Cartel Enforcement and Deterrence Over the Life of A Competition Authority

Abstract

This paper searches for evidence that, as a Competition Agency (CA) builds up experience in cartel enforcement, this feeds back into the business community to deter future cartel formation. We present two simple models, focussing respectively on composition and frequency deterrence, which describe how the feedback would work. The ideal outcome is that, over the long-run, the number of cartels detected by a successful CA will follow an inverted U-shaped time path: its propensity to detect increase, but the number of cartels out there to be detected decrease. Empirically, we try to simulate the long-term dimension by using an international panel of CAs. Although comparable data are only available for a relatively short time period (2006-2014) we hope that longer-run effects are captured by including in the panel CAs at very different stages in their life cycles. We find evidence of the predicted inverse U shape, and interpret this as consistent with an increasingly strong feedback from enforcement to deterrence as the CA evolves over the years.