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Multiproduct firm’s reputation and leniency program in multimarket collusion

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  • Isogai, Shigeki
  • Shen, Chaohai

Abstract

The corporate leniency program is believed to be useful for antitrust authorities. Our study challenges this belief in a setting where a large multiproduct firm meets single-product firms in independent and isolated markets. We explore an adversary effect of the corporate leniency program in multimarket collusion in a reputation model. A multiproduct firm forming cartels in multiple markets can build its reputation as a tough firm that punishes any deviation by applying for leniency. We show that the multiproduct firm can manipulate the leniency program to stabilize cartels in markets without material linkages (such as demand linkages). This effect does not exist if only one market exists or the leniency-application outcome is not publicly observable. Our findings theoretically explain why the numerous leniency applications by multiproduct firms should concern antitrust agencies and imply several directions for revising the leniency policy.

Suggested Citation

  • Isogai, Shigeki & Shen, Chaohai, 2023. "Multiproduct firm’s reputation and leniency program in multimarket collusion," Economic Modelling, Elsevier, vol. 125(C).
    • Handle: RePEc:eee:ecmode:v:125:y:2023:i:c:s0264999323001608
    DOI: 10.1016/j.econmod.2023.106348
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    More about this item

    Keywords

    Leniency program; Multimarket collusion; Reputation; Multiproduct firm; Recidivism;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods

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