Maximal Cartel Pricing and Leniency Programs

Posted by D. Daniel Sokol

Harold Houba, VU University Amsterdam - Department of Economics, Evguenia Motchenkova, VU University Amsterdam, and Quan Wen, Vanderbilt University - Department of Economics discuss Maximal Cartel Pricing and Leniency Programs.

ABSTRACT: For a general class of oligopoly models with price competition, we analyze the impact of ex-ante leniency programs in antitrust regulation on the endogenous maximal-sustainable cartel price. This impact depends upon industry characteristics including its cartel culture. Our analysis disentangles the effects of traditional antitrust regulation and the leniency program. Ex-ante leniency programs are effective if and only if these offer substantial rewards to the self-reporting firm. This is in contrast to currently employed programs that are therefore ineffective.