Private Antitrust Enforcement in the Presence of Pre-Trial Bargaining

We study the effect of encouraging private actions for breaches of competition law. We develop a model in which a plaintiff, who may have private information about whether a breach of law has been committed, decides whether to open a case against a defendant. If opened, the case may be settled out of court or may proceed to full trial. The authorities can facilitate private actions by lowering the costs of opening a case or of proceeding to a full trial, or by raising the damages to be expected in the event of success. We show that facilitating private action increases the number of cases opened and sometimes but not always makes plaintiffs more aggressive in pre-trial bargaining. The latter, if it occurs, tends to make defendants who have committed anti-trust violations more likely to settle than innocent defendants. We also show that for screening to work requires the Court to be committed to rely only on submitted evidence in the case, and not on other possibly relevant background material. We finally study how to design the rules so as to enhance the role of private litigation on antitrust enforcement and prove that it is better to increase damages that to reduce costs of initiating a suit. In particular we find large benefits from introducing a system of compensation for Defendants found non-liable, paid by unsuccessful plaintiffs