Self-Defeating Antitrust Laws: How Leniency Programs Solve Bertrand's Paradox and Enforce Collusion in Auctions

Abstract:     
I find that current US's and EU's Antitrust laws -- in particular their "moderate" leniency programmes that only reduce or at best cancel sanctions for price-fixing firms that self-report -- may make collusion enforceable even in one-shot competitive interactions, like Bertrand oligopolies and first-price auctions, where no collusion would be supportable otherwise. The reduced sanctions for firms that self-report provide the otherwise missing credible threat necessary to discipline collusive agreements: they ensure that if a firm unilaterally deviates from collusive strategies, other firms find it convenient to punish it by reporting information to the Antitrust Authority.

Keywords: Antitrust law, leniency, self-reporting, cartels, collusion, bid-rigging, oligopoly, auctions

JEL Classifications: D43, D44, K21, L41

Working Paper Series