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The Effects of Leniency on Maximal Cartel Pricing

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Author Info

  • Harold Houba

    (VU University Amsterdam)

  • Evgenia Motchenkova

    (VU University Amsterdam)

  • Quan Wen

    (Vanderbilt University)

Abstract

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.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-081/1.

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Date of creation: 25 Sep 2009
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Handle: RePEc:dgr:uvatin:20090081

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Web page: http://www.tinbergen.nl

Related research

Keywords: Cartel; Antitrust; Competition Policy; Leniency Program; Self-reporting; Repeated Game;

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Cited by:
  1. Hüschelrath, Kai & Veith, Tobias, 2011. "The impact of cartelization on pricing dynamics: Evidence from the German cement industry," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 11-067, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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