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Strictness of Leniency Programs and Cartels of Asymmetric Firms

Author

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  • Motchenkova, E.

    (Tilburg University, Center For Economic Research)

  • Laan, R.

Abstract

This paper studies the effects of leniency programs on the behavior of firms participating in illegal cartel agreements.The main contribution of the paper is that we consider asymmetric firms.In general, firms differ in size and operate in several different markets.In our model, they form a cartel in one market only.This asymmetry results in additional costs in case of disclosure of the cartel, which are caused by an asymmetric reduction of the sales in other markets due to a negative reputation effect.This modeling framework can also be applied to the case of international cartels, where firms are subject to different punishment procedures according to the laws of their countries, or in situations where following an application for leniency firms are subject to costs other than the fine itself and where these costs depend on individual characteristics of the firm.Moreover, following the rules of existing Leniency Programs, we analyze the effects of the strictness of the Leniency Programs, which reflects the likelihood of getting complete exemption from the fine even in case many firms self-report simultaneously.Our main results are that, first, leniency programs work better for small (less diversified) companies, in the sense that a lower rate of law enforcement is needed in order to induce self-reporting by less diversified firms.At the same time, big (more diversified) firms are less likely to start a cartel in the first place given the possibility of self-reporting in the future.Second, the more cartelized the economy, the less strict the rules of leniency programs should be.

Suggested Citation

  • Motchenkova, E. & Laan, R., 2005. "Strictness of Leniency Programs and Cartels of Asymmetric Firms," Discussion Paper 2005-74, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:90dd8ebe-c992-44b4-bc5d-27891cec3389
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    References listed on IDEAS

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    1. Garoupa, Nuno, 2001. "Optimal magnitude and probability of fines," European Economic Review, Elsevier, vol. 45(9), pages 1765-1771, October.
    2. Malik Arun S., 1993. "Self-Reporting and the Design of Policies for Regulating Stochastic Pollution," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 241-257, May.
    3. Innes, Robert, 1999. "Remediation and self-reporting in optimal law enforcement," Journal of Public Economics, Elsevier, vol. 72(3), pages 379-393, June.
    4. Garoupa, Nuno, 1997. " The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-295, September.
    5. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
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    Citations

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    Cited by:

    1. Motchenkova, Evgenia, 2008. "Determination of optimal penalties for antitrust violations in a dynamic setting," European Journal of Operational Research, Elsevier, vol. 189(1), pages 269-291, August.
    2. Leliefeld, Daniel & Motchenkova, Evgenia, 2007. "To protect in order to serve, adverse effects of leniency programs in view of industry asymmetry," Serie Research Memoranda 0002, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    3. Catherine ROUX & Thomas VON UNGERN-STERNBERG, 2007. "Leniency Programs in a Multimarket Setting: Amnesty Plus and Penalty Plus," Cahiers de Recherches Economiques du Département d'économie 07.03, Université de Lausanne, Faculté des HEC, Département d’économie.
    4. Zhou, Jun, 2011. "Evaluating Leniency with Missing Information on Undetected Cartels: Exploring Time-Varying Policy Impacts on Cartel Duration," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 353, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. Brenner, Steffen, 2009. "An empirical study of the European corporate leniency program," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 639-645, November.
    6. Hoang, Cung Truong & Hüschelrath, Kai & Laitenberger, Ulrich & Smuda, Florian, 2014. "Determinants of self-reporting under the European corporate leniency program," International Review of Law and Economics, Elsevier, vol. 40(C), pages 15-23.
    7. Motta, Alberto & Burlando, Alfredo, 2007. "Self reporting reduces corruption in law enforcement," MPRA Paper 5332, University Library of Munich, Germany, revised 23 Jun 2007.

    More about this item

    Keywords

    Antitrust Policy; Antitrust Law; Self-reporting; Leniency Programs;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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