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

Abstract

A number of countries, including Australia, have recently drastically increased the sanctions available for cartel conduct, on the assumption that businesses make decisions about their regulatory compliance 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 business firms' compliance management responses to Australia's competition and consumer protection law. We find that enforcement 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 management style) are also significantly and independently related to compliance management behavior. We conclude that higher sanctions on their own are unlikely to lead to higher compliance with Australian competition and consumer protection law.