What Do We Know About the Effectiveness of Leniency Policies? A Survey of the Empirical and Experimental Evidence (original) (raw)

Corporate Leniency Programs for Antitrust: Past, Present, and Future

Review of Industrial Organization

This special issue marks the 25th anniversary of the introduction of a leniency program for antitrust in the EU and contains five original papers: Each paper examines the effects of design parameters of leniency programs on their performance. Before introducing each contribution separately, we put them in perspective by introducing readers to the existing theoretical, empirical, and experimental literature on corporate leniency programs for antitrust.

An Economic Analysis of Leniency Programs in Antitrust Law

Economist-netherlands, 2003

Within a dynamic market environment the forces that drive the effectiveness of leniency programs in antitrust law are analyzed. This effectiveness unambigously is enhanced by ͑i͒ increasing the reduction in fine payments in return for reporting a cartel, and ͑ii͒ increasing the expected per-period cartel detection probability for any ͑future͒ period. Increasing fine payments for violating antitrust law also enhances the programs' effectiveness provided that the reduction in fine payment in return for reporting is large enough. The effectiveness of leniency programs is not influenced by the length of the period of limitation that comes with violating antitrust laws.

Evaluating Antitrust Leniency Programs

Journal of Competition Law and Economics, 2013

This paper identifies and then quantifies econometrically the impact of leniency programs on the perception of the effectiveness of antitrust policies in the business community using panel data for as much as 59 countries and 14-year span. We use the dynamics of the gradual diffusion of leniency programs across countries and over time to evaluate the impact of the program, taking care of the bias caused by self-selection into the program. We find that leniency programs increase the perception of effectiveness by an order of magnitude ranging from 10% to 21%. Leniency programs have become weapons of mass dissuasion in the hands of antitrust enforcers against the more damaging forms of explicit collusion among rival firms in the market place.

To Protect in Order to Serve, Adverse Effects of Leniency Programs in View of Industry Asymmetry

SSRN Electronic Journal, 2000

This paper studies the application of leniency programs. An analysis of the structure and design of leniency programs and existing literature raises a new question: Are leniency programs effective, in the sense that they deter cartels from formation, in asymmetrical markets? A game theoretical model, which allows for asymmetry and predatory pricing, is used to provide an answer. A leniency program does not always lead to a breach of trust. We find that, in certain industries, leniency programs are unable to break collusion. They may have the adverse effect in the sense that they strengthen cartel stability or may even lead to abuse of market power. A relatively large firm can use coercion to remove the option to a smaller firm to self-report to the authorities, thus removing the risk of prosecution posed by the program. In industries characterized by a certain degree of asymmetry in market shares and high sunk costs this is an even more likely scenario. In view of this limitation, a number of policy implications are provided in the paper. Policies aimed at the removal of the threat of retaliation need to be considered in order to convict and deter these kinds of cartels.

Leniency Programs in Antitrust: Practice vs Theory

2019

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On the Optimal Design of Leniency Programmes

2013

This thesis comprises of a collection of essays that aim at enhancing our under- standing of the underlying mechanics of leniency policies in antitrust. In Chapter 1, we provide a systematic overview of the most in�uential contribu- tions to the literature on collusion and leniency policies, with a focus on antitrust law. The survey elucidates the e¤ects of leniency programmes on cartel formation and cartel implementation. In Chapter 2, we provide a model to investigate the impact of a leniency pro- gramme on collusive �rms�incentives to keep or destroy hard incriminating evi- dence. We show that �rms may willfully keep the hard evidence to facilitate the implementation of the cartel. Firms are more inclined to keep the hard evidence when a leniency programme is available. Finally, �rms are more likely to destroy the hard evidence when the collusive pro�ts-�ne ratio increases. In Chapter 3, we study the strategic interaction between a cartel and an an- titrust authority whose eviden...

Cartels and leniency: Taking stock of what we learnt

2018

Cartels remain widespread and constitute a major problem for society. Leniency policies reduce or cancel the sanctions for the first firm(s) that self-report being part of a cartel and have become the main enforcement instrument used by competition authorities around the world in their fight against cartels. Such policies have shown to be a powerful tool in inducing firms to self-report or cooperate with a cartel investigation in exchange for a reduction in sanctions. Since they reduce sanctions for successful leniency applicants, these programs may also be abused to generate many successful convictions for the competition authority at the expense of reduced cartel deterrence and social welfare. Hence, it is vital for competition authorities and society to understand how leniency programs affect firms' incentives, in order to optimize their design and administration. A rich theoretical, empirical and experimental economic literature developed in the last two decades to meet the challenge. In this chapter, we review some of the key studies which have been undertaken to date, with emphasis on more recent contributions and without claiming to be exhaustive (we apologize in advance to the authors of papers we could not discuss), highlighting and comparing the main results, and setting out their limitations. We conclude with a general assessment and an agenda for future research on this topic at the core of competition policy.

