How significant is welfare loss in the presence of cartels? How best to fight against cartels to avoid them ex-ante? These were the leading questions of the presentation of Dr. Andrea Mantovani (University of Bologna) at ISET on February 20, 2014.
The presentation was based on the article The fight against cartels: a transatlantic perspective by Dr. Mantovani, Emilie Dargaud (University of Lyon) and Carlo Reggiani (University of Manchester).
Dr. Andrea Mantovani began his talk by explaining the significance of the questions posed above.
To highlight the importance of welfare loss, he presented estimated numbers of welfare loss as a percentage of Gross Corporate Product. According to different research, this figure stood at 13% in the US in 1963-9 and 7% in the UK in 1968-69. Dr. Mantovani explained four reasons why we have a waste of resources in the case of cartels or monopolies: lobbying costs, persuasive advertising, excessive R&D and the creation of barriers to entry. He also provided several examples of different corporations being fined and punished. Based on the data, it is clear that the number of cartel decisions has an increasing trend.
The second part of the presentation was devoted to a brief explanation of the article mentioned above. The aim of this paper was to compare two different types of fines levied on managerial firms when they collude. The authors consider a profit-based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, Dr. Mantovani indicated that a delegation based fine, although distortive, is more effective in deterring cartels than a profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is preferred.
