Penalising on the Basis of the Severity of the Offence: A Sophisticated Revenue-Based Cartel Penalty

Abstract

We propose a new penalty regime for cartels in which the penalty base is the revenue of the cartel but the penalty rate increases in a systematic and transparent way with the cartel overcharge. The proposed regime formalises how revenue can be used as the base while taking into account the severity of the offence. We show that this regime has better welfare properties than the simple revenue-based regime under which the penalty rate is fixed, while having relatively low levels of implementation costs and uncertainty. We conclude that the proposed penalty regime deserves serious consideration by Competition Authorities.