Cartels in the Postal Industry: A Behavioral Theory Consideration of the Game Theory of Leniency Policies

One of the policies that competition authorities in the UK and Europe have implemented to combat cartels is leniency for the first company to whistle blow on the arrangement. We set out the game theory that has informed the policy and discuss the assumptions underlying the theory and how changing these assumptions could affect outcomes. We will examine cartel cases in the postal industry that have been brought to light using leniency programs such as these. Leniency programs usually grant immunity to the first party to whistle blow on the cartel. One recent case of this kind involved a cartel between Royal Mail’s Parcelforce division and parcel operator SalesGroup. Royal Mail admitted its involvement to the Competition Markets Authority and escaped a fine, whilst SalesGroup were fined for their involvement. Through discussing the game theory of these leniency policies, we will consider the rationality and risk preferences of the parties involved, and how this might affect potential outcomes of this policy. We will discuss the gains and losses to each party involved in a cartel; the potential gains for the party who decides to whistle-blow, and the risk of not blowing the whistle for other parties.