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Incentive to squeal: an experiment on leniency programs for antitrust violators

Author

Listed:
  • Benjamin Radoc

    (Philippine Competition Commission and Department of Economics, Ateneo de Manila University)

  • Philip Amadeus Libre

    (Asian Development Bank (Consultant))

  • Shanti Aubren Prado

    (World Bank Group (Consultant))

Abstract

Competition authorities around the world have adopted leniency programs creating incentives for cartel members to come forward and provide information sufficient for cartel prosecution. We conducted a laboratory experiment simulating an infinitely repeated 4-player Bertrand game with homogeneous goods. The experiment allowed us to determine the effect of detection rate, penalty discount, and penalty rate on cartel formation and leniency application. Similar to past studies, we find that imposing a leniency program effectively deters cartel formation. However, surviving cartels quickly learn to cooperate. Leniency application is dependent on the immunity incentive (full penalty discount) and the risk of cartel detection, but not on the penalty rate.

Suggested Citation

  • Benjamin Radoc & Philip Amadeus Libre & Shanti Aubren Prado, 2020. "Incentive to squeal: an experiment on leniency programs for antitrust violators," Department of Economics, Ateneo de Manila University, Working Paper Series 202003, Department of Economics, Ateneo de Manila University.
  • Handle: RePEc:agy:dpaper:202003
    as

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    File URL: http://ateneo.edu/sites/default/files/downloadable-files/ADMU%20WP%202020-03.pdf
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    References listed on IDEAS

    as
    1. Bos, A.M. & Wandschneider, F., 2011. "Cartel ringleaders and the corporate leniency program," Research Memorandum 038, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Iwan Bos & Joseph E. Harrington, Jr, 2010. "Endogenous cartel formation with heterogeneous firms," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 92-117, March.
    3. Motta, Massimo & Polo, Michele, 2003. "Leniency programs and cartel prosecution," International Journal of Industrial Organization, Elsevier, vol. 21(3), pages 347-379, March.
    4. Maria Bigoni & Sven-Olof Fridolfsson & Chloé Le Coq & Giancarlo Spagnolo, 2012. "fines, leniency, and rewards in antitrust," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 368-390, June.
    5. Giancarlo Spagnolo, 2004. "Divide et Impera. Optimnal Deterrence Mechanisms Against Cartels and Organized Crime," Econometric Society 2004 North American Winter Meetings 485, Econometric Society.
    6. Fonseca, Miguel A. & Normann, Hans-Theo, 2012. "Explicit vs. tacit collusion—The impact of communication in oligopoly experiments," European Economic Review, Elsevier, vol. 56(8), pages 1759-1772.
    7. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    antitrust; cartel; experiment; leniency program;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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