Cartel Deterrence Impact of Competition Policy on Price-Cost Margins

Over the last twenty years, the enforcement of competition policy of the European Commission has been intensified. It is, however, important to see how effective the antitrust activity is. Therefore, the present book is aimed at investigating the direct impact of EU competition policy on price-cost margins. Thus, we develop a model that was previously used for estimating price-cost margins, and apply it to firm-level data of 152 firms in the EU manufacturing industry that were sanctioned and addressed prohibition decisions by the European Commission. We look at both average price-cost margins, and at the before and after effect, taking the year of prohibition decisions as the point of reference. Further, we build a control group of firms that were not sanctioned, and analyze the impact of competition policy on the two groups. The tests are performed also by sub-sectors and by countries, reflecting different results within these subsamples. We find some evidence of effective competition policy, but also come to the conclusion that the activity of the competition authority should be fairly intensified. The findings can be used, among others, by policy-makers for taking future action.