Separation of Powers: The Case of Antitrust

Abstract

We present a simple game-theoretic model that captures the differences in antitrust enforcement in the U.S. and Europe. The European system is characterized by a combination of investigation, prosecution and adjudication within the European Commission as antitrust authority. This has raised concerns about the impartiality of the system. We provide conditions under which the two systems differ and the European Commission is more likely to issue antitrust infringement decisions than the Department of Justice or the Federal Trade Commission are to bring a case to trial. Assuming otherwise identical systems (with respect to fines and cost allocation), we show that for strictly positive litigation costs the lack of separation of power (rather than an a priori prosecutorial bias) increases the likelihood of a rm in Europe being convicted of an antitrust violation.