Strictness of Leniency Programs and Cartels of Asymmetric Firms

E. Motchenkova, R. Laan

Research output: Working paperDiscussion paperOther research output

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages31
Volume2005-74
Publication statusPublished - 2005

Publication series

NameCentER Discussion Paper
Volume2005-74

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Cartels
Asymmetric firms
Leniency programs
Cartel
Costs
Diversified firms
Self-reporting
Individual characteristics
Punishment
Disclosure
Law enforcement
Leniency
Asymmetry
Exemption
Modeling
Reputation effect
Self-report

Keywords

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

Cite this

Motchenkova, E., & Laan, R. (2005). Strictness of Leniency Programs and Cartels of Asymmetric Firms. (CentER Discussion Paper; Vol. 2005-74). Tilburg: Microeconomics.
Motchenkova, E. ; Laan, R. / Strictness of Leniency Programs and Cartels of Asymmetric Firms. Tilburg : Microeconomics, 2005. (CentER Discussion Paper).
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Motchenkova, E & Laan, R 2005 'Strictness of Leniency Programs and Cartels of Asymmetric Firms' CentER Discussion Paper, vol. 2005-74, Microeconomics, Tilburg.

Strictness of Leniency Programs and Cartels of Asymmetric Firms. / Motchenkova, E.; Laan, R.

Tilburg : Microeconomics, 2005. (CentER Discussion Paper; Vol. 2005-74).

Research output: Working paperDiscussion paperOther research output

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T1 - Strictness of Leniency Programs and Cartels of Asymmetric Firms

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AU - Laan, R.

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AB - 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.

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Motchenkova E, Laan R. Strictness of Leniency Programs and Cartels of Asymmetric Firms. Tilburg: Microeconomics. 2005. (CentER Discussion Paper).