Tuesday, November 8, 2011
Posted by D. Daniel Sokol F
lorence Thepot, University College London has a new article on Leniency and Individual Liability: Opening the Black Box of the Cartel.
ABSTRACT: The purpose of this article is to examine the interplay between two competition policy enforcement instruments - leniency policy and individual liability, by opening the ‘black box’ of the cartel, with the analysis of interactions both among the cartel members and within each company. The interplay of these instruments translates into a two-dimensional system: the horizontal dimension is formed by the cartel members; the vertical one by the interactions within each cartel member. We base our analysis on the theory of the firm, advocating the separation of ownership and control, and on the theory of agency that states the principles of inherent moral hazard problems between the principal (owner) and the agent (manager). The reasoning is carried out along economic and legal literature on collusive agreements, leniency programmes and individual liability. The economic literature also gives key insights on corporate governance issues that are relevant in cartels, through game theoretical approaches. Theoretical insights will help us to understand why cartel activity is a matter of agency and governance issues. The subsequent section will be dedicated to the examination of individual liability and corporate leniency policy, in the light of agency issues. Individual leniency policy will be assessed in the last section. Individual leniency programmes are in practice never used by individuals of companies of a cartel. Nonetheless, such programmes are efficient in the way they undermine both the relations between cartel members and those inside the companies. We show how opening the ‘black box’ of the cartel is of primary importance when assessing the efficiency of leniency and individual liability. Agency issues shape the interactions between actors operating in both dimensions of the system under consideration, which are the principals and the agents of the firms of the cartel.