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

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  • Leliefeld, D.
  • Motchenkova, E.

    (Tilburg University, School of Economics and Management)

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.
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Suggested Citation

  • Leliefeld, D. & Motchenkova, E., 2007. "To Protect in Order to Serve : Adverse Effects of Leniency Programs in View of Industry Asymmetry," Other publications TiSEM cdc81d9b-34c3-4e1c-85b8-1, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:cdc81d9b-34c3-4e1c-85b8-185a01ab0d0b
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    File URL: https://repository.tilburguniversity.edu/bitstreams/bb5ddc8c-fa28-4df5-a185-99b53511528c/download
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    References listed on IDEAS

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    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
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    6. Motchenkova, E., 2004. "Effects of Leniency Programs on Cartel Stability," Other publications TiSEM 20443b22-326b-4ff4-b785-0, Tilburg University, School of Economics and Management.
    7. E. Motchenkova & P. M. Kort, 2006. "Analysis of Current Penalty Schemes for Violations of Antitrust Laws," Journal of Optimization Theory and Applications, Springer, vol. 128(2), pages 431-451, February.
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    9. Motchenkova, E. & Kort, P.M., 2004. "Analysis of the Properties of Current Penalty Schemes for Violations of Antitrust Law," Discussion Paper 2004-97, Tilburg University, Center for Economic Research.
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    Cited by:

    1. Bos, A.M. & Wandschneider, F., 2011. "Cartel ringleaders and the corporate leniency program," Research Memorandum 038, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    2. Lazrak, F. & Nijkamp, P. & Rietveld, P. & Rouwendal, J., 2011. "The market of listed heritage: An urban economic application of spatial hedonic pricing," Serie Research Memoranda 0027, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.

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    More about this item

    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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