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The Impact of the Corporate Leniency Program on Cartel Formation and the Cartel Price Path

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  • Joe Chen

    (Faculty of Economics, University of Tokyo)

  • Joseph E. Harrington, Jr.

    (Department of Economics, Johns Hopkins University)

Abstract

Previous research exploring the effect of corporate leniency programs has modelled the oligopoly stage game as a Prisoners' Dilemma. Using numerical analysis, we consider the Bertrand price game and allow the probability of detection and penalties to be sensitive to firms' prices. Consistent with earlier results, a maximal leniency program necessarily makes collusion more difficult. However, we also find that par-tial leniency programs - such as in the U.S.- can make collusion easier compared too offering no leniency. We also show that even if cartel formation is not deterred, a leniency program can reduce the prices charged by firms.

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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-358.

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Length: 31 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:tky:fseres:2005cf358

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References

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  1. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
  2. Joseph E. Harrington, 2005. "Optimal Cartel Pricing In The Presence Of An Antitrust Authority," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(1), pages 145-169, 02.
  3. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
  4. Motchenkova, E., 2004. "Effects of Leniency Programs on Cartel Stability," Discussion Paper 2004-98, Tilburg University, Center for Economic Research.
  5. Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 13-38, April.
  6. Motta, M. & Polo, M., 1999. "Leniency Programs and Cartel Prosecution," Economics Working Papers eco99/23, European University Institute.
  7. Harrington, Joseph Jr. & Chen, Joe, 2006. "Cartel pricing dynamics with cost variability and endogenous buyer detection," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1185-1212, November.
  8. Joseph E. Harrington, Jr., 2003. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Computing in Economics and Finance 2003 26, Society for Computational Economics.
  9. Harrington, Joseph Jr., 2003. "Some implications of antitrust laws for cartel pricing," Economics Letters, Elsevier, vol. 79(3), pages 377-383, June.
  10. Abrantes-Metz, Rosa M. & Froeb, Luke M. & Geweke, John & Taylor, Christopher T., 2006. "A variance screen for collusion," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 467-486, May.
  11. Giancarlo Spagnolo, 2004. "Divide et Impera. Optimnal Deterrence Mechanisms Against Cartels and Organized Crime," Econometric Society 2004 North American Winter Meetings 485, Econometric Society.
  12. Philippe Cyrenne, 1999. "On Antitrust Enforcement and the Deterrence of Collusive Behaviour," Review of Industrial Organization, Springer, vol. 14(3), pages 257-272, May.
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Cited by:
  1. Jeroen Hinloopen & Adriaan Soetevent, 2006. "Trust and Recidivism; the Partial Success of Corporate Leniency Program in the Laboratory," Tinbergen Institute Discussion Papers 06-067/1, Tinbergen Institute.
  2. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
  3. Vivek Ghosal, 2011. "The Law and Economics of Enhancing Cartel Enforcement: Using Information From Non-Cartel Investigations to Prosecute Cartels," Review of Law & Economics, De Gruyter, vol. 7(2), pages 7.
  4. Ikuo Ishibashi & Daisuke Shimizu, 2010. "Collusive behavior under a leniency program," Journal of Economics, Springer, vol. 101(2), pages 169-183, October.
  5. Gregory Werden, 2008. "Assessing the Effects of Antitrust Enforcement in the United States," De Economist, Springer, vol. 156(4), pages 433-451, December.
  6. Zhou, Jun, 2011. "Evaluating Leniency with Missing Information on Undetected Cartels: Exploring Time-Varying Policy Impacts on Cartel Duration," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 353, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Buccirossi, Paolo & Spagnolo, Giancarlo, 2006. "Optimal Fines in the Era of Whistleblowers," CEPR Discussion Papers 5465, C.E.P.R. Discussion Papers.
  8. Ghosal, Vivek, 2006. "Discovering Cartels: Dynamic Interrelationships between Civil and Criminal Antitrust Investigations," MPRA Paper 5499, University Library of Munich, Germany.
  9. Joseph E. Harrington, Jr, 2006. "Modelling the Birth and Death of Cartels with an Application to Evaluating Antitrust Policy," Economics Working Paper Archive 532, The Johns Hopkins University,Department of Economics.
  10. Asker, John, 2010. "Leniency and post-cartel market conduct: Preliminary evidence from parcel tanker shipping," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 407-414, July.

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