Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges

Posted by Social Science Research Network

Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges by Yannis Katsoulacos (Athens University of Economics and Business) and David Ulph (University College London – Department of Economics; Government of the United Kingdom – Inland Revenue)

ABSTRACT: This article makes two contributions to the literature linking penalties charged by competition authorities to observed cartel price overcharges. (i) It extends the theory of optimal penalties by introducing new considerations regarding the timing of penalty decisions. Drawing on a new European data set to calculate these additional factors, the optimal penalty is shown to be approximately 75% of that implied by the conventional formula. (ii) It shows that because penalties are typically imposed on revenue, a tougher regime may increase cartel overcharges. This calls into question some recent empirical findings on this issue and the potential benefits of raising penalties.