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From Overt to Tacit Collusion

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Author Info
Jeroen Hinloopen () (University of Amsterdam)
Adriaan Soetevent () (University of Amsterdam)

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Abstract

Recent laboratory experiments support the popular view that the introduction of corporate leniency programs has significantly decreased cartel activity. The design of these repeated game experiments however is such that engaging in illegal price discussions is the only way for subjects to avoid the one-shot competitive equilibrium. Subjects in the experiment of this paper have multiple feasible Nash equilibrium strategies to avoid the competitive equilibrium. These strategies differ in the difficulty of the coordination problem they have to solve. The experimental results show that if the efforts of the antitrust authority and the leniency program are directed exclusively to the most straightforward collusive scheme, subjects manage to switch to a more intricate form of coordination. This shift from overt collusion to tacit collusion questions the acclaimed success of corporate leniency programs.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-059/1.

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Date of creation: 09 Jun 2008
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Handle: RePEc:dgr:uvatin:20080059

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Related research
Keywords: overt collusion; tacit collusion; corporate leniency program; antitrust policy;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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  1. Bigoni, Maria & Fridolfsson, Sven-Olof & Le Coq, Chloe & Spagnolo, Giancarlo, 2008. "Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments," Working Paper Series in Economics and Finance 698, Stockholm School of Economics. [Downloadable!]
  2. Bigoni, Maria & Le Coq, Chloé & Fridolfsson, Sven-Olof & Spagnolo, Giancarlo, 2008. "Risk Aversion, Prospect Theory, and Strategic Risk in Law Enforcement: Evidence From an Antitrust Experiment," Working Paper Series in Economics and Finance 696, Stockholm School of Economics. [Downloadable!]
  3. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 347-379, March. [Downloadable!] (restricted)
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  4. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616. [Downloadable!] (restricted)
  5. Charles A. Holt & Monica Capra, . "Classroom Games: A Prisoner's Dilemma," Virginia Economics Online Papers 330, University of Virginia, Department of Economics. [Downloadable!]
  6. Bigoni, Maria & Fridolfsson, Sven-Olof & Le Coq, Chloé & Spagnolo, Giancarlo, 2008. "Fines, Leniency and Rewards in Antitrust: An Experiment," Working Paper Series 738, Research Institute of Industrial Economics, revised 06 Aug 2009. [Downloadable!]
    Other versions:
  7. Jose Apesteguia & Martin Dufwenberg & Reinhard Selten, 2007. "Blowing the Whistle," Economic Theory, Springer, vol. 31(1), pages 143-166, April. [Downloadable!] (restricted)
    Other versions:
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