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To protect in order to serve, adverse effects of leniency programs in view of industry asymmetry

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  • Leliefeld, Daniel

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Motchenkova, Evgenia

Abstract

This paper studies the application of leniency programs. An analysis of the structure and design of leniency programs and existing literature raises a new question: Are leniency programs effective, in the sense that they deter cartels from formation, in asymmetrical markets? A game theoretical model, which allows for asymmetry and predatory pricing, is used to provide an answer. A leniency program does not always lead to a breach of trust. We find that, in certain industries, leniency programs are unable to break collusion. They may have the adverse effect in the sense that they strengthen cartel stability or may even lead to abuse of market power. A relatively large firm can use coercion to remove the option to a smaller firm to self-report to the authorities, thus removing the risk of prosecution posed by the program. In industries characterized by a certain degree of asymmetry in market shares and high sunk costs this is an even more likely scenario. In view of this limitation, a number of policy implications are provided in the paper. Policies aimed at the removal of the threat of retaliation need to be considered in order to convict and deter these kinds of cartels.

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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0002.

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Date of creation: 2007
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Handle: RePEc:dgr:vuarem:2007-2

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Web page: http://www.feweb.vu.nl

Related research

Keywords: Antitrust policy; Antitrust Law; Self-reporting; Leniency programs;

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  1. Motchenkova, E., 2004. "Effects of Leniency Programs on Cartel Stability," Discussion Paper 2004-020, Tilburg University, Tilburg Law and Economic Center.
  2. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  3. Blonski, Matthias & Spagnolo, Giancarlo, 2003. "Prisoners' Other Dilemma," CEPR Discussion Papers 3856, C.E.P.R. Discussion Papers.
  4. 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.
  5. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  6. Nuno Garoupa, 2000. "Optimal magnitude and probability of fines," Economics Working Papers 454, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Motchenkova, E. & Laan, R., 2005. "Strictness of Leniency Programs and Cartels of Asymmetric Firms," Discussion Paper 2005-74, Tilburg University, Center for Economic Research.
  8. Motchenkova, E. & Kort, P.M., 2004. "Analysis of the Properties of Current Penalty Schemes for Violations of Antitrust Law," Discussion Paper 2004-97, Tilburg University, Center for Economic Research.
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Cited by:
  1. Bos Iwan & Wandschneider Frederick, 2011. "Cartel Ringleaders and the Corporate Leniency Program," Research Memorandum 038, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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