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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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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2005/2005cf358.pdf
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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. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 21(3), pages 347-379, March.
  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. 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.
  4. Joseph E. Harrington, Jr. & Joe Chen, 2005. "Cartel Pricing Dynamics with Cost Variability and Endogenous Buyer Detection," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-359, CIRJE, Faculty of Economics, University of Tokyo.
  5. Hay, George A & Kelley, Daniel, 1974. "An Empirical Survey of Price Fixing Conspiracies," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 17(1), pages 13-38, April.
  6. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 87-100, January.
  7. Giancarlo Spagnolo, 2004. "Divide et Impera. Optimnal Deterrence Mechanisms Against Cartels and Organized Crime," Econometric Society 2004 North American Winter Meetings 485, Econometric Society.
  8. Motchenkova, E., 2004. "Effects of Leniency Programs on Cartel Stability," Discussion Paper, Tilburg University, Center for Economic Research 2004-98, Tilburg University, Center for Economic Research.
  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, Elsevier, vol. 24(3), pages 467-486, May.
  11. Philippe Cyrenne, 1999. "On Antitrust Enforcement and the Deterrence of Collusive Behaviour," Review of Industrial Organization, Springer, Springer, vol. 14(3), pages 257-272, May.
  12. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
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Cited by:
  1. Asker, John, 2010. "Leniency and post-cartel market conduct: Preliminary evidence from parcel tanker shipping," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 28(4), pages 407-414, July.
  2. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
  3. 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.

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