SITE Working Paper Series,
Stockholm School of Economics, Stockholm Institute of Transition Economics

Abstract: In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterize their comparative static properties, and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules-of-thumb that appear to have the potential to substantially reduce social welfare.

Keywords: Antitrust; Deterrence; Fines; Law Enforcement

JEL-codes: K21; L40

23 pages, December 8, 2012

Note: We are grateful to David Ulph for important suggestions, and to audiences at the ACLE’s Behavioral Antitrust workshop in Amsterdam, April 2012 and at the CRETE Conference in Milos, July 2012 for their lively discussions. Katsoulacos acknowledges support by the Economic and Social Research Council (ESRC, UK) under grant RES – 062 – 23 – 2211. Spagnolo acknowledges funding from the Swedish Competition Authority (Konkurrenseverket). Corresponding Author: Yannis Katsoulacos, Athens University of Economics and Business, Patision 76, Athens 104 34 Greece (ysk@hol.gr).

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