Leniency Programs Joe Harrington Leniency Programs: Introduction Experience of Past Experiences and Future Challenges Leniency Programs Economics of a Leniency Program Joe Harrington (Johns Hopkins University) Maximizing the Impact of a Leniency Instituto Milenio SCI Program Measuring the Impact of December 13, 2010 Cartel Enforcement
Introduction Leniency Programs Joe Harrington Cartel enforcement can be made more e¤ective by Introduction Experience of raising the probability of detection and conviction Leniency raising penalties Programs Economics of A corporate leniency program o¤ers reduced penalties to a a Leniency Program cartel member, in exchange for cooperating with the Maximizing competition authority. the Impact of a Leniency Currently, more than 50 countries and unions have Program Measuring the leniency programs. Impact of Cartel Enforcement
Introduction Leniency Programs Joe Harrington Introduction Overview Experience of Leniency Programs Economics of Experience of leniency programs 1 a Leniency Program Economics of leniency programs 2 Maximizing the Impact of Maximizing the impact of a leniency program 3 a Leniency Program Measuring the impact of cartel enforcement 4 Measuring the Impact of Cartel Enforcement
Experience of Leniency Programs United States Leniency Programs U.S. (1978, revised 1993, revised 2004) Joe Harrington Pre-1993: about one application per year (17 applications in total) Introduction Post-1993: 1-2 per month; 20-fold increase in the number Experience of Leniency of applications Programs 1991 Revision of Federal Sentencing Guidelines Economics of a Leniency substantially raised government penalties. Program Maximizing 1990-91 the Impact of a Leniency Program Average corporate …ne was $320,000. Largest corporate …ne was $2 million. Measuring the Impact of Cartel Post-1991 Enforcement 18 companies have been …ned more than $100 million. Ho¤man LaRoche - $500 million (1999).
Experience of Leniency Programs United States Leniency Programs Joe Harrington Introduction Experience of Leniency Programs Economics of a Leniency Program Maximizing the Impact of a Leniency Program Measuring the Impact of Cartel Enforcement
Experience of Leniency Programs United States Leniency Programs More extensive use of jail time. Joe Harrington 2004: Increase in maximum prison time to 10 years. Introduction Experience of Leniency Programs Economics of a Leniency Program Maximizing the Impact of a Leniency Program Measuring the Impact of Cartel Enforcement
Experience of Leniency Programs European Union Leniency Programs EU (1996, revised 2002) Joe Initially overwhelmed with applications. Harrington "DG Competition is now in many ways the victim of its Introduction own success; leniency applicants are ‡owing through the Experience of Leniency door of its o¢ces, and as a result the small Cartel Programs Directorate is overwhelmed with work." (Riley, Economics of Competition Law Review , 2007) a Leniency Program Provided partial or full leniency in 45 of 50 cartel cases Maximizing (1998 - 2007) the Impact of a Leniency Signi…cant increase in penalties Program Measuring the Leniency lowered average …nes per cartel by almost 40% Impact of Cartel from 199 million to 123 million euros (1998 - 2007) Enforcement Saint-Gobain, e 896 million (2008) Fines can now be 12 times additional pro…ts earned through collusion.
Experience of Leniency Programs European Union Leniency Programs Joe Harrington EC Fines (2003 - 2009) Introduction Experience of Leniency Programs Economics of a Leniency Program Maximizing the Impact of a Leniency Program Measuring the Impact of Cartel Enforcement
Experience of Leniency Programs Leniency Programs Joe South Africa is receiving about three applications per Harrington month (exceeding the current U.S. rate of two per month). Introduction Spain Experience of Leniency Programs 28 February 2008: Leniency program is activated. Seven Economics of applications are received on the …rst day. a Leniency 21 January 2010: First sanctions decision adopted by the Program CNC based on a leniency application. Maximizing the Impact of a Leniency What may be responsible for an active leniency program? Program Some chance of the cartel being caught by the authorities. Measuring the Impact of Clear and reasonable legal standards for proving guilt. Cartel Enforcement Large penalties.
