Leniency programs and cartel incentives

Rebello, Marcelo Soares (2011). Leniency programs and cartel incentives Honours Thesis, School of Economics, The University of Queensland.

       
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Author Rebello, Marcelo Soares
Thesis Title Leniency programs and cartel incentives
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2011
Thesis type Honours Thesis
Supervisor A/Prof Heiko Gerlach
Total pages 68
Language eng
Subjects 340000 Economics
Formatted abstract

Collusion has always been a prevalent issue in Economics. Even though progress has been made, there is room for further advancements in the literature concerning competition. Economic theory suggests cartels generate a dead weight to society. Developments in the study of collusion are desirable, in order to enhance the ability of policy makers to find solutions which induce competitive outcomes.  

In particular, this dissertation focuses on whistleblowing policies recently introduced by antitrust authorities across the world. They are the Leniency Programs. There is evidence suggesting these policies have been highly effective in increasing the detection of cartels around the globe. Furthermore, following the success of these programs, there has been a surge of articles in the theoretical literature studying leniency programs and their impact on cartel formation and sustainability.  

Surprisingly, the literature does not thoroughly examine the individual version of the program. This consists of providing benefits to employees who are part of a cartelized firm, and that assist the regulatory agency with evidence of collusion. A review of the main theoretical framework (Aubert, Rey and Kovacic, 2006) on this issue is provided. Moreover, this dissertation develops its own theoretical setting to study the individual version of leniency programs. The main innovative contribution of the thesis is to analyse a scenario where interactions between firm (owners) and employees may occur, given the aforementioned policy is implemented.  

Initially, a model with two different employee types is considered. It is found that a reward for individual employees improves the incentives for the firm to have the “honest” type of employee. An implication of having more “honest” employees is that there is a rise in the probability that the cartel is reported, and therefore detected. Hence, the reward program could have desirable effects for society. Subsequently, the thesis studies the possibility that firms invest in detection avoidance, so as to reduce the probability of leaking incriminating information within the firm. It is found that even when firms choose their optimal level of avoidance, an individual bounty program would make collusion harder to sustain.

Keyword Collusion
Leniency Programs
Cartel
Incentives

 
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Created: Tue, 28 Feb 2012, 11:57:42 EST by Carmen Mcnaught on behalf of School of Economics