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What if Cartel Fines are not high enough? Implications on Deterrence and Productive Efficiency
I develop a model in which cartel firms allocate costly effort to activities related to productive efficiency and concealment: the higher the fine or the probability of inspection, the more biased the firms' effort allocation towards concealment. In this context, a fine increase can improve wel...
I develop a model in which cartel firms allocate costly effort to activities related to productive efficiency and concealment: the higher the fine or the probability of inspection, the more biased the firms' effort allocation towards concealment. In this context, a fine increase can improve welfare through fewer cartels, but also reduce it through more inefficient surviving ones. The analysis suggests a carefully design of policy such that achieving a level of deterrence and productive (in)efficiency socially accepted. Within this framework, I also consider the implications of leniency programs. I show that leniency enhances incentives on deviation more that in standard models of collusion.