Crime and punishment: When tougher antitrust enforcement leads to higher overcharge

Posted by D. Daniel Sokol

Sissel Jensen (Dept. of Economics, Norwegian School of Economics and Business Administration), Ola Kvaloy (University of Stavanger), Trond Olsen (Dept. of Economics, Norwegian School of Economics and Business Administration) and Lars Sorgard (Dept. of Economics, Norwegian School of Economics and Business Administration) address Crime and punishment: When tougher antitrust enforcement leads to higher overcharge

ABSTRACT: The economics of crime and punishment postulates that higher punishment leads to lower crime levels, or less severe crime. It is however hard to get empirical support for this intuitive relationship. This paper offers a model that contributes to explain why this is the case. We show that if criminals can spend resources to reduce the probability of being detected, then a higher general punishment level can increase the crime level. In the context of antitrust enforcement, it is shown that competition authorities who attempt to caught cartels by means of tougher sanctions for all offenders may actually lead cartels to increase their overcharge when leniency programs are in place.