Abstract
Socially desirable acts generate benefits whereas socially undesirable acts create substantial costs. Substantial amounts of public resources have been spent on law enforcement to detect, control, and deter socially undesirable acts. Law and economics literature studies how an optimal allocation of enforcement resources could be made by measuring the “social welfare versus costs” of law enforcement. The Becker Model defines the quantitative framework on how rational criminals calculate the expected benefits and costs of the crime. Only when expected private benefits exceeds private costs, which equals the perceived probability of detection (p) multiplies the magnitude of sanctions (S), would the infringer commit the crime. Economists have argued that the cost of committing monopolistic behaviour should be increased as the probability of detection remains low. Thus cartel criminalization has become a global trend. Cartel criminal and individual liabilities have not been introduced in China, and all of the three enforcement agencies strongly rely on administrative fines to deter anticompetitive violations. The level of fines rose dramatically in the second five years during the past decade, after the NDRC took positive actions on competition law in addition to the duty of enforcing Price Law. Studying the 97 monopoly agreement cases which received administrative fines, it seems to be evident that the enforcement competence between SAMR, SAIC, NDRC, Price Bureau and their local branches are not equally divided. NDRC and the Price Bureau imposed the fines most frequently and SAIC seems to be more lenient. The division of labour would be meaningful when the duties had been incorporated into SAMR after the three agencies merged into one in May 2018.
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Notes
- 1.
Shavell (1993, p. 261).
- 2.
Shavell (1993, p. 257).
- 3.
Shavell (1993, pp. 255–287).
- 4.
Avio (1998).
- 5.
- 6.
Cook (1980, p. 212).
- 7.
Cook (1980, p. 216).
- 8.
Cook (1980, pp. 217–218).
- 9.
Cook (1980, pp. 230).
- 10.
- 11.
Bowles et al. (2008, p. 405).
- 12.
Shavell (1993, p. 275).
- 13.
Shavell (1993, p. 275).
- 14.
Easterbrook (1983, p. 293).
- 15.
Becker (1968).
- 16.
Becker (1968, p. 170).
- 17.
Van den Bergh and Faure (2011, p. 64).
- 18.
The theory of economic analysis to punishment was firstly developed by Jeremy Bentham in the eighteenth century. See Bentham (1789).
- 19.
Schwartz (1979, p. 1076).
- 20.
Schwartz (1979, p. 1079).
- 21.
Shavell (2004, p. 551).
- 22.
King (2010, p. 15).
- 23.
Schwartz (1979, pp. 1079–1080).
- 24.
Easterbrook (1983, p. 292).
- 25.
Easterbrook (1983, p. 292).
- 26.
Stigler (1970, p. 526).
- 27.
Dau-Schmidt (1984, p. 87).
- 28.
Posner (1980a, p. 73).
- 29.
- 30.
Faure (2009, p. 324).
- 31.
- 32.
Faure (2009, p. 325).
- 33.
Van den Bergh and Faure (2011, p. 65).
- 34.
Faure et al. (2009, pp. 173–176).
- 35.
Faure (2009, p. 326).
- 36.
Wils (2005, p. 39).
- 37.
Wils (2005, p. 39).
- 38.
Sokol (2012, p. 211).
- 39.
Parker and Nielsen (2011).
- 40.
In another empirical study, Parker shows that business people in Australia tend to “rationalize away” the deterrence effect, for both people do not know antitrust law and those who know it well, they never believe that cartel criminalization will be applied to them personally, either because there is no connection between themselves and the law, or because they have the confidence and capacity to avoid being sanctioned. Parker (2013).
- 41.
For example, Buccirossi and Spagnolo argue that underdeterrence may come from the restrictions on antitrust fine ceilings imposed on cartels set by EU legislation. Such a ceiling requirement may be due to the consideration of preventing firms from bankruptcy. See Buccirossi and Spagnolo (2007) and Wils (2007); Peter Whelan argues that deterrence can only be achieved when there is “moral wrongfulness” for cartel activities. Whelan (2013); Stucke made a similar claim: “[t]there is no consensus on the morality of antitrust offenses.” Stucke (2006).
- 42.
For an analysis of those internal compliance mechanisms and their effect on firm behaviour see Oded (2012).
- 43.
Harry Kissinger made this claim in explaining war and international relations (“Deterrence is above all a psychological problem. The assessment of risks on which it depends becomes less and less precise in the face of weapons of unprecedented novelty and destructiveness. A bluff taken seriously is more useful than a serious threat interpreted as a bluff”. cited by Michael G. Mullen, Admiral, U.S. Navy, “It’s time for a New Deterrence Model’, Joint Forces Quarterly, 4th Quarter 2008, 2); see also Carroll who published his experiments and criticized the economic models of crime: “He or she is not viewed as the ‘economic person’ making exhaustive and complex calculations leading to an optimal choice. Rather, it is the ‘psychological person’, who makes a few simple and concrete examinations of his or her opportunities and makes guesses that can be far short of optimal.” Carroll (1978, p. 1513).
- 44.
Barnett (2009) Criminalization of Cartel Conduct—the Changing Landscape.
- 45.
For example, Werden argues that the optimal cartel fine should be as high as 200% of the annual turnover. Werden (2009, p. 19).
- 46.
- 47.
- 48.
Connor (2006, p. 208).
- 49.
Robinson (1991, p. 651).
- 50.
Gallo et al. (1985), pp. 122–123.
- 51.
Werden (2009, p. 22).
- 52.
Antitrust Division, US Department of Justice, Ten Year Workload Statistics Report 12 (2012), http://www.justice.gov/atr/public/workload-statistics.pdf; In Europe, the EU Commission has significantly increased cartel fines to make it “quasi-criminal”. For the details for cartel fines, see www.europa.eu.int/competition/cartels/statistics, Over half of EU Member States have made cartel activities criminal, see Girardet (2010), pp. 286–287.
