Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87155
Authors: 
Houba, Harold
Motchenkova, Evgenia
Wen, Quan
Year of Publication: 
2011
Series/Report no.: 
Tinbergen Institute Discussion Paper 11-166/1
Abstract: 
We study antitrust enforcement in which the fine must obey four legal principles: punishments should fit the crime, proportionality, bankruptcy considerations, and minimum fines. We integrate these legal principles into an infinitely-repeated oligopoly model. Bankruptcy considerations ensure abnormal cartel profits. We derive the optimal fine schedule that achieves maximal social welfare under these legal principles. This optimal fine schedule induces collusion on a lower price making it more attractive than on higher prices. Also, raising minimum fines reduces social welfare and should never be implemented. Our analysis and results relate to the marginal deterrence literature by Shavell (1992) and Wilde (1992).
Subjects: 
Antitrust enforcement
Antitrust Law
Cartel
Oligopoly
Repeated game
JEL: 
L4
K21
D43
C73
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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