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Regarding the Optimality of Cartel Fines

Michelle M. Burtis, Bruce H. Kobayashi, Cartel & Criminal Practice Committee Newsletter, Spring 2017

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Economic approaches to determining criminal sanctions focus on harm-based “optimal” penalties. In this note, we examine the extent to which the criminal fines for organizations convicted of price fixing contained in the United States Sentencing Commission Gui delines (USSG) and relied on by the U.S. Department of Justice (“US DOJ”) for criminal pricefixing fines are consistent with the economic principles of harm-based “optimal” penalties.84 We first describe the economic approach to optimal criminal sanctions in price fixing cases and the approach contained in the USSG. We then reconcile the two approaches and illustrate the conditions under which the approaches are consistent.85 The article uses a simple economic model where the probability of detection is assumed to be one and there are no enforcement costs, and shows the optimal, harm-based penalty coincides with the minimum possible penalty advised by the Sentencing Guidelines. The model then is used to examine the relationship between the probability of detection and the range of penalties prescribed in the Guidelines.

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