and severity of punishment, the sooner cartel formation is blocked. Further, a sensitivity analysis is provided to show which strategies are most successful in reducing the degree of price fixing. It turns out that, when the penalties are already high, the antitrust policy aiming at a further increase in the severity of punishment is less efficient than the policy that increases the probability of punishment.

Keywords: Optimal Control; Dynamic Analysis; Antitrust Policy; Antitrust Laws (search for similar items in EconPapers)
JEL-codes: C61 K21 K42 (search for similar items in EconPapers)
Date: 2006-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published in Journal of Optimization Theory and Applications 2.128(2006): pp. 431-451

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Related works:
Journal Article: Analysis of Current Penalty Schemes for Violations of Antitrust Laws (2006)
Working Paper: Analysis of current penalty schemes for violations of antitrust laws (2006)
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