Friday, October 28, 2011
Posted by D. Daniel Sokol
Jun Zhou, Bonn University, Wirtschaftspolitische Abteilung offers New Evidence on the Efficacy of Leniency.
ABSTRACT: This paper examines the effects of the European Commission's (EC) new leniency program on the EC's capabilities in detecting and deterring cartels. I discuss a dynamic model of cartel formation and dissolution to illustrate how changes in antitrust policies and economic conditions might affect cartel duration. Comparative statics results are then corroborated with empirical estimates of hazard functions adjusted to account for both the heterogeneity of cartels and the time-varying policy impacts suggested by theory. Statistical tests are consistent with the theoretic predictions that following an efficacious leniency program, the average duration of discovered cartels rises in the short run and falls in the long run.