Short and Long Run Effects of Leniency Programs on Cartel Stability and Prosecution## (2024)

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Joan-Ramon Borrell

Corresponding author: Universitat de Barcelona, Dep. d’Econometria, Estadística i Economia Aplicada- Institut d'Economia Aplicada (IREA) - Grup de Governs i Mercats (GiM), 1-11 John M. Keynes Street, Spain; and, University of Navarra, IESE Business School, Public-Private Sector Research Center. jrborrell@ub.edu

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Carmen García

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Juan Luis Jiménez

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José Manuel Ordóñez-de-Haro

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Journal of Competition Law & Economics, Volume 20, Issue 3, September 2024, Pages 181–205, https://doi.org/10.1093/joclec/nhae007

Published:

26 May 2024

Article history

Received:

06 September 2023

Revision received:

11 April 2024

Accepted:

08 May 2024

Published:

26 May 2024

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    Joan-Ramon Borrell, Carmen García, Juan Luis Jiménez, José Manuel Ordóñez-de-Haro, Short and Long Run Effects of Leniency Programs on Cartel Stability and Prosecution, Journal of Competition Law & Economics, Volume 20, Issue 3, September 2024, Pages 181–205, https://doi.org/10.1093/joclec/nhae007

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Abstract

This study investigates the effects of leniency programs on cartel duration, cartel fines, and the length of investigations, providing empirical insights that contribute to the ongoing debate regarding their theoretical and empirical implications. The introduction of leniency programs in two different jurisdictions (EU and Spain) at different times and the exogeneity of the introduction date enable us to identify their impact using difference-in-differences estimations. We empirically show that leniency programs, by destabilizing existing cartels, allow for the detection of the longer-lasting ones in the short run. In the long run, our results suggest that destabilization effects prevail, and leniency programs discourage the creation of new cartels. Specifically, our findings indicate that the duration of detected cartels almost doubles in the short run and nearly halves in the long run. Finally, our study reveals that the introduction of leniency programs results in a significant increase in the average fines per cartel case, both before and after taking into account the fine reductions resulting from these programs. This suggests that leniency programs contribute to stronger sanctions against cartels, enhancing their general deterrent effect. However, our findings also indicate that leniency programs lengthen the average duration of cartel investigations, which may hinder the ability of competition authorities to proactively pursue other cases.

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Short and Long Run Effects of Leniency Programs on Cartel Stability and Prosecution## (2024)

FAQs

What are the effects of leniency programs on cartels? ›

Leniency programs were introduced as an effective tool to reduce the punishment to the cartelists acting as whistle blower with reward of lesser penalties as compare to the other members in cartels. Section 46 of the Competition Act, 2002 empowers the Competition Commission of India to grant leniency.

What is the leniency policy for a cartel? ›

Under the policy, participants in cartel conduct can report the conduct to the Commission and cooperate with any resulting investigation and enforcement proceedings, in return for the Commission's agreement not to bring civil proceedings against them.

What impact did the 2002 reform of the EU leniency program have on cartel outcomes? ›

We find that the 2002 reform decreased cartel duration by about 87 percent, but did not significantly affect the other outcome variables.

What are the advantages and disadvantages of cartels? ›

Advantages and Disadvantages of Cartels

A cartel's power often depends on the leadership of the nation in which it operates and cartels may not be challenged on their pricing or production. While the members of a cartel profit from the agreement, both competition and the consumer suffer.

What is a cartel comment upon the stability of a cartel? ›

cartel, when each firm recognizes the effect of its movement into or out of the cartel. on the equilibrium price, a stable cartel exists. Furthermore, when firms are not. too cost efficient relative to market demand, the stable cartel is unique.

What are the penalties for a cartel? ›

Individuals
  • up to 10 years in jail, or.
  • fines of up to $626,000 per criminal cartel offence (2,000 penalty units).

What is the leniency policy in the US? ›

The Corporate Leniency Policy is specifically tailored to price-fixing, bid-rigging, and market allocation crimes in violation of 15 U.S.C. § 1, and therefore includes requirements and benefits distinct from other voluntary self-disclosure policies subsequently developed and implemented across the Justice Department.

Are cartels legal in the US? ›

In the United States, cartel behavior (including price-fixing; volume, customer, and market allocation; and bid-rigging) can be a criminal violation of antitrust laws that may result in high fines for conspiring corporations and key corporate executives, and incarceration for individual defendants.

How do cartels affect the United States? ›

The United States is deeply affected by crime and violence carried out by transnational criminal organizations, including drug cartels. These actions undermine our border security, inflict harm in our communities, and threaten the stability of our allies around the world.

Why did the cartel apologize to the US? ›

"The Mexican government doesn't have that kind of resources and the cartels know it," Felbab-Brown said. "So when the Gulf cartel realized their men mistakenly went after Americans, they decided it would be wiser to give them up and apologize." There were already signs the apology was falling flat in Washington.

What is the largest fine for the EU cartel? ›

The EU's biggest fine was 4.3 billion euros ordered against Google for abusing the dominant position of its Android mobile operating system to promote Google's search engine. A court in 2022 said the fine should be reduced to 4.125 billion euros after reviewing the duration of the infringement.

What causes cartels to fail? ›

The only way that cartels work properly is if all firms agree to produce a set amount of output and actually produce that amount of output. Cartels often fail because firms have the incentives to "cheat" on the agreement. By producing more than they agreed to produce, firms are able to increase their profits.

What factors influence the likelihood that a cartel is successful? ›

The equilibrium must increase profits to cartel members as a group and provide a mechanism for distrib- uting those profits “fairly” to member firms. The cartel must develop an incentive com- patible structure—a combination of moni- toring, rewards, and punishments—to prevent cheating by members.

What problems do cartels face? ›

Cartels break up occasionally because of cheating or lack of effective monitoring, but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions.

What factors increase the likelihood of a cartel being successful? ›

Cooperation and coordination among members: A cartel is more likely to be successful if the members factors and coordinate their activities effectively. This includes market sharing information and working together to enforce the agreement.

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