Leniency policies and rewards for whistleblowers are being introduced in ever more fields of law enforcement, though their deterrence effects are often hard to observe, and the likely effect of changes in the specific features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the effects of fines, leniency programs, and reward schemes for whistleblowers on firms' decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with differentiated goods and uncertain duration, and we run several treatments different in the probability of cartels being caught, the level of fine, the possibility of self-reporting (and not paying a fine), the existence of a reward for reporting. We find that fines following successful investigations but without leniency have a deterrence effect (reduce the number of cartels formed) but also a pro-collusive effect (increase collusive prices in surviving cartels). Leniency programs might not be more efficient than standard antitrust enforcement, since in our experiment they do deter a significantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price significantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects' ability to form cartels and sustain high prices, and almost complete deterrence is achieved. We also analyze post-conviction behavior, finding that there is a strong expost deterrence (desistance) effect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we find a strong cultural effect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions differ with culture.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Length: 31 pages Date of creation: 27 Mar 2008 Date of revision: Handle: RePEc:hhs:hastef:0698
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden Phone: +46-(0)8-736 90 00 Fax: +46-(0)8-31 01 57 Email: Web page: http://www.hhs.se/ More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Helena Lundin).
Find related papers by JEL classification: 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
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Paolo Buccirossi & Giancarlo Spagnolo, 2005.
"Leniency Policies and Illegal Transactions,"
Discussion Papers
74, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!]
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.