- 53.
Hammond (2008).
- 54.
Hammond (2010).
- 55.
- 56.
The deterrence argument is rooted in the utilitarian theory, which indicates the goal of imposing punishment, as a form of suffering which reduces the utility of individuals, is to prevent future crime. See Beccaria (1767) and Bentham (1789). This to some extent contrasts with the legal theory where criminal law is viewed as aiming at punishing morally unacceptable acts, and the goals of criminal law include retribution, rehabilitation, incapacitation and education. Dau-Schmidt (1984, p. 87).
- 57.
Schwartz (1979, p. 1076).
- 58.
Ginsburg and Wright (2010, pp. 5–6).
- 59.
Ginsburg and Wright (2010, p 18).
- 60.
Connor and Lande (2011).
- 61.
Article 46 of the AML: In case there exists a monopolistic agreement and is implemented by the undertakings in violation of this law, the anti-monopoly authorities shall order the undertakings to cease such act, the illegal gains shall be confiscated, and a fine between 1% and 10% of the turnover from the previous year shall be imposed; If the monopolistic agreement has not been implemented, a fine below RMB 500,000 shall be imposed. If the undertakings report actively the circumstance of their monopoly agreement to the antimonopoly authorities and provide important evidences, the antimonopoly authorities shall reduce or remit the fines according to own judgement. In case the associations of operators organize undertakings of the industry to reach monopoly agreement in violation of this law, the anti-monopoly authorities shall impose a fine below RMB 500,000; and if the circumstances are serious, the social organization register administrative department may rescind its registration.
- 62.
Lin (2016), Report on the Administrative Enforcement of Anti-monopoly Law in China (2008–2015), cited by Jet Deng and Yannis Katsoulacos, Antitrust Sanctioning in China: How can the NDRC Guidelines be Further Improved.
- 63.
Wang (2015).
- 64.
Article 55 of the 2020 draft revision of the AML: If the concentration of business operators has one of the following circumstances, the anti-monopoly law enforcement agency shall impose a fine of less than 10% of the previous year's sales: (1) Centralization shall be made without notification; (2) The implementation of concentration without approval after the declaration; (3) Decisions in violation of additional restrictive conditions; (4) Implementation of concentration in violation of a decision prohibiting concentration of business operators. In addition to the provisions of the preceding paragraph, antitrust enforcement agencies may order the suspension of concentration, add restrictive conditions that reduce the adverse effects of concentration on competition, and order to continue to perform the obligations in the additional restrictive conditions or change the additional restrictive conditions., Ordering the disposal of shares or assets within a time limit, transferring business within a time limit, and taking other necessary relief measures to restore the state before the concentration.
- 65.
Liu et al. (2020).
- 66.
Deng and Huang (2018).
- 67.
Administrative Penalties on Unigroup Corp. Ltd for Failing to Notify its Acquisition of RDA.
- 68.
China Antitrust Review 2016, Davis Polk & Wardwell LLP, Client Memorandum, at p. 3 available at https://www.davispolk.com/publications/china-antitrust-review-2016/.
- 69.
Zhan et al. (2018, p. 6).
- 70.
China Competition Bulletin, Edition 47, June 2017, at p. 3.
- 71.
Administrative Penalties on Western Digital for Violating the Antimonopoly Law and MOFCOM Announcement [2012] No. 9 Regarding the Conditional Approval of the Acquisition of Hitachi Global Storage Technologies by Western Digital Corp.
- 72.
Update on Establishment of Single Antitrust Agency in China, October 24, 2018, Davis Polk Client Memorandum p. 3 available at https://www.davispolk.com/files/2018-10-24_china_consolidates_antitrust_powers_into_single_agency.pdf.
- 73.
Deng and Huang (2018).
- 74.
Antitrust in Asia, the Business Impact of Fast-Evolving Competition Laws, October 2017, Freshfields Bruckhaus Deringer, at p. 24, available at https://www.freshfields.com/49f98e/globalassets/our-thinking/campaigns/antitrust-in-asia/06304_pg_act_asia-guide_aw_interactive_v3.pdf.
- 75.
Liu et al. (et al. 2020).
- 76.
Article 59 of the 2020 draft revision of the AML: In cases when individuals refuse to provide relevant materials or information, or provide false materials or information, or conceals, destroys, or transfers evidence, or threatens personal safety when enforcement agencies review and investigate the case, the enforcement agency shall order it to make corrections. Administrative agencies and organizations authorized by laws and regulations with the function of managing public affairs may make recommendations to the relevant higher authorities and supervisory agencies in the above-mentioned situations that a fine of less than 1% of annual sales may be imposed on operators. If it is difficult to calculate the sales revenue, a fine of less than RMB 5 million shall be imposed. Individuals may be fined from RMB 200,000 to RMB 1 million. In cases of individuals or operators constitute a crime, they will take criminal liabilities.
- 77.
Clarke (2012, p. 77).
- 78.
- 79.
Clarke (2012, p. 77).
- 80.
Clarke (2012, p. 78).
- 81.
Harding (2006).
- 82.
Harding (2006) To better understand cartel conduct as a crime indeed requires certain economic and legal expertise. As Stucke held, “it may be that few people in society, if asked about price-fixing, would graph in their minds a triangle representing the deadweight welfare loss” Stucke (2006, p. 495).
- 83.
Wang (2020, p. 20).
- 84.
Stephenson (2005, p. 107).
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Ma, J. (2020). Enforcement of Competition Law—Economic Analysis of Antitrust Sanctions. In: Competition Law in China. Springer, Singapore. https://doi.org/10.1007/978-981-15-5105-5_10
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