Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments (original) (raw)

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.