Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Subversive thoughts (1) – Fines, Leniency and the Search for an Optimal Detection Policy

with 3 comments

A somewhat heretical idea sprung to mind yesterday. The mainstream will not like it (fortunately disputes with the mainstream are not any longer settled by recourse to bonfires).

(Note to our readers: the mainstream comprises adepts of Chicago School thinking and Public Choice theory. It combats, with caricatural arguments, all attempts to intensify competition enforcement. As if we were subject to Pavlovian conditioning, all too often we lawyers side with the mainstream, thereby failing to remember that competition enforcement is a genuinely good thing).

But let´s get back to this idea: to improve cartelists incentives to report infringements to agencies, why not allocate the entire amount of the fines (or a significant proportion thereof) to the whistle blower?

As long as the ring leader(s) is (are) excluded from a such reward, I see no obvious perverse effects to the proposal.

Surely, it sounds quite immoral to reward financially what is plain and simple betrayal. But on the other hand, it is fair and efficient that society rewards those firms that exhibit the strongest desire to comply with the law.

Also, one cannot rule out that clever firms involved in multiple cartels will coordinate leniency applications so that each participant benefits at least once from the reward (some sort of market sharing on leniency applications). Yet, this hypothesis rests on restrictive factual assumptions. More importantly, given that the fine will likely change from one cartel to the other, cartelists will not withdraw equal benefits from leniency applications. In turn, this will undermine their incentives to join/observe the coordination.

Finally, some could be warry for the EU budget to which competition fines contribute. Again, the objection is not decisive. This is because competition fines do not increase the EU budget but finance it. Technically, they are deducted from MS contributions, who pay less when competition fines are high. The sole and whole issue there is thus distributional: shall we transfer the product of fines from MS to whistle blowers? I am not sure of the answer, but I am incline to believe that competition fines are just a drop in the sea of MS contributions.

Those thoughts came yesterday whilst I was preparing a lecture on public and private enforcement for the LL.M students of the University of Gent (see ppt. below). I am very grateful to Prof. Govaere for her kind invitation.

5 May 2011 – Public and Private Enforcement of Competition Law

Written by Nicolas Petit

5 May 2011 at 5:48 pm

3 Responses

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  1. Dear Nicolas,

    This is my first comment on your very good blog, but I have been following it since I arrived in Brussels last year.

    Your post is interesting and I do not have an opinion on the matter. However, given that the post is mostly in favour please allow me to propose some thoughts on the contrary.

    First, I think the whole US discussion on the Dodd-Frank Wall Street Reform Act might provide you with ideas.

    Despite not antitrust related, the system is applicable to your example. The Act allows whistleblowers to go to the SEC. If the SEC wins a recovery in excess of $1 million as a result of the information, the whistleblower is entitled to 10 to 30 percent of the amount.

    There are a few points to consider:

    (i) paying whistle blowers might discourage company’s self reporting. Is this good or bad? I do not know, but to speed up the process too much might cause companies to race and provide information that is not complete or accurate (e.g. Renault case).

    (ii) it might also discourage investment in internal methods of detection (i.e. compliance programs).

    (iii) it would not give the company a chance to self correct which, in turn, could lead to costly litigation that, in the end, hurts the shareholders.

    Also in the US the Tax authorities have a similar power. This experience could also be helpful.

    Best regards.

    Eric

    5 May 2011 at 7:18 pm

  2. and, you will see the DGComp full of meritless denounces since the ratio cost/benefits of filing one si simply too good! Therefore, you create costs on the enforcement authorities and on firms

    JESUS ALFARO

    6 May 2011 at 1:38 pm

  3. I actually think that lawyers should get a piece of the cake!! 🙂 I could do quite well with just” 1% of the total fines of any large cartel..

    Alfonso Lamadrid

    6 May 2011 at 6:56 pm


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