Do Discriminatory Leniency Policies Fight Hard‐Core Cartels?

19 Pages Posted: 11 Apr 2019

See all articles by Georg Clemens

Georg Clemens

Compass Lexecon

Holger Andreas Rau

University of Goettingen (Gottingen)

Multiple version iconThere are 2 versions of this paper

Date Written: Summer 2019

Abstract

This paper experimentally analyzes the effects of nondiscriminatory and discriminatory leniency policies on hard‐core cartels. We design a mechanism to form a hard‐core cartel, which allows that multiple ringleaders emerge. Ringleaders often take a leading role in the coordination and formation of hard‐core cartels. A leniency policy that grants amnesty to all “whistle‐blowers” except for ringleaders may therefore reduce the incentive to become a ringleader and disrupt cartel formation. Yet, our experimental results show that whistle‐blowing rarely occurs. Paradoxically, the discriminatory leniency policy induces firms to become ringleaders. We find that firms create trust among other firms when acting as ringleaders. This signaling effect ultimately facilitates coordination in the explicit cartel.

Keywords: cartels, experiment, leniency programs, ringleader discrimination

JEL Classification: C92, K21, L41

Suggested Citation

Clemens, Georg and Rau, Holger Andreas, Do Discriminatory Leniency Policies Fight Hard‐Core Cartels? (Summer 2019). Journal of Economics & Management Strategy, Vol. 28, Issue 2, pp. 336-354, 2019. Available at SSRN: https://ssrn.com/abstract=3369870 or http://dx.doi.org/10.1111/jems.12281

Georg Clemens (Contact Author)

Compass Lexecon ( email )

23 Square de Meeûs
Brussels, 1000
Belgium

Holger Andreas Rau

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

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