In most jurisdictions, antitrust fines are based on affected commerce rather than on collusive
profits, and in some others, caps on
fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate,
propose simple models to characterize their comparative static properties, and
quantify them with simulations based on market data. We conclude by discussing
the obvious need to depart from these distortive rules-of-thumb that appear to have
the potential to substantially reduce social welfare.
