Friday, September 9, 2022

Inspecting Cartels over Time: With and without Leniency Program

Inspecting Cartels over Time: With and without Leniency Program


Takako Fujiwara-Greve

Keio University - Faculty of Economics

Yosuke Yasuda

Osaka University - Graduate School of Economics



Research on cartel inspection has considered dynamic behaviors of firms but not of the regulator. The current paper allows the antitrust authority to choose the level of cartel monitoring intensity and its dynamic patterns. Specifically, we compare stationary monitoring policies with "switching" policies that randomize cartel detecting probabilities over time with the same mean probability as the former. We show that (i) without leniency, both policies have the same effect on cartel deterrence, but stationary policies can be more costly if the implementation cost is the usual inverted S-shape, and (ii) with leniency, switching policies can use lower amnesty rates (reduction of the fine) without compromising the effectiveness of cartel deterrence. The advantage of randomizing monitoring intensity arises because firms give up colluding in high-intensity periods, which reduces the continuation value of the cartel agreement even in low-intensity periods. Our results provide new scope for competition policy.

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