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Review of Industrial Organization
Erschienen in: Review of Industrial Organization 3/2018

29.07.2017

Optimal Leniency Programs When Firms Have Cumulative and Asymmetric Evidence

verfasst von: Marc Blatter, Winand Emons, Silvio Sticher

Erschienen in: Review of Industrial Organization | Ausgabe 3/2018

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Abstract

An antitrust authority deters collusion with the use of fines and a leniency program. Firms have imperfect cumulative evidence of the collusion. That is, cartel conviction is not automatic if one firm reports. Reporting makes conviction only more likely: the more that firms report, the more likely is conviction. Furthermore, the evidence is distributed asymmetrically among firms. This set-up allows us meaningfully to analyze three typical features of leniency programs: minimum-evidence standards; ringleader discrimination; and