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The Effect of Whistle‐Blowing Incentives on Collusion: An Experimental Study of Leniency Programs

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  • Nick Feltovich
  • Yasuyo Hamaguchi

Abstract

Policymakers are increasingly using whistle‐blowing incentives aimed at curtailing illegal or unethical behavior. We theoretically and experimentally investigate one version of whistle‐blowing incentive: leniency programs aimed at curbing anticompetitive activities by firms, by reducing the punishment faced by a cartel member who reports the cartel's behavior. The theoretical model captures the two important effects of whistle‐blowing incentives: the direct effect, a reduction in the stability of cartels, and the counterproductive indirect effect, an increase in the incentives to form cartels in the first place by lowering the cost of exiting them. As these point in opposite directions, the net theoretical effect is indeterminate. Our laboratory experiment compares two leniency programs—full immunity from fines and partial immunity—against a baseline with no whistle‐blowing incentives in place. We find evidence of the direct effect but not the indirect effect, and thus both programs reduce the extent of price fixing and the damage associated with it.

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  • Nick Feltovich & Yasuyo Hamaguchi, 2018. "The Effect of Whistle‐Blowing Incentives on Collusion: An Experimental Study of Leniency Programs," Southern Economic Journal, John Wiley & Sons, vol. 84(4), pages 1024-1049, April.
  • Handle: RePEc:wly:soecon:v:84:y:2018:i:4:p:1024-1049
    DOI: 10.1002/soej.12263
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    Cited by:

    1. Mechtenberg, Lydia & Muehlheusser, Gerd & Roider, Andreas, 2020. "Whistleblower protection: Theory and experimental evidence," European Economic Review, Elsevier, vol. 126(C).
    2. Bodnar, Olivia & Fremerey, Melinda & Normann, Hans-Theo & Schad, Jannika Leonie, 2021. "The effects of private damage claims on cartel activity: Experimental evidence," DICE Discussion Papers 315, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Verschuuren, Pim, 2020. "Whistleblowing determinants and the effectiveness of reporting channels in the international sports sector," Sport Management Review, Elsevier, vol. 23(1), pages 142-154.
    4. Coyne Christopher J. & Goodman Nathan & Hall Abigail R., 2019. "Sounding the Alarm: The Political Economy of Whistleblowing in the US Security State," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 25(1), pages 1-11, February.

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