Could denying leniency to cartel ringleaders create trust among cartel members?

Expert Opinion by Georg Clemens, Compass Lexecon and Holger Rau, University of Mannheim.

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Cartel leniency has been hailed as one of the most successful tools in fighting hard-core cartels over the last two decades. Its success, however, strongly depends on the design of the policy itself. Should leniency be denied to ringleaders? Whilst such a policy may make it harder to form a cartel, as no firm would want to sacrifice its right to apply for leniency by becoming a ringleader, reducing the availability of leniency reduces the number of firms that might potentially blow the whistle. Furthermore, by becoming a ringleader when leniency is not available to ringleaders, a firm could signal its commitment to the cartel, helping to generate trust.

Economists Georg Clemens, Compass Lexecon and Holger Rau, University of Mannheim conducted economic experiments to examine whether denying leniency to ringleaders could have pro-collusive effects. The results showed that discriminatory leniency policies could indeed backfire and have the perverse effect of stabilizing the cartel. If the aim is to prevent cartels, it may be better to have leniency policies that do not discriminate against ringleaders at all.

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