Antitrust Amnesty, Game Theory, and Cartel Stability
36 Pages Posted: 16 Aug 2006
This paper reviews, and proposes revisions to, the government's Corporate Leniency Policy, which confers leniency upon the first member of a price-fixing cartel to expose the illegal activity to the DOJ's Antitrust Division. Three important limitations apply. First, the ringleader of the cartel is ineligible for immunity. Second, leniency is not automatic if the government has its own internal investigation significantly underway. Third, a firm must confess "promptly" in order to qualify for amnesty.
This paper proposes doing away with these limitations. It may seem counter-intuitive to enact policies that make it easier for the worst antitrust criminals to escape all criminal and most civil liability. Yet this paper argues that extending amnesty eligibility to cartel ringleaders (who have often profited the most from the illegal activity, sometimes for decades) makes cartels more fragile. Perhaps even more counter-intuitively, the paper shows that an antitrust leniency program would have a greater destabilizing effect on price-fixing cartels if the first firm to confess receives full amnesty automatically even if it did not do so "promptly" and even though antitrust prosecutors through their own investigation prior to any confession had already acquired sufficient evidence to convict the firm of criminal price-fixing. While the short-term effect would allow some price-fixers to escape criminal liability, in the long-run extending amnesty should increase deterrence of future cartels and destabilize existing ones.
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