Collusion in Industrial Economics and Optimally Designed Leniency Programmes - A Survey (original) (raw)
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Leniency policies and rewards for whistleblowers are being introduced in ever more …elds of law enforcement, though their deterrence e¤ects are often hard to observe, and the likely e¤ect of changes in the speci…c features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the e¤ects of …nes, leniency programs, and reward schemes for whistleblowers on …rms'decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with di¤erentiated goods and uncertain duration, and we run several treatments di¤erent in the probability of cartels being caught, the level of …ne, the possibility of self-reporting (and not paying a …ne), the existence of a reward for reporting. We …nd that …nes following successful investigations but without leniency have a deterrence e¤ect (reduce the number of cartels formed) but also a pro-collusive e¤ect (increase collusive prices in surviving cartels). Leniency programs might not be more e¢ cient than standard antitrust enforcement, since in our experiment they do deter a signi…cantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price signi…cantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects'ability to form cartels and sustain high prices, and almost complete deterrence is achieved. If the ringleader is excluded from the leniency program the deterrence e¤ect of leniency falls and prices are higher than otherwise. As for tacit collusion, under standard antitrust enforcement or leniency programs subjects who do not communicate (do not go for explicit cartels) tend to choose weakly higher prices than where there is no anti-trust enforcement. We also analyze post-conviction behavior, …nding that there is a strong expost deterrence (desistance) e¤ect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we …nd a strong cultural e¤ect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions di¤er with culture.
Leniency programs and cartel prosecution
International Journal of Industrial Organization, 2003
We study the enforcement of competition policy against collusion under leniency programs, which give reduced fines to firms that reveal information to the Antitrust Authority. Leniency programs make enforcement more effective but they may also induce collusion, since they decrease the expected cost of misbehaviour. We show that in the optimal policy the former effect dominates, calling for leniency programs when the Antitrust Authority has limited resources. We also show that these programs should apply to firms that reveal information even after an investigation is started.
Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments
2008
Leniency policies and rewards for whistleblowers are being introduced in ever more …elds of law enforcement, though their deterrence e¤ects are often hard to observe, and the likely e¤ect of changes in the speci…c features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the e¤ects of …nes, leniency programs, and reward schemes for whistleblowers on …rms'decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with di¤erentiated goods and uncertain duration, and we run several treatments di¤erent in the probability of cartels being caught, the level of …ne, the possibility of self-reporting (and not paying a …ne), the existence of a reward for reporting. We …nd that …nes following successful investigations but without leniency have a deterrence e¤ect (reduce the number of cartels formed) but also a pro-collusive e¤ect (increase collusive prices in surviving cartels). Leniency programs might not be more e¢ cient than standard antitrust enforcement, since in our experiment they do deter a signi…cantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price signi…cantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects'ability to form cartels and sustain high prices, and almost complete deterrence is achieved. If the ringleader is excluded from the leniency program the deterrence e¤ect of leniency falls and prices are higher than otherwise. As for tacit collusion, under standard antitrust enforcement or leniency programs subjects who do not communicate (do not go for explicit cartels) tend to choose weakly higher prices than where there is no anti-trust enforcement. We also analyze post-conviction behavior, …nding that there is a strong expost deterrence (desistance) e¤ect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we …nd a strong cultural e¤ect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions di¤er with culture.
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.
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.
Crime and Punishment: When Tougher Antitrust Enforcement Leads to Higher Overcharge
SSRN Electronic Journal, 2013
The economics of crime and punishment postulates that higher punishment leads to lower crime levels, or less severe crime. It is however hard to get empirical support for this rather intuitive relationship. This paper o¤ers a model that can contribute to explain why this is the case. We show that if criminals can spend resources to reduce the probability of being detected, then a higher general punishment level can increase the crime level. In the context of antitrust enforcement, the model shows that competition authorities who attempt to …ght cartels by means of tougher sanctions for all o¤enders may actually lead cartels to increase their overcharge when leniency programs are in place. We thank S. Ecer, G. Spagnolo, J.Y. Sand, T. Nilssen and seminar participants at the EARIE conference 2012 for constructive comments. Financial support from the Norwegian Research Council is gratefully acknowledged.
Fines, Leniency and Rewards in Antitrust: An Experiment
2008
This paper reports results from an experiment studying how …nes, leniency and rewards for whistleblowers a¤ect cartel formation and prices. Antitrust without leniency reduces cartel formation but increases cartel prices: subjects use costly …nes as punishments. Leniency improves antitrust by strengthening deterrence but stabilizes surviving cartels: subjects appear to anticipate the lower post-conviction prices after reports/leniency. With rewards, prices fall at the competitive level.
Effects of antitrust leniency on concealment effort by colluding firms
Journal of Antitrust Enforcement, 2014
We provide an economic analysis of the incentives created by an antitrust leniency programme, with particular attention to incentives created for effort directed at the concealment of collusion. The results point to a need for competition authorities to consider the effects of concealment when evaluating economic evidence of collusion. The results also suggest possible benefits from increasing penalties for cartels that use third-party facilitators.
What if Cartel Fines are not high enough? Implications on Deterrence and Productive Efficiency
Revista de Economía y Estadística, 2015
I develop a model in which cartel fi rms allocate costly effort to activities related to productive effi ciency and concealment: the higher the fi ne or the probability of inspection, the more biased the fi rms' effort allocation towards concealment. In this context, a fi ne increase can improve welfare through fewer cartels, but also reduce it through more ineffi cient surviving ones. The analysis suggests a carefully design of policy such that achieving a level of deterrence and productive (in)effi ciency socially accepted. Within this framework, I also consider the implications of leniency programs. I show that leniency enhances incentives on deviation more that in standard models of collusion.
Does Crime Pay? Cartel Penalties and Profits
University of Baltimore School of Law Legal Studies Research Paper Series, 2019
This article seeks to answer a fundamental antitrust question: does crime pay? Do the current overall levels of U.S. cartel sanctions adequately discourage firms from engaging in illegal collusion? Seven years ago our research showed that the unfortunate answer was clearly that, yes, criminal collusion usually is profitable! The expected costs (in terms of criminal fines and prison time, civil damages, etc.) was significantly less than expected gains to the price fixers. Sadly, the most recent data re-affirm this conclusion. The great majority of companies participating in illegal cartels make a profit even after they pay all the penalties. The current level of sanctions is only 9 to 21 percent of optimality, so it follows that current overall sanction levels should be quintupled. To move modestly in this direction, we propose five specific recommendations. Only the first and possibly the last would require new legislation. First, legislation should add prejudgment interest to both ...