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Ananya Gaur, Jul 24, 2015
Penalties/fines are an important element of a competition jurisdiction’s toolkit, even when criminal sanctions are present. The purpose of imposing penalties is generally either deterrence or retribution. They may play a critical role in deterring anticompetitive conduct particularly in countries with limited personal liability for participating in a cartel, lack of prison terms for cartel organizers, and/or limited ability of affected third parties to collect damages.They may also act as an instrument for society to publicly express denunciation of an action as being wrong, besides educating the public at large that it is not an acceptable behavior under the law. Globally, over the last 25 years, the size of penalties/fines for competition law violations has increased substantially.
Penalties are a deterrent because the possibility of a penalty enters into the calculus of enterprises considering violating the law. Competition authorities commonly face the challenge of how to ensure that penalties have a true deterrent effect. On the one hand, they should be large enough to ensure that the expected penalty for a violation is greater than the gain. The expected cost of punishment depends critically on the value of the penalty reduced for the probability of paying the fine, based on both detection and ultimate determination of a legal violation meriting that penalty. On the other hand, over-deterrence cannot be overlooked because many enterprises subject to penalty could face financial difficulties, which would be an economic policy concern if they reduced the number of competitors, the vigor of competition, or had substantial negative social and economic consequences.
It is imperative that there be a certain basis for determination of penalties with the link between penalties and conduct being visible. The need for this is twofold—first, it will force the businesses to do a cost benefit analysis before violating the law; and second, it will reduce scope for arbitrariness as there will be less discretion in terms of determining the quantum of penalties, thus providing a much-required certainty to the law. This article discusses penalties imposed by the Competition Commission of India, the lack of objective criterion underlying them, and argues for the need for penalty guidelines towards the goals of deterring and punishing competition law violations.
