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Hypothesis Identification and Analysis Essay

The peer-reviewed journal article entitled “Antitrust Enforcement with Price-Dependent Fines and Detection Probabilities” documents a study that set out to determine the efficacy of antitrust enforcement. The fines are derived from the cartel prices, and the likelihood of the identifying the infringement of antitrust laws is also dependent on the cartels. The use of these antitrust laws eliminates the possibility of monopolies and their control on prices. Despite the laws, price-fixing is still a major problem in the global economy. This study sets out to replicate previous studies conducted to determine the most efficacious way to deter cartels and collusion practices.

This study compares one methodology in reducing the existence of collusion and cartels to the other most eminent methodology. The first mechanism observes the market price fluctuations  to determine the penalty imposed on antitrust violators. The second mechanism uses fixed-amount fines for violations incurred against antitrust laws. At the conclusion of this study, the researchers found that there was a complementary relationship between the two methodologies and  the implementation of both policies was not mutually exclusive.

When fines are proportioned according to the profits which were illegally obtained allows maximum profit for cartel prices even in the cases when fines are static. The profit for the cartel prices remains below the monopoly price.

By analyzing the repeated oligopoly model, keeping all other variables constant, the efficacy of penalties as a deterrent to violations is determined. This study examined the various penalties derived from two distinct methodologies to determine the optimum efficacy in deterring cartels and collusion. Some of the results obtained confirmed the standard practice as being effective and other data supported the new methodology. The constant detection probability showed fixed fines had no efficacy in keeping the cartel pice below the monopoly price.

Results
The findings of the research drew a conclusion that was slightly different from what the hypothesis originally projected. Rather than determining one methodology for deterring cartels was better than the other, the research and mathematical equations show the two methodologies complement each other well. Further research needs to be done to determine whether the amalgamation of the two methodologies is preferable to individual and separate use of either one.

Implications of this study affect the United States and European Union and their individual punishments for violation of antitrust laws.  This study found fines that are higher-than-proportional are the most effective deterrent to antitrust violations. In other words, inspections that are determined by the incidences of profit increases results in large reductions in price.


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