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Adverse Effects Of Corporate Leniency Programs In View Of Industry Asymmetry

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  • Evgenia MOTCHENKOVA
  • Daniel LELIEFELD

Abstract

This paper studies the effects, leniency programs have on cartel stability and the subsequent abuse of market power. A game-theoretical model, which allows for asymmetry and retaliation, is employed to analyze this problem. We find that a leniency program does not always lead to a breach of trust; in certain industries leniency programs are unable to break collusion. Moreover, they may have the adverse effect in the sense that they strengthen cartel stability or lead to abuse of market power. A relatively large firm can use coercion to remove the option to a smaller firm to self-report. In industries characterized by a certain degree of asymmetry in market shares and high exit costs this is an even more likely scenario. In view of this limitation, policies aimed at the removal of the threat of retaliation need to be considered. This paper’s emphasis is placed on leniency programs for cartels, but the line of reasoning may also be extended to corporate whistle-blowing programs.

Suggested Citation

  • Evgenia MOTCHENKOVA & Daniel LELIEFELD, 2010. "Adverse Effects Of Corporate Leniency Programs In View Of Industry Asymmetry," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 5(2(12)/Sum), pages 114-128.
    • Handle: RePEc:ush:jaessh:v:5:y:2010:i:2(12)_spring2010:p:104
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    References listed on IDEAS

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    1. E. Motchenkova & P. M. Kort, 2006. "Analysis of Current Penalty Schemes for Violations of Antitrust Laws," Journal of Optimization Theory and Applications, Springer, vol. 128(2), pages 431-451, February.
    2. Zhijun Chen & Patrick Rey, 2013. "On the Design of Leniency Programs," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 917-957.
    3. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    4. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 347-379, March.
    5. Eberhard Feess & Markus Walzl, 2004. "Self-reporting in Optimal Law Enforcement when there are Criminal Teams," Economica, London School of Economics and Political Science, vol. 71(283), pages 333-348, August.
    6. Motchenkova, E., 2004. "Effects of Leniency Programs on Cartel Stability," Other publications TiSEM d6321c1e-b79a-4aae-8ef5-d, Tilburg University, School of Economics and Management.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    8. E. H. Chamberlin, 1929. "Duopoly: Value Where Sellers Are Few," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 44(1), pages 63-100.
    9. Harold Houba & Evgenia Motchenkova & Quan Wen, 2009. "The Effects of Leniency on Maximal Cartel Pricing," Tinbergen Institute Discussion Papers 09-081/1, Tinbergen Institute.
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    Cited by:

    1. Pavlova, Natalia & Shastitko, Andrey, 2014. "Effects of Hostility Tradition in Antitrust: Leniency Programs and Cooperation Agreements," EconStor Preprints 122051, ZBW - Leibniz Information Centre for Economics.
    2. 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.
    3. Pavlova, Natalia & Shastitko, Andrey, 2016. "Leniency programs and socially beneficial cooperation: Effects of type I errors," Russian Journal of Economics, Elsevier, vol. 2(4), pages 375-401.

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    More about this item

    Keywords

    antitrust policy; antitrust law; self-reporting; leniency programs;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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