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The Effects of Leniency on Cartel Pricing

Author

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  • Houba Harold

    (Department of Econometrics, VU University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands)

  • Motchenkova Evgenia

    (Department of Economics, VU University Amsterdam, De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands)

  • Wen Quan

    (Department of Economics, University of Washington, Box 353330, Savory 305, Seattle, WA 98195-3330, USA)

Abstract

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. Ex-ante 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.

Suggested Citation

  • Houba Harold & Motchenkova Evgenia & Wen Quan, 2015. "The Effects of Leniency on Cartel Pricing," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 15(2), pages 351-389, July.
    • Handle: RePEc:bpj:bejtec:v:15:y:2015:i:2:p:351-389:n:4
    DOI: 10.1515/bejte-2013-0139
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    Citations

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    Cited by:

    1. Berkay Akyapi & Douglas C. Turner, 2022. "Cartel Penalties Under Endogenous Detection," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(3), pages 341-371, November.
    2. Peter T. Dijkstra & Jacob Seifert, 2023. "Cartel Leniency and Settlements: A Joint Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(2), pages 239-273, September.
    3. Ruben Korsten & Andrew Samuel, 2023. "Cartel formation and detection: the role of information costs and disclosure," European Journal of Law and Economics, Springer, vol. 56(1), pages 117-153, August.
    4. Katsoulacos, Yannis & Motchenkova, Evgenia & Ulph, David, 2015. "Penalizing cartels: The case for basing penalties on price overcharge," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 70-80.
    5. Catarina Marvão & Giancarlo Spagnolo, 2018. "Cartels and leniency: Taking stock of what we learnt," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 4, pages 57-90, Edward Elgar Publishing.
    6. Tebbe, Eva, 2018. "Once bitten, twice shy? Market size affects the effectiveness of a leniency program by (de-)activating hysteresis effects," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168304, Verein für Socialpolitik / German Economic Association, revised 2018.
    7. Karine Brisset & Francois Cochard & Eve-Angeline Lambert, 2023. "Is Amnesty Plus More Successful in Fighting Multimarket Cartels? An Exploratory Analysis," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 63(2), pages 211-237, September.

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    More about this item

    JEL classification:

    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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