FINE SCHEDULE WITH HETEROGENOUS CARTELS: ARE THE WRONG CARTELS DETERRED?

Abstract

This article analyzes the minimum fines necessary to prevent price fixing when the size of the potential cartel overcharge differs across industries. We show that the incentive constraint is typically binding in industries where cartels would lead to a high overcharge, while the participation constraint is typically binding in industries where the potential for overcharge is quite low. We show that the introduction of private litigation and criminal sanctions (such as imprisonment) can make cartels with high overcharges more stable and only deter some of the potential cartels with low overcharges. We contrast our minimum fine schedule with the fine schedules that can be derived from current judicial practice and discuss the policy implications of our results.