Cartels punishment and distortive effects of fines

The fight against cartels is a priority for antitrust authorities worldwide but the goal is pursued in many different ways. Several types of fines can be levied on firms that are caught colluding but one common trait is that fines are usually distortive. In this article we focus on the economic effects of distortive fines. To this end, we compare a fine based on the cartel profit as opposed to one based on the cartel damage. We study the effects of the two fines and show that a potential trade-off between ex ante deterrence and ex post consumer surplus may occur. We show that such a trade-off is of particular relevance when antitrust authorities face exogenous fine caps, as it is often the case in practice. The results are robust to a number of extensions, including the relevant case of fines designed to punish managerial firms involved in cartel activities.