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Criminalization of Competition Law Enforcement

Criminalization of Competition Law Enforcement

Economic and Legal Implications for the EU Member States

Edited by Katalin J. Cseres, Maarten Pieter Schinkel and Floris O.W. Vogelaar

This timely book brings together contributions from prominent scholars and practitioners to the ongoing debate on the criminalization of competition law enforcement. Recognizing that existing remedies and sanctions may be insufficient to deter breaches of competition law, several EU Member States have followed the US example and introduced pecuniary penalties for executives, professional disqualification orders, and even jail sentences. Addressing issues such as unsolved legal puzzles, standard of proof, leniency programs and internal cartel stability, this book is a marker for future policy debate.

Chapter 6: Criminalization of Cartels and their Internal Organization

Giancarlo Spagnolo

Subjects: law - academic, competition and antitrust law


Giancarlo Spagnolo1 1 1.1 PRELIMINARIES The Cost of Price-Fixing Do we really want to enforce antitrust laws against cartels? For an estimate of the social cost of collusion people continue focusing on the ‘Harberger triangle’, the loss of net social surplus from reduced consumption induced by the higher collusive price; but that social loss is often rather small. Even considering the ‘Posner rectangle’, which includes the rent-seeking expenditures of cartels, it is not clear that the reduced social loss from deterred anticompetitive practices would be sufficient to justify the cost of antitrust law enforcement. On the other hand, when non-contractable qualitative aspects are very important in terms of gains from trade, competition may do more harm than good. Stiglitz (1989) noted that investments in high product quality backed by reputation are worthwhile if there are supracompetitive profits to win in the future, otherwise ‘cheating’ on quality is always preferred by firms; but future rents are incompatible with perfect competition. Kranton (2003) and Fershtman and Pakes (2000) present formal models of dynamic oligopolies where reducing competition by fixing prices is beneficial for both producers and consumers. In a repeated procurement framework, Calzolari and Spagnolo (2005) find that when non-contractable quality is sufficiently important, a collusive agreement among competing suppliers may deliver the first best, leaving both buyer and sellers better off. And many years ago, Schumpeter suggested that too much competition in the market (rather than for the market) may be bad for investment and innovation, while...

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