The psychology of sanctions

Cartels are (often secret) agreements between competing businesses that undermine fair competition and deceive customers. For example, businesses in a cartel might agree to jointly raise their prices or not to accept each other’s customers. Because cartels take away the pressure of competition, they free businesses from the necessity to deliver quality products and services for a fair price. In turn these agreements lead to higher prices and worse products and services. Because of this cartel behaviour is illegal in most countries.

In the past decades the dominant strategy to prevent cartel behaviour has been general deterrence. Governments try to make sure that the (financial) costs of cartel behaviour outweigh the benefits. In practice this means investigating and fining businesses that engage in a cartel. The rationale behind this strategy is that the main driver of cartel behaviour is maximising profits. Previous research has shown that financial incentives are not the only reason that people and businesses choose (not) to comply with the law. In my research I look at the psychology of fines and cartel behaviour. Personal and social norms have been shown to be equally, if not more, important in the decision to behave ethically. Moreover, even the process of weighing costs and benefits is a psychological one. My aim is to improve the effectiveness of cartel deterrence with the use of insights of psychological and interdisciplinary research. This research is a collaboration between the Utrecht University and the government agency that is tasked with combatting cartels: the Netherlands Authority for Consumers & Markets.