Affiliation:
1. Department of Economics Carleton University Ottawa Canada
2. Sauder School of Business University of British Columbia Vancouver Canada
Abstract
AbstractOver the last few decades, leniency programs have become important components of anti‐cartel policies in many jurisdictions. An extensive literature shows how such programs can destabilize cartels and even discourage their formation in the first place. Much less studied are settlement policies under which reduced fines are offered to settling parties late in the prosecution (when the probability of conviction is high). In particular, there has been little attention paid to the interaction of leniency and settlement policies. This paper examines whether the availability of late‐stage settlements could negatively impact the effectiveness of early‐stage leniency programs. Our main finding is that an appropriately designed settlement program can make collusion more difficult: In equilibrium, the adoption of an optimal settlement program by the Antitrust Authority reduces the occurrence of cartels by decreasing the long‐run gain from collusion. However, an overly generous settlement policy may undermine leniency programs and encourage the formation of more cartels.
Funder
Social Sciences and Humanities Research Council of Canada
Subject
Management of Technology and Innovation,Management Science and Operations Research,Strategy and Management,Business and International Management