To Protect in Order to Serve: Adverse Effects of Leniency Programs in View of Industry Asymmetry

D. Leliefeld, E. Motchenkova

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Abstract

This paper studies the application of leniency programs. An analysis of the structure and design of leniency programs and existing literature raises a new question: Are leniency programs effective, in the sense that they deter cartels from formation, in asymmetrical markets? A game theoretical model, which allows for asymmetry and predatory pricing, is used to provide an answer. A leniency program does not always lead to a breach of trust. We find that, in certain industries, leniency programs are unable to break collusion. They may have the adverse effect in the sense that they strengthen cartel stability or may even lead to abuse of market power. A relatively large firm can use coercion to remove the option to a smaller firm to self-report to the authorities, thus removing the risk of prosecution posed by the program. In industries characterized by a certain degree of asymmetry in market shares and high sunk costs this is an even more likely scenario. In view of this limitation, a number of policy implications are provided in the paper. Policies aimed at the removal of the threat of retaliation need to be considered in order to convict and deter these kinds of cartels.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages30
Volume2007-007
Publication statusPublished - 2007

Publication series

NameTILEC Discussion Paper
Volume2007-007

Keywords

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

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