A STUDY OF THE REGULATIVE ACTS' LENIENCY CLAUSE EFFECT ON THE BEHAVIOR OF THE FIRMS

This paper experimentally investigates the effect of leniency clause on cartel formation and self-reporting by firms in an asymmetric cartel. The notion of asymmetric is used in terms of different market share of the firms, which form a cartel. This setting is used to bring the experimental design closer to reality. We experimentally controlled for 'Provision of Deal'-when a firm with larger market share can offer some side payments to the firms with smaller market share and induce them not to report. We run three treatments: 1) Leniency without Deal (LWOD), 2) Leniency with Deal (LWD) and 3) Reward with Deal (RWD). In LWOD treatment players can come forward and self-report their communication to the authority. In LWD treatment before self-reporting there is another step where big players can transfer 10 points to the small player and induce them not to report. In RWD treatment players earn 25 points if they report unlike LWD or LWOD where they paid some amount after reporting as well. The results of the experiment demonstrate that there is no notable difference in the formation of cartels among the three treatments. However, cartel members see the adverse effect of the provision of a deal on the self-reporting of cartels. The incidence of reporting falls significantly from 61.48% in Leniency without Deal treatment to 25.86% in Leniency with Deal treatment. Further, giving positive rewards to the self-reporters counteract the effect of the deal to a large extent. Thus, reporting is remarkably high at 41.44% in Reward with Deal treatment as compared to 25.86% in Leniency with Deal treatment. To sum up, the experiment accentuates the waning effect of leniency clause in asymmetrical cartel.

Antitrust Leniency with Multiproduct Colluders †

American Economic Journal: Microeconomics, 2015

We use a global games approach to model alternative implementa tions of an antitrust leniency program as applied to multiproduct col luders. We derive several policy design lessons; e.g., we show that it is pos sible that linking leniency across products increases the likelihood of conviction in the first product investigated but reduces it in subse quent products. Thus, firms may have an incentive to form sacrificial cartels and apply for leniency in less valuable products to reduce convictions in more valuable products. Cartel profiling can mitigate this undesirable effect, but also reduces the probability of convic tion in the first product investigated. (JEL D43, D86, K21, L12, L41) I n recent years, antitrust leniency programs in the United States, European Union, Australia, and elsewhere have played an important role in allowing competition authorities to successfully prosecute major price fixing conspiracies. 1 A review of the European Commission (EC) decisions in cartel cases for 2001-2012 shows that a firm received a 100 percent reduction in the fine through the leniency program in 55 (54 percent) of the 101 products in which firms were prosecuted. 2 1 "The Antitrust Division's Leniency Program is its most important investigative tool for detecting cartel activity. Corporations and individuals who report their cartel activity and cooperate in the Division's investigation of the cartel reported can avoid criminal conviction, fines, and prison sentences if they meet the requirements of the program." (United States Department of Justice website, http://www.justice.gov/atr/public/criminal/leniency.html, accessed October 22, 2012). As Chairman of the Australian Competition and Consumer Commission (ACCC), Graeme Samuel stated that ACCC's Immunity Policy for Cartel Conduct was "absolutely vital" in the Australian government's efforts to crack cartels and credited it with exposing potential cases at the rate of about one a month (Beaton-Wells and Fisse 2011, 379). See also Beaton-Wells (2008a, b) and Wils (2007). 2 Some EC decisions apply to more than one product. For example, the EC decision in Vitamins covers multiple vitamin products, with a separate application of the leniency program for each product. The EC's leniency program also offers smaller fine reductions for cooperators other than the first to apply for leniency. In 87 (86 percent) of the products, a firm received some reduction in the fine. In the United States, an official at the Department of Justice (DOJ) has stated that, in addition to the initial leniency applicant, as many as four firms may receive a "substantial assistance" discount on their fine of as much as 25-30 percent.

Cartel Leniency and Settlements: A Joint Perspective

This paper studies the interactions between a cartel leniency program and a settlement procedure. The EU settlement procedure gives colluding firms that do not apply for leniency an additional opportunity to cooperate with the competition authority in exchange for a reduced fine once a preliminary case has been established against them. We derive the conditions under which colluding firms apply for leniency, settle, or refuse to cooperate with the authority in equilibrium. Our policy results show that settlements can act as a complement or a substitute to the leniency program. We also study the welfare-optimal policy and highlight a novel interdependence between the fine reductions that should be offered to leniency applicants and settling firms. JEL classification K21 · L31 · L41