Economics of a Leniency Program Leniency Programs Joe Firm 2 Harrington Apply Not apply Introduction d + 1 2 f , d + 1 d , d + f Firm 1 Apply 2 f Experience of d + f , d p ( d + f ) , p ( d + f ) Not apply Leniency Programs Economics of a Leniency f is the penalty avoided by receiving leniency (for example, Program government …ne) Maximizing the Impact of d is the penalty not avoided by receiving leniency (for a Leniency Program example, customer damages) Measuring the Impact of p is the probability of a conviction when neither …rm Cartel Enforcement applies for leniency. Each …rm chooses the option that minimizes expected penalties.
Economics of a Leniency Program Leniency Programs Joe Harrington Solution when the probability of being convicted is low: d p ( d + f ) < d or p < d + f . Introduction Experience of Solution 1: Both apply for leniency. Leniency Programs Solution 2: Both do not apply for leniency. Economics of Coordination game, and …rms want to coordinate on not a Leniency applying. Program Maximizing Solution when the probability of being convicted is high: the Impact of a Leniency d p ( d + f ) > d or p > d + f . Program Measuring the Unique solution: Both apply for leniency. Impact of Cartel Prisoners’ Dilemma (dominant strategy is "apply") Enforcement
Economics of a Leniency Program Leniency Programs Leniency is a Prisoners’ Dilemma when probability of being Joe Harrington caught exceeds % of penalty not covered by leniency . Introduction An objective of competition policy is to turn a Experience of coordination game into a Prisoners’ Dilemma by Leniency Programs raising penalties (increasing f ) Economics of increasing the fraction of penalties avoided through a Leniency Program d leniency (decreasing d + f ) . Maximizing the Impact of Example: U.S. Antitrust Criminal Penalty Enforcement a Leniency and Reform Act (2004) expanded leniency so that a …rm Program receiving amnesty is only liable for single (not treble) Measuring the Impact of customer damages. Cartel Enforcement raising the probability of conviction without use of the leniency program (increasing p ) .
Maximizing the Impact of a Leniency Program Leniency Programs Joe Harrington Introduction Experience of Increasing penalties 1 Leniency Programs Screening - using market data to identify the presence of 2 Economics of collusion. a Leniency Program Whistleblower programs - o¤er rewards for information 3 Maximizing the Impact of received from people not involved in the cartel. a Leniency Program Measuring the Impact of Cartel Enforcement
Maximizing the Impact of a Leniency Program Penalties Leniency "Trust, Salience, and Deterrence" (M. Bigoni, S. Fridolfsson, Programs Joe C. Le Coq, and G. Spagnolo, 2010) Harrington Two subjects compete in a simulated product market and Introduction receive monetary compensation equal to pro…t. Experience of Leniency Each subject decides whether to push a button to express Programs a desire to communicate. Economics of a Leniency Program If both pressed the button then they communicate about Maximizing prices. the Impact of a Leniency Communication makes them liable for penalties. Program Subjects choose prices and, if they communicated, decide Measuring the Impact of whether to apply for leniency. Cartel Enforcement If they communicated and no one applied for leniency then a penalty of f is levied with probability p .
Maximizing the Impact of a Leniency Program Penalties Leniency Programs Joe Harrington Introduction E¤ect of leniency program Experience of on the amount of communication Leniency Programs Expected Rate of Communication Economics of f p Fine No leniency Leniency a Leniency Program 200 0.10 20 .590 .344 Maximizing the Impact of 1000 0.02 20 .378 .251 a Leniency Program 300 0.20 60 .452 .436 Measuring the 1000 0.00 0 .538 .280 Impact of Cartel Enforcement
Maximizing the Impact of a Leniency Program Penalties Leniency Programs Joe Harrington Introduction E¤ect of leniency program Experience of on the amount of communication Leniency Programs Expected Rate of Communication Economics of f p Fine No leniency Leniency a Leniency Program 200 0.10 20 .590 .344 Maximizing the Impact of 1000 0.02 20 .378 .251 a Leniency Program 300 0.20 60 .452 .436 Measuring the 1000 0.00 0 .538 .280 Impact of Cartel Enforcement
Maximizing the Impact of a Leniency Program Penalties Leniency Programs Joe Harrington Introduction E¤ect of leniency program Experience of on the amount of communication Leniency Programs Expected Rate of Communication Economics of f p Fine No leniency Leniency a Leniency Program 200 0.10 20 .590 .344 Maximizing the Impact of 1000 0.02 20 .378 .251 a Leniency Program 300 0.20 60 .452 .436 Measuring the 1000 0.00 0 .538 .280 Impact of Cartel Enforcement
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