The cornerstone of cartel enforcement in the United States and elsewhere is a commitment to the lenient prosecution of early confessors. A burgeoning game theoretical literature is ambiguous regarding the impacts of leniency. I develop a theoretical model of cartel behavior that provides empirical predictions and moment conditions, and apply the model to the complete set of indictments and information reports issued over a 20-year span. Statistical tests are consistent with the notion that leniency enhances deterrence and detection capabilities. The results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime. (JEL D43, L12, L13, K21) In 1993, the Department of Justice (DOJ) introduced a new leniency program, with the intent of destabilizing existing cartels and deterring new cartels. The program commits the DOJ to the lenient prosecution of early confessors. In particular, it guarantees complete amnesty from federal prosecution to the first confessor from each cartel, provided that an investigation into the confes sor's cartel is not already underway. It also offers discretionary penalty reductions to conspirators who confess when an investigation is already ongoing. The new leniency program has become the cornerstone of cartel enforcement efforts in the United States (e.g., Scott D. Hammond 2004) and recently has inspired antitrust authorities in Australia, Canada, the European Union, Japan, South Korea, and elsewhere to introduce similar programs (OECD 2002, 2003). This paper tests the efficacy of the new leniency program. The results have implications for market efficiency and enforcement efforts against cartels and other forms of organized crime. A burgeoning game-theoretical literature is ambiguous regarding the impacts of leniency. A common finding is that leniency may destabilize cartels because conspirators can simultane

/pdf/strategic-leniency-and-cartel-enforcement-1bs3fnhs4i.pdf

Strategic Leniency and Cartel Enforcement

This study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs. Though it can be optimal to provide only partial leniency, plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward. It is also shown that restrictions should be placed on when amnesty is awarded, though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony.

/pdf/optimal-corporate-leniency-programs-il9ywcv2m7.pdf

Optimal corporate leniency programs

This paper distills and organizes facts about cartels from about 20 European Commission decisions over 2000-2004. It describes the properties of a collusive outcome in terms of the setting of price and a market allocation, monitoring of agreements with respect to price but more importantly sales, punishment methods for enforcing an agreement and also the use of buy-backs to compensate cartel members, methods for responding to external disruptions from non-cartel suppliers and handling over-zealous sales representatives, and operational procedures in terms of the frequency of meetings and the cartel’s organizational structure.

/pdf/how-do-cartels-operate-11xkgdbngf.pdf

How Do Cartels Operate

The paper reviews the recent evolution of leniency programs for cartels in the US and EU, surveys their theoretical economic analyses, and discusses the empirical and experimental evidence available, also looking briefly at related experiences of rewarding whistleblowers in other fields of law enforcement. It concludes with a list of desiderata for leniency and whistleblower reward programs, simple suggestions how to improve current ones, and an agenda for future research. The issues discussed appear relevant to the fight of other forms of multiagent organized crime - like auditor-manager collusion, financial fraud, or corruption - that share with cartels the crucial features that well designed leniency and whistleblower programs exploit.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID936400_code347008.pdf?abstractid=936400&mirid=1

Leniency and whistleblowers in antitrust

https://www.fep.up.pt/conferences/earie2005/cd_rom/Session%20VII/VII.G/brenner.pdf

An empirical study of the European corporate leniency program

Previous research exploring the effect of corporate leniency programs has modeled the oligopoly stage game as a Prisoners' Dilemma Using numerical analysis, we consider the Bertrand price game and allow the probability of detection and penalties to be sensitive to firms' prices Consistent with earlier results, a maximal leniency program necessarily makes collusion more difficult However, we also find that partial leniency programs—such as in the US—can make collusion easier compared to offering no leniency We also show that even if cartel formation is not deterred, a leniency program can reduce the prices charged by firms

/pdf/the-impact-of-the-corporate-leniency-program-on-cartel-5fuu2226h9.pdf

The impact of the corporate leniency program on cartel formation and the cartel price path

https://repository.upenn.edu/cgi/viewcontent.cgi?article=1158&context=bepp_papers

Cartel pricing dynamics with cost variability and endogenous buyer detection

Previous research exploring the effect of corporate leniency programs has modelled the oligopoly stage game as a Prisoners?Dilemma. Using numerical analysis, we consider the Bertrand price game and allow the probability of detection and penalties to be sensitive to firms?prices. Consistent with earlier results, a maximal leniency program necessarily makes collusion more difficult. However, we also find that partial leniency programs - such as in the U.S. - can make collusion easier compared to offering no leniency. We also show that even if cartel formation is not deterred, a leniency program can reduce the prices charged by firms.

he Impact of the Corporate Leniency Program on Cartel Formation and the Cartel Price Path

This paper characterizes collusive pricing patterns when buyers may detect the presence of a cartel. Buyers are assumed to become suspicious when observed prices are anomalous. We find that the cartel price path is comprised of two phases. During the transitional phase, price is generally rising and relatively unresponsive to cost shocks. During the stationary phase, price responds to cost but is much less sensitive than under non-collusion or simple monopoly. The length of the transition phase is decreasing in the variance of cost shocks. It is also shown that the cartel price path may overshoot its long-run level so that price converges from above.

Joe Chen

Papers

The impact of the corporate leniency program on cartel formation and the cartel price path

Cartel pricing dynamics with cost variability and endogenous buyer detection

he Impact of the Corporate Leniency Program on Cartel Formation and the Cartel Price Path

Cartel Pricing Dynamics with Cost Variability and Endogenous Buyer Detection