Assignments WS 2022/2023

Effect of leniency programs on cartel rates by Baumareb (talk) 11:18, 7 December 2022 (CET)

Simulation

The leniency program of the European Commission offers the companies involved in a cartel either complete or partial immunity from fines if they self-report and hand over evidence. It was introduced in 1996, following the surge in amnesty applications in the wake of the 1993 revision of the Corporate Leniency Program of the US Department of Justice’s Antitrust Division. Reports from various implemented leniency programs showed that such programs led to numerous applications. However, despite the clear increase in leniency applications, the question poses itself as to whether the programs were also successful in a sense that the actual cartel rate in those countries declined. The simulation will be based on a study of Harrington and Chang from 2015, in which they concluded the following:

• The actual cartel rate decreases in case that the leniency program does not affect the non-leniency enforcement

• But: if the non-leniency enforcement is affected because resources are shifted to the prosecution of leniency application cases, there might be two possibilities, the cartel rate might increase.

This simulation focuses on the latter case. Assuming endogenized non-leniency enforcement, the introduction of a leniency program might have a differential impact on different industries. If a leniency program is introduced, the cartels that are about to collapse will seek to self-report. This in turn shifts resources from exposing active cartels to prosecuting cartels that are already collapsing. This creates more work for the authorities, who, instead of focusing on active cartels may now focus on dying cartels. This crowding-out effect coming about with the introduction of a leniency program shall be simulated in this project.

Goal

The simulation will have the following objectives:

• Illustrate the change in cartel rates and the change in the average life expectancy of a cartel triggered by the introduction of a leniency program in case of endogenized non-leniency enforcement for industries with unstable cartels (e.g. industries with a high number of competitors, or demand with more price elasticity) and for industries with stable cartels (e.g. industries with less competitors and demand with less price elasticity).
• Illustrate how many resources may be shifted from non-leniency enforcement to prosecuting leniency application cases without it having an undesired effect on the actual cartel rate.

Practical relevance

The simulation may be used by law enforcement officials to evaluate whether a leniency program leads to the desired effect (i.e. the decrease in the cartel rate) or not. Also, it can help for deciding whether the non-leniency enforcement needs to be strengthened to prevent the crowding-out effect.

Method

The described scenario is a multi-agent simulation in which the agents are pursuing a utility-based approach. Thus, the simulation will be done with NetLogo. The following features will be included into the simulation:

- For both industries with stable and industries with unstable cartels:

• Number of active cartels (dying after reaching avg. life expectancy)
• Number of competitors
• Average life expectancy of a cartel
• “Birth” of new cartels

- For leniency/non-leniency enforcement:

• Resources and their assignment to either leniency or non-leniency enforcement
• Capacity of taking down an active cartel
• Capacity of taking down a cartel based on leniency applications

The simulation will be based on the 2015 research from Harrington and Chang as well as on publicly accessible data from the European Commission regarding antitrust cases from 1964 until today.

Sources

• Harrington Jr, J. E., & Chang, M. H. (2015). When can we expect a corporate leniency program to result in fewer cartels?. The Journal of Law and Economics, 58(2), 417-449.
• Ordóñez‐De‐Haro, J. M., Borrell, J. R., & Jiménez, J. L. (2018). The European commission's fight against cartels (1962–2014): A retrospective and forensic analysis. JCMS: Journal of Common Market Studies, 56(5), 1087-1107.

Baumareb (talk) 11:18, 7 December 2022 (CET) Rebecca Baumann (baur00)

This isn't an easy topic. Be careful about available data. Approved Tomáš (talk) 01:46, 15 December 2022 (CET)