DP13262 The Effectiveness of Leniency Programs when Firms choose the Degree of Collusion

Author(s): Winand Emons
Publication Date: October 2018
Keyword(s): Antitrust, cartels, deterrence, Leniency
JEL(s): D43, K21, K42, L40
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13262

An antitrust authority deters collusion using fines and a leniency program. 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.