The effectiveness of leniency programs when firms choose the degree of collusion

An antitrust authority grants leniency pre- and post-investigation. It chooses the probability of an investigation. Firms pick the degree of collusion: The more they collude, the higher are profits, but so is the probability of detection. Firms thus trade-off higher profits against higher expected f...

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Bibliographic Details
Published in:International journal of industrial organization 2020-05, Vol.70, p.102619, Article 102619
Main Author: Emons, Winand
Format: Article
Language:English
Subjects:
Antitrust
Cartels
Deterrence
Leniency
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Summary:An antitrust authority grants leniency pre- and post-investigation. It chooses the probability of an investigation. Firms pick the degree of collusion: The more they collude, the higher are profits, but so is the probability of detection. Firms thus trade-off higher profits against higher expected fines. If firms are sufficiently patient, leniency is ineffective; it may even increase collusion. Increasing the probability of an investigation at low levels does not increase deterrence. Increasing the probability of an investigation at high levels reduces collusion, yet never completely. With bare pre-investigation leniency, deterrence is better than without leniency. If firms are sufficiently impatient, granting leniency pre- and post- is better than merely pre-investigation.
ISSN:0167-7187
DOI:10.1016/j.ijindorg.2020.102619