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Unpublished Paper
Optimal Cartel Deterrence: An Empirical Comparison of Sanctions to Overcharges
ExpressO (2011)
  • Robert H. Lande, University of Baltimore School of Law
The purpose of this article is to determine empirically whether United States anti-cartel sanctions are, overall, at an optimal level. We employ the standard optimal-deterrence model, which assumes that corporations and individuals are rational actors when contemplating illegal collusion. Crime will be deterred only if expected rewards are less than expected costs divided by the probability the illegal activity will be detected and sanctioned. In other words, a sanction slightly larger than $300 is necessary to deter a cartel that expects to overcharge $100 and believes there is a 1/3 chance its activities will be detected and condemned. To assess optimality we calculate and use the best available data to estimate the expected profits from cartelization, the allocative inefficiency effects of cartel pricing, the probability cartels will be detected, and the probability detected cartels will be sanctioned. These parameters are then compared to all monetary cartel sanctions imposed by U.S. courts during the past two decades. These include corporate fines, restitution payments, individual fines, and the payouts in private damage actions. We also included approximations for the equivalent values (or disvalues) of the imprisonment or house arrest for the individuals involved. Our analysis shows that the combined level of U. S. cartel sanctions has been far below the optimum. The imposed sanctions have only been 9% to 21% as large as they should have been to protect victims of cartelization optimally. Thus, the overall level of the United States anti-cartel sanctions should be approximately five times as high as they are today. A concluding section discusses the implications of these results.
  • cartels,
  • collusion,
  • optimal deterrence
Publication Date
September 23, 2011
Citation Information
Robert H. Lande. "Optimal Cartel Deterrence: An Empirical Comparison of Sanctions to Overcharges" ExpressO (2011)
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