Anti-trust and the Beckerian Proposition: experimental data

Data resulting from a laboratory economic experiment in the area of market and competition policy, in which we study the effects of several policy instruments. The experiment was conducted at the Centre for Behavioural and Experimental Social Science (CBESS) at the University of East Anglia (UEA). Subjects were 180 UEA students without prior experience in market experiments.

In order to deter collusion and punish the infringement of competition law, anti-trust
authorities run costly investigations and levy fines on detected and convicted
wrongdoers. Across countries, the resources committed to anti-trust investigations
and the fine level vary. According to Becker (1968) different combinations of
magnitude of fine and likelihood of detection are substitutable in their deterrence
effect. Since detection depends on costly investigation, it is optimal to minimize
detection efforts and impose high fines. Recently the UK Office of Fair Trading faced
a budget reduction that may affect detection efforts, while it simultaneously increased
colluding firms fines from 10% to 30% of its annual turnover. Experimental support
for the Beckerian Proposition is mixed in different contexts, and it is not known from a
behavioural perspective how effective this type of policy design would be in a market.
We address this issue through a market experiment to study the effects of magnitude
and likelihood of fines on cartel activity, prices and collusive stability. We find that, in
the absence of a leniency program, complying with the Beckerian Proposition,
detection rates and fines are indeed substitutable. In the presence of a leniency
program, however, a regime that embodies low rates of detection and high fines
reduces the propensity to collude and lowers the overall incidence of cartelized
markets significantly more than a high detection and low fine regime. This indicates
that antitrust agencies can economize on enforcement costs and achieve a higher
degree of deterrence by imposing higher level of fines.<p>The ESRC Centre for Competition Policy (CCP) at the University of East Anglia (UEA) undertakes interdisciplinary research into competition policy and regulation that has real-world policy relevance without compromising academic rigour.

It prides itself on the interdisciplinary nature of the research and the members are drawn from a range of disciplines, including economics, law, business and political science.

The Centre was established in September 2004, building on the pre-existing Centre for Competition and Regulation (CCR), with a grant from the ESRC (Economic and Social Research Council). It currently boasts a total of 26 faculty members (including the Director and a Political Science Mentor), 4 full- and part-time researchers and 23 PhD students.
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