Deterrence and the Impact of Calculative Thinking on Business Compliance with Competition and Consumer Regulation

• Author: Christine Parker,Vibeke Lehmann Nielsen
• Published date: 01 June 2011
• DOI: 10.1177/0003603X1105600207
• Date: 01 June 2011
• Subject Matter: Article

Deterrence and the impact of

calculative thinking on business

compliance with competition

and consumer regulation

BYCHRISTINE PARKER*AND

VIBEKE LEHMANN NIELSEN**

A number of countries, including Australia, have recently drastically

increased the sanctions available for cartel conduct, on the assump-

tion that businesses make decisions about their regulatory compli-

ance behavior on the basis of self-interested calculations about the

costs and gains of that behavior. Policymakers often assume that

higher sanctions will automatically mean greater deterrence and

therefore more compliance. This article sets out a more holistic model

of calculative thinking about the costs and gains of compliance and

noncompliance. We go on to test this model using data about busi-

ness firms’ compliance management responses to Australia’s compe-

tition and consumer protection law. We find that enforcement

THE ANTITRUST BULLETIN:Vol. 56, No. 2/Summer 2011 :377

*Professor, Law School, University of Melbourne, VIC 3010, Australia.

** Associate Professor, Political Science, University of Aarhus, Denmark.

AUTHORS’ NOTE: We thank John Braithwaite for setting up and helping with the

research project on which this article is based, and DataCol International (especially

Malcolm Mearns) for administering the survey reported on here. We also thank the

Australian Competition and Consumer Commission (through its support for the

Centre for Competition and Consumer Policy, Australian National University), the

Australian Research Council, and the Regulatory Institutions Network, Australian

National University, for funding this research.

© 2011 by Federal Legal Publications, Inc.

probability is more important than sanction severity, that business

belief in the positive business case for compliance is also important,

and that fundamental firm characteristics (size, resources, and man-

agement style) are also significantly and independently related to

compliance management behavior. We conclude that higher sanc-

tions on their own are unlikely to lead to higher compliance with

Australian competition and consumer protection law.

I. INTRODUCTION

Australia is one of the many countries that has recently radically

increased the penalties available for cartel conduct and even criminal-

ized this conduct in order to make jail available as a sanction for

involved individuals.1According to the Organisation for Economic Co-

operation and Development (OECD), which is coordinating the world-

wide movement to “fight” hard core cartels, the principal purpose of

sanctions in cartel cases is deterrence.2The optimal fine should both

cancel out the gains of noncompliance and take into account the low

probability of a cartel being detected. This means that fines against

companies should be many multiples of their gains and that individu-

als should also be sanctioned to provide additional deterrence.3

378 :THE ANTITRUST BULLETIN:Vol. 56, No. 2/Summer 2011

1In 2007, penalties increased from AUD 10 million for companies to

either AUD 10 million or three times the value of the illegal benefit or, when

the value of the illegal benefit cannot be ascertained, ten percent of the

turnover in the preceding twelve months, whichever is the larger. In 2009, cer-

tain cartel conduct was criminalized and jail penalties of up to ten years

became available for involved individuals. Previously only civil penalties of up

to AUD 500,000 could be assessed against individuals. Note that these changes

had been foreshadowed, but had not actually occurred, at the time that the

data in this article were collected. Caron Beaton-Wells, Criminalising Cartels:

Australia’s Slow Conversion, 31 WORLD COMPETITION 205 (2008). See also Christo-

pher Harding, Business Collusion as a Criminological Phenomenon: Exploring the

Global Criminalisation of Business Cartels, 12 CRITICAL CRIMINOLOGY 181 (2006).

2ORG. FOR ECON. COOP. & DEV. (OECD), FIGHTING HARD CORE CARTELS:

HARM, EFFECTIVE SANCTIONS AND LENIENCY PROGRAMMES 72 (2002).

3Id. at 25–27. See also Peter Whelan, A Principled Argument for Personal

Criminal Sanctions as Punishment Under EC Cartel Law, 4 COMPETITION L. REV.7,

30–35 (2007); Wouter P.J. Wils, Optimal Antitrust Fines: Theory and Practice, 29

WORLD COMPETITION 183 (2006).

The policy of increasing sanctions for cartel conduct assumes that

there are still noncompliant business people who have made a calcu-

lated and self-interested decision that the gains of noncompliance out-

weigh the costs. It further assumes that these people can be

frightened into compliance if the costs of noncompliance become

weightier.4This article tests these assumptions in one country, Aus-

tralia, just before penalties for cartel behavior and other anticompeti-

tive conduct were increased. We systematically test the impact of the

various costs and gains of compliance and noncompliance, including

the deterrence of legal sanctions, on firms’ competition and consumer

protection compliance management systems and practices. We iden-

tify which perceived costs and gains of compliance and noncompli-

ance make a difference and whether there is any margin for

influencing the behavior of those firms that comply least through the

deterrence of legal sanctions.

On the basis of our evidence we argue that giving the Australian

competition regulator bigger sticks to fight cartels was a policy solu-

tion that was simply “too easy” to work on its own. Lawmakers and

regulators need to base policy on more textured analyses of the

impact of firms’ perceptions of costs and gains on their compliance

behavior. This article therefore begins by setting out in section II, as

comprehensively as possible, the various aspects of business firms’

calculative thinking that are likely to have an impact on compliance,

drawing on previous empirical research on regulatory compliance.

From this we derive a holistic model of the different elements of cal-

culative thinking that affect compliance. We see the derivation of this

holistic model in itself as an important corrective to simplistic deter-

rence. Section III of the article describes our study and the measures

we use to test the various elements of our model. Section IV reports

and discusses our results, and section V concludes.

This in-depth investigation of the elements of deterrence within

one regulatory regime allows us to identify whether there is in fact

room for changes in regulatory enforcement to lead to marginal gains

IMPACT OF CALCULATIVE THINKING :379

4See Christine Parker, Criminalisation and Compliance: The Gap Between

Rhetoric and Reality, in CRIMINALISING CARTELS: CRITICAL STUDIES OF AN INTERNA-

TIONAL REGULATORY MOVEMENT (Caron Beaton-Wells & Ariel Ezrachi eds.,

2011).