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Cartel dynamics and Leniency policy: Self-reporting to start over with a clean slate

Author

Listed:
  • Adriana Alventosa

    (ERI-CES, Universitat de València)

  • José Manuel Ordóñez-de-Haro

    (Departamento de Teoría e Historia Económica. Universidad de Málaga.)

  • Javier Rodero Cosano

    (Smart Decision Lab, Departamento de Teoría e Historia Económica. Universidad de Málaga.)

Abstract

This paper develops a dynamic discrete-time model of collusive behaviour in which firms can apply for leniency to reduce fines. We propose a sequential-move game inspired by the centipede game, capturing firms' incentives to be the first to self-report a cartel. The model examines cartel formation, stability, and recidivism, assuming that fines apply to the undiscovered record of collusion, not just current conduct. We find that when collusion is attractive but the leniency programme is not sufficiently generous, firms form a single cartel without self-reporting. However, when collusion is highly attractive and the leniency programme sufficiently generous, it can destabilize cartels but also foster recidivism: firms use leniency to ``clean the slate'' and restart collusion at a lower expected cost. This equilibrium behaviour may help explain the empirically observed prevalence of short-lived cartels and repeat offenders under existing leniency regimes.

Suggested Citation

  • Adriana Alventosa & José Manuel Ordóñez-de-Haro & Javier Rodero Cosano, 2025. "Cartel dynamics and Leniency policy: Self-reporting to start over with a clean slate," Working Papers 2025-02, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
    • Handle: RePEc:mal:wpaper:2025-2
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    References listed on IDEAS

    as
    1. 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, vol. 7(6), pages 1400-1435, December.
    2. Motchenkova, E., 2004. "Effects of Leniency Programs on Cartel Stability," Other publications TiSEM d6321c1e-b79a-4aae-8ef5-d, Tilburg University, School of Economics and Management.
    3. Harold Houba & Evgenia Motchenkova & Quan Wen, 2010. "Antitrust enforcement with price-dependent fines and detection probabilities," Economics Bulletin, AccessEcon, vol. 30(3), pages 2017-2027.
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    More about this item

    Keywords

    Antitrust; Cartels; Recidivism; Leniency; Dynamic Games;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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