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Does enforcement deter cartels? A tale of two tails

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Abstract

This paper investigates the deterrent impact of anti-cartel enforcement. It is shown theoretically that if enforcement is effective in deterring and constraining cartels then there will be fewer cartels with low overcharges and fewer with high overcharges. This prediction provides an indirect method for testing whether the enforcement of competition law is effective. Using historical data on legal cartels to generate the counterfactual, we find significantly less mass in the tails of the overcharge distribution, compared to illegal cartels. This result is robust to controlling for confounding factors, and we interpret this as the first tentative confirmation of effective deterrence.

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Original languageEnglish
Pages (from-to)372-405
JournalInternational Journal of Industrial Organization
Volume59
Early online date5 May 2018
DOIs
Publication statusPublished - Jul 2018
Peer-reviewedYes

Keywords

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  • Anti-cartel enforcement, Deterrence, Cartel overcharge

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