The Effect of Leniency Rule on Cartel Formation and Stability: Experiments with Open Communication

41 Pages Posted: 11 Dec 2019

See all articles by Maximilian Andres

Maximilian Andres

University of Potsdam

Lisa Bruttel

Humboldt University of Berlin

Jana Friedrichsen

Humboldt University of Berlin - Faculty of Economics; WZB Berlin Social Science Center; German Institute for Economic Research (DIW Berlin)

Date Written: November 29, 2019

Abstract

Cartels can severely harm social welfare. Competition authorities introduced leniency rules to destabilize existing cartels and hinder the formation of new ones. Empirically, it is difficult to judge the success of these measures because functioning cartels are unobservable. Existing experimental studies confirm that a leniency rule indeed reduces cartelization. We extend these studies by having a participant in the role of the competition authority actively participating in the experiment. Based on chat communication content and price setting behavior, this authority judges whether firms formed a cartel and decides on fines in real time. We find that a leniency rule does not affect cartelization in this setup.

Keywords: cartels, corporate leniency programs, Bertrand competition, experiments

JEL Classification: C92, D43, L41

Suggested Citation

Andres, Maximilian and Bruttel, Lisa and Friedrichsen, Jana, The Effect of Leniency Rule on Cartel Formation and Stability: Experiments with Open Communication (November 29, 2019). DIW Berlin Discussion Paper No. 1835 (2019), Available at SSRN: https://ssrn.com/abstract=3501417 or http://dx.doi.org/10.2139/ssrn.3501417

Maximilian Andres

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany

Lisa Bruttel

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Jana Friedrichsen (Contact Author)

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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