Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2013/5: Crime and punishment: When tougher antitrust enforcement leads to higher overcharge

Sissel Jensen (), Ola Kvaløy (), Trond E. Olsen () and Lars Sørgard ()
Additional contact information
Sissel Jensen: Dept. of Economics, Norwegian School of Economics, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Ola Kvaløy: UiS Business School, University of Stavanger, Postal: University of Stavanger, UiS Business School, 4036 Stavanger, Norway
Trond E. Olsen: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Lars Sørgard: Dept. of Economics, Norwegian School of Economics, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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 rather intuitive relationship. This paper offers a model that can contribute 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, the model shows that competition authorities who attempt to fight cartels by means of tougher sanctions for all offenders may actually lead cartels to increase their overcharge when leniency programs are in place.

Keywords: Antitrust enforcement; leniency programs; economics of crime

JEL-codes: K20; K21; L40

33 pages, May 27, 2013

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