The leniency rule revisited: Experiments on cartel formation with open communication

Abstract

The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result.

How Communication Makes the Difference between a Cartel and Tacit Collusion: A Machine Learning Approach

“…Similar to the topic model, this coding shows that the share of explicit messages is higher in NoSanction, at 0.15 (SD = 0.09), than in Sanction, at 0.04 (SD = 0.04; p < 0.001). These results are also in line with those reported inAndres et al (2021).…”

“…We had already collected data for treatments Fine and Leniency when we started this project. The comparison between these two treatments is the subject ofAndres et al (2021). There we find no effect of a leniency rule, neither on different measures of cartelization nor on communication.…”

“…In Andres et al (2021), we study the effect of a leniency rule on cartelization and prices. As we do not find significant differences in cartelization or average market prices between Fine and Leniency there, we pool the data from these two treatments under the joint name Sanction when comparing market outcomes to the NoSanction treatment in Section 5.1.…”

“…Common estimates suggest that about 75% of all communication does not relate to the main theme of the conversation (see Dunbar, 1998). 32 In Appendix B we provide statistical test results for the separate comparisons between NoSanction and Fine or Leniency because we did not analyze communication patterns in Andres et al (2021) and, thus, cannot be sure that there are no differences in communication patterns between these subtreatments. 0.06; p < 0.001).…”

Cartel Leniency and Settlements: A Joint Perspective

“…Several scholars have investigated the effect of leniency programs experimentally. The conclusions of these studies are varied, with some reporting positive results in terms of the effect of leniency on cartel formation and collusive prices (Hinloopen and Soetevent, 2008), while others report more mixed or weak results (Bigoni et al, 2012(Bigoni et al, , 2015Andres et al, 2021;Dijkstra et al, 2021). Brenner (2009) investigates the effectiveness of the 1996 EU leniency program from an empirical perspective and concludes that this program was successful in reducing prosecution costs by promoting the flow of information from investigated cartels to the competition authority.…”