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Optimal Fines in the Era of Whisteblowers. Should Price Fixers still Go to Prison?

We review current methods for calculating fines against cartels in the US and EU, and simulate their deterennce effects under different assumptions on the legal and economic environment. It is likely that European fines have not had significant deterrence effects before leniency programs were introduced. Previous simulations of the effects of fines ignore the different type of deterrence that leniency programs bring about, and, therefore, grossly overstate the minimum fine likely to have deterrence effects falls to extremely low levels (below 10% of the optimal “Beckerian” fine). Strategic judgement can and should be prevented by suitable regulation or extended liability. Criminal sanctions, in the form of the imprisonment, certainly bring benefits (and costs) in terms of cartel deterrence, but the firms’ limited ability to pay does not appear any longer such a strong argument for their introduction.


Date: December 2005
Author(s): Paolo Buccirossi, Giancarlo Spagnolo
Tag(s): Research Papers , Cartels, Competition Economics