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The Distortive Effects of Antitrust Fines Based on Revenue

By  |  November 28, 2013

Posted by Social Science Research Network

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    The Distortive Effects of Antitrust Fines Based on Revenue by Vasiliki Bageri (AAthens University of Economics and Business), Yannis Katsoulacos (Athens University of Economics and Business), and Giancarlo Spagnolo (Stockholm School of Economics (SITE))

    ABSTRACT: In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterise their comparative static properties and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules of thumb that appear to have the potential to substantially reduce social welfare.