Inspecting Cartels over Time: with and without Leniency Program

Abstract

Research on cartel inspection has focused on the dynamic behaviors of firms but not so much on the dynamic behavior of the regulator. This paper allows the antitrust authority to choose the level of cartel monitoring intensity and its varying patterns. Specifically, we compare stationary monitoring policies with "switching" policies that randomize cartel-detecting probabilities over time with the same mean probability as the former. Under a simplified Bertrand competition, (i) without leniency, both policies have the same effect on cartel deterrence, and (ii) with leniency, switching policies can use lower amnesty rates (reduction of the fine) without compromising the effectiveness of cartel deterrence. The synergy between randomizing monitoring intensity and leniency arises because a deviating firm can use leniency to increase the deviation value only in high-intensity periods, which makes collusion more difficult.

Keywords: dynamic regulation, collusion, leniency program, repeated game

JEL Classification: C73, L13, L41