Maximal Cartel Pricing and Leniency Programs (original) (raw)
Related papers
The Effects of Leniency on Cartel Pricing
SSRN Electronic Journal, 2000
We analyze how leniency affects cartel pricing in an infinitely-repeated oligopoly model where the fine rates are linked to illegal gains and detection probabilities depend on the degree of collusion. A novel aspect of this study is that we focus on the worst possible outcome. We investigate the maximal cartel price, the largest price for which the conditions for sustainability hold. We analyze how the maximal cartel price supported by different cartel strategies adjusts in response to the introduction of (ex-ante and ex-post) leniency programs. We disentangle the effects of traditional antitrust enforcement, leniency, and cartel strategies on the maximal cartel price. Exante leniency cannot reduce the maximal cartel price below the price under antitrust without leniency. On the other hand, for ex-post leniency, improvement is possible and granting full immunity to single-reporting firms achieves the largest reduction in the maximal cartel price. To reduce adverse effects under both leniency programs, fine reductions to multiple-reporting firms should be moderate or absent. Finally, ex-post leniency should provide less generous fine reductions to multiple-reporting firms, which is supported by the current practice in the US and the EU.
The Effects of Leniency on Maximal Cartel Pricing
SSRN Electronic Journal, 2000
We analyze maximal cartel prices in infinitely-repeated oligopoly models under leniency where fines are linked to illegal gains, as often outlined in existing antitrust regulation, and detection probabilities depend on the degree of collusion. We introduce cartel culture that describes how likely cartels persist after each conviction. Our analysis disentangles the effects of traditional antitrust regulation, leniency, and cartel strategies. Without rewards to the strictly-first reporter, leniency cannot reduce maximal cartel prices below those under traditional regulation. Moreover, in order to avoid adverse effects fine reductions should be moderate in case of multiple reporters. Our results extend the current literature and partially support existing leniency programs.
The maximal-damage paradigm in antitrust regulation and leniency programs
We propose the maximal-damage paradigm to study antitrust regulation and develop it into an applicable novel tool. For a general class of oligopoly models with price competition, we characterize the impact of ex-ante leniency programs in antitrust policies on the endogenous maximal-sustainable cartel price. This impact depends upon the industry characteristics including its cartel culture. Our analysis disentangles the e¤ects of traditional antitrust policies and leniency programs. For all parameter values, ex-ante leniency programs are e¤ective only if these o¤er substantial rewards, which currently employed programs do not o¤er.
Antitrust Penalties and the Implications of Empirical Evidence on Cartel Overcharges
The Economic Journal, 2013
This paper makes two contributions to the literature linking penalties charged by Competition Authorities to observed cartel price overcharges. (i) It extends the theory of optimal penalties by introducing new considerations regarding the timing of penalty decisions. Drawing on a new European dataset to calculate these additional factors, the optimal penalty is shown to be approximately 75% of that implied by the conventional formula. (ii) It shows that because penalties are typically imposed on revenue, a tougher regime may increase cartel overcharges. This calls into question some recent empirical findings on this issue, and the potential benefits of raising penalties.
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.
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.
Strictness of Leniency Programs and Cartels of Asymmetric Firms
SSRN Electronic Journal, 2000
This paper studies the effects of leniency programs on the behavior of firms participating in illegal cartel agreements. The main contribution of the paper is that we consider asymmetric firms. In general, firms differ in size and operate in several different markets. In our model, they form a cartel in one market only. This asymmetry results in additional costs in case of disclosure of the cartel, which are caused by an asymmetric reduction of the sales in other markets due to a negative reputation effect. This modeling framework can also be applied to the case of international cartels, where firms are subject to different punishment procedures according to the laws of their countries, or in situations where following an application for leniency firms are subject to costs other than the fine itself and where these costs depend on individual characteristics of the firm. Moreover, following the rules of existing Leniency Programs, we analyze the effects of the strictness of the Leniency Programs, which reflects the likelihood of getting complete exemption from the fine even in case many firms self-report simultaneously. Our main results are that, first, leniency programs work better for small (less diversified) companies, in the sense that a lower rate of law enforcement is needed in order to induce self-reporting by less diversified firms. At the same time, big (more diversified) firms are less likely to start a cartel in the first place given the possibility of self-reporting in the future. Second, the more cartelized the economy, the less strict the rules of leniency programs should be.
The Effects of Leniency Programs and Fines on Cartel Stability
Metroeconomica, 2007
Using a stylized oligopoly model, we analyze the effect of cartel deterring fines, taking into consideration exemptions granted to cartel members cooperating with the competition authorities. We conclude that the fines can act as a deterrent to breaking collusive agreements, thus stabilizing the cartel. * Constructive comments by Pierre Régibeau, two anonymous referees and Neri Salvadori, the editor, are gratefully acknowledged. In particular, one of the referees should be credited for having brought to our attention the homo economicus point made in the Introduction and in the section on Permanent Cartel Disruption. For all remaining errors, of course, we are to be blamed. Note that Ankur Chavda co-authored this paper while at the Vrije Universiteit Brussel, MICE, and is currently a Product Planner at Microsoft Corporation.
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.
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.