On the Rationale of Leniency Programs: a Game-Theoretical Analysis

In order to enhance the enforcement of Antitrust Law, leniency policies were introduced in nearly all industrialized countries. These programs aim at deterring and eliminating cartels. In this paper we analyze the rationale of the current European and German leniency regulation. We challenge the contemporary view that the standard leniency privilege is incentive-compatible with respect to its aim to enhance competition. Instead, we argue for it to be used as a preemptive strike against competitors under circumstances where cartels become unstable. This implies a tightening of markets in subsequent periods and, thus, a potential reduction in competition intensity. Given strategic reasoning by agents, the principal witness may assure an economically privileged position in the future. This consequence might not be intended by the bonus regulations. Nevertheless if the leniency policies lead to more competition in the market the results should be welcomed by the national cartel offices. We give anecdotal evidence of the German cement case and base our arguments on a game-theoretical model.

29. July 2008

Authors Ulrich Blum Nicole Steinat Michael A. Veltins

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