Strictness of Leniency Programs and Cartels of Asymmetric Firms

CentER Discussion Paper No. 2005-74

30 Pages Posted: 11 Jul 2005

See all articles by Evgenia Motchenkova

Evgenia Motchenkova

VU University Amsterdam - Department of Economics; TILEC

Rob van der Laan

Netherlands Competition Authority (NMa) - Dienst uitvoering en toezicht Energie (DTe)

Date Written: June 2005

Abstract

This paper studies the effects of leniency programs on the behavior of firms participating in illegal cartel agreements. The main contribution of the paper is that we consider asymmetric firms. In general, firms differ in size and operate in several different markets. In our model, they form a cartel in one market only. This asymmetry results in additional costs in case of disclosure of the cartel, which are caused by an asymmetric reduction of the sales in other markets due to a negative reputation effect. This modeling framework can also be applied to the case of international cartels, where firms are subject to different punishment procedures according to the laws of their countries, or in situations where following an application for leniency firms are subject to costs other than the fine itself and where these costs depend on individual characteristics of the firm. Moreover, following the rules of existing Leniency Programs, we analyze the effects of the strictness of the Leniency Programs, which reflects the likelihood of getting complete exemption from the fine even in case many firms self-report simultaneously. Our main results are that, first, leniency programs work better for small (less diversified) companies, in the sense that a lower rate of law enforcement is needed in order to induce self-reporting by less diversified firms. At the same time, big (more diversified) firms are less likely to start a cartel in the first place given the possibility of self-reporting in the future. Second, the more cartelized the economy, the less strict the rules of leniency programs should be.

Keywords: Antitrust policy, antitrust law, self-reporting, leniency programs

JEL Classification: K21, L41

Suggested Citation

Motchenkova, Evgenia and van der Laan, Rob, Strictness of Leniency Programs and Cartels of Asymmetric Firms (June 2005). CentER Discussion Paper No. 2005-74, Available at SSRN: https://ssrn.com/abstract=756345 or http://dx.doi.org/10.2139/ssrn.756345

Evgenia Motchenkova (Contact Author)

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Rob Van der Laan

Netherlands Competition Authority (NMa) - Dienst uitvoering en toezicht Energie (DTe) ( email )

Postbus 16326
2500 BH Den Haag
Netherlands

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