Fines: A Contextual Approach

The views expressed herein are solely those of the author and do no necessarily represent the views of the Federal Trade Commission or any individual Commissioner.

Russell DamtoftOffice of International Affairs

United States Federal Trade Commission

Fines: One Tool Out of many

• When competition law has been violated, what is the best way to prevent, correct, or compensate for the violation?

• The remedy should fit that purpose– Fines can be used for intentional

conduct that needs to be deterred– Corrective remedies may be more

useful to restore competition2

Deterrence• In the United States, deterrent sanctions

are used when “per se” illegal conduct takes place:– Price fixing cartels

– Market division agreements

– Bid rigging

• Sanctions include imprisonment and fines.

• Civil penalties also used when firms knowingly violate FTC orders or refuse to provide evidence when required.

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Deterrence Indicators

• Was the conduct willful?– Did the person or firm know the conduct was

illegal?– Should it have known it was illegal?

• Will a punitive sanction reduce anticompetitive behavior?– Specific – to deter the violator from further

violation– General – to deter others through example.

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Excessive Fines Can Deter Competition

• In abuse of dominance cases, there is a fine line between:– vigorous competition

(good) and

– exclusionary conduct (bad).

• Excessive penalties can make firms reluctant to compete vigorously.

• In cartel cases, there is a fine line between:– Productive

collaboration and joint ventures (good) and

– Market dividing agreements and price fixing (bad)

• Risk of excessive cartel fines may deter in pro-competitive collaboration

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Redress and Compensation

• In the United States, money damages are used to compensate for anticompetitive injury– Private right of action exists under antitrust

laws; agencies are not involved and cases are resolved in courts.

– In the U.S., this includes triple damages and attorneys fees

– Triple damages also have a powerful deterrent effect and motivates compliance efforts.

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Disgorgement

• In some cases, disgorgement of profits earned by willful and knowing anticompetitive conduct may be appropriate

• A firm whose anticompetitive conduct leads to high profits may find that it is more beneficial to pay the fine than stop the practice

• FTC uses this authority sparingly, normally in cases of knowing violation of clear legal standards.

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How Much: Deterrence Model

• Consider:– Bus ticket costs 2 hryvnia

– Chance of being caught is one out of twenty

– What is the appropriate fine to deter riding without a ticket?

• Caution: calculating benefit and likelihood of detection is not always that easy.

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How Much: Deterrence Model

• Typical deceptive advertising case: food had less fat, but more trans fat, cholesterol, sodium, and calories.

• Excessive penalty could deter firm from developing more healthy food.

• Fines were not used.

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Fines Should Not Impair Competition

• Even in serious cases, fines should not be so high as to force a competitor out of the market or to impair its ability to be an effective competitor.

• It would be perverse to remedy a violation of the competition law by reducing the amount of competition through fines.

• Ability to pay is a factor.

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Restoring Competition May be the Greater Goal

• Prohibit illegal conduct and require actions to correct harm from violation

• Basic form: Injunctions, cease and desist orders, structural remedies

• Cease and desist orders and injunctions:– Identify specific practices that have violated the competition laws

– Prohibit continuation and repetition of illegal conduct

– If needed, prohibit related conduct that facilitates the illegal conduct

• Structural Remedies (preferred in merger cases) are usually divestitures of businesses or assets to restore competition.

Conduct Remedies Deter and Educate

• Firms have an interest in maintaining reputations, conduct remedies will deter

• Conduct remedies, if properly publicized, tell other firms what the boundaries of illegal behavior are

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