Cartel Destabilization and Leniency Programs – Empirical Evidence

Free competition on markets is a major concern in competition policy. The cartelization of firms is a threat to free competition. One major instrument antitrust authorities have and use increasingly frequently is leniency programs. Leniency programs, as a device for cartel detection and cartel destabilization, have been implemented, or reformed, across countries since the early nineties (i.e. USA 1993, European Union 1996). These programs allow for cartel fine avoidance or at least for significant reductions of fines for a cartel member who denounces a cartel. Theoretical literature widely analyzed leniency programs, showing that they can be an effective tool to destabilize, detect and deter cartels. However, it is possible for the opposite effect to occur. For instance, an increase in the number of cartels may occur, due to lower expected costs of fines, which in turn stimulates cartelization. Empirical literature tries to analyze whether leniency programs are effective but stays inconclusive given that identification is derived solely from detected cartels. Therefore, it is not clear whether a possible success of a leniency program, which is indicated by an increasing number of uncovered cartels, is due to more efficient cartel prosecution or due to a greater pool of existent cartels. This paper attempts to answer these open questions. The efficiency of leniency programs is measured empirically by the impact on the competition intensity. As a widely used measure I employ the price cost margin. Econometric estimations based on OECD data for 23 countries and a period of 20 years shows positive and significant effects of leniency programs on the competition intensity. This result indicates that leniency programs are an effective device for cartel detection and cartel destabilization.

Klein, Gordon Jochem (2010), Cartel Destabilization and Leniency Programs – Empirical Evidence, ZEW Discussion Paper No. 10-107, Mannheim.