Damage at the Pump: Does Punishment Fit the Crime?

We use time-series analysis to estimate the economic damage caused by the uncovered retail gasoline cartel in the city of Sherbrooke. We calculate both the total overcharge and the deadweight loss using a Marshallian demand curve. We find that total damages for the period spanning from January 2000 to May 2006 can be as high as $16.2 million expressed in 2002 Canadian dollars. We compare the total damages from this price fixing conspiracy in the city of Sherbrooke to the meted punishment for all of the investigated markets and find the latter to be a small fraction of the former. We argue that the current enforcement of the Competition Act’s conspiracy provision is unlikely to deter cartel formation.