Thursday, June 25, 2015

Denying Leniency to Cartel Instigators: Costs and Benefits

Zhiqi Chen (Department of Economics, Carleton University); Subhadip Ghosh (Grant MacEwan University); and Thomas W. Ross (Sauder School of Business, University of British Columbia) explore Denying Leniency to Cartel Instigators: Costs and Benefits.

ABSTRACT:  A large number of countries have introduced successful leniency programs into their competition law enforcement to encourage colluding firms to come forward with evidence that will help detect cartels and punish price-fixers. This paper studies a feature of some of these programs that has received relatively little attention in the literature: the inclusion of “No Immunity for Instigators Clauses” (NIICs). These provisions deny leniency benefits to parties that instigate cartel behavior or function as cartel ringleaders. Our results show that NIICs can lead to increased or decreased levels of cartel conduct. By removing the instigator’s benefit from cooperating with the authorities, a NIIC undoes some of the destabilizing benefit the leniency program was intended to generate and thereby furthers cartel stability. On the other hand, the instigator faces an asymmetrically severe punishment under a NIIC and this can reduce the incentive to instigate in! the first place.

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