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Evaluating Leniency with Missing Information on Undetected Cartels: Exploring Time-Varying Policy Impacts on Cartel Duration

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  • Zhou, Jun
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    Abstract

    This paper examines the effects of European Commission’s (EC) new leniency program on the EC’s capabilities in detecting and deterring cartels. As a supplementary analysis, the US leniency is studied. I discuss a dynamic model of cartel formation and dissolution to illustrate how changes in antitrust policies and economic conditions might affect cartel duration. Comparative statics results are then corroborated with empirical estimates of hazard functions adjusted to account for both the heterogeneity of cartels and the time-varying policy impacts suggested by theory. Contrary to earlier studies, my statistical tests are consistent with the theoretic predictions that following an efficacious leniency program, the average duration of discovered cartels rises in the short run and falls in the long run. The results shed light on the design of enforcement programs against cartels and other forms of conspiracy.

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    Bibliographic Info

    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 353.

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    Date of creation: Nov 2011
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    Handle: RePEc:trf:wpaper:353

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    1. José Apesteguia & Martin Dufwenberg & Reinhard Selten, 2003. "Blowing the Whistle," Bonn Econ Discussion Papers, University of Bonn, Germany bgse9_2003, University of Bonn, Germany.
    2. 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.
    3. Joseph E Harrington Jr, 2002. "Cartel Pricing Dynamics in the Presence of an Antitrust Authority," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 487, The Johns Hopkins University,Department of Economics, revised May 2003.
    4. Harrington, Joseph Jr., 1989. "Collusion among asymmetric firms: The case of different discount factors," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 7(2), pages 289-307, June.
    5. Joseph E Harrington, 2001. "Optimal Cartel Pricing in the Presence of an Antitrust Authority," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 460, The Johns Hopkins University,Department of Economics, revised Jul 2002.
    6. Joseph E Harrington Jr & Joe Chen, 2002. "Cartel Pricing Dynamics with Cost Variability and Endogenous Buyer Detection," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 514, The Johns Hopkins University,Department of Economics, revised Sep 2004.
    7. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 527, The Johns Hopkins University,Department of Economics.
    8. Joseph E. Harrington & Myong-Hun Chang, 2009. "Modeling the Birth and Death of Cartels with an Application to Evaluating Competition Policy," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(6), pages 1400-1435, December.
    9. Rey, Patrick, 2002. "Towards a Theory of Competition Policy," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 121, Institut d'Économie Industrielle (IDEI), Toulouse.
    10. Motchenkova, E. & Laan, R., 2005. "Strictness of Leniency Programs and Cartels of Asymmetric Firms," Discussion Paper, Tilburg University, Center for Economic Research 2005-74, Tilburg University, Center for Economic Research.
    11. George Symeonidis, 2002. "The Effects of Competition: Cartel Policy and the Evolution of Strategy and Structure in British Industry," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262194686, December.
    12. Oindrila De, 2010. "Analysis of Cartel Duration: Evidence from EC Prosecuted Cartels," International Journal of the Economics of Business, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 33-65.
    13. Spagnolo, Giancarlo, 2006. "Leniency and Whistleblowers in Antitrust," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5794, C.E.P.R. Discussion Papers.
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