Group size effects on cartel formation and the enforcement power of leniency programs

Antitrust authorities in many countries have been trying to establish appropriate competition policies based on economic analysis. Recently an anti-cartel policy called a "leniency program" has been introduced in many countries as an effective policy to dissolve cartels. In this paper, we studied several kinds of leniency programs through laboratory experiments. We experimentally controlled for three factors: 1) cartel size: the number of cartel members in a group, small (two-person) or large (seven-person), 2) fine schedule: the number of firms that are given leniency, and 3) degree of leniency: a partially reduced fine, a fully reduced fine, or a reward is given to self-reporting firms. The experimental results showed that (1) an increase in the number of cartel members in a group increased the number of cartels dissolved, (2) changing the fine schedule had no significant effect both in the two-person group size and in the seven-person group size, and (3) positive enforcement such as giving a reward for a self-reporting firm in a courageous leniency program has great impact on dissolving cartel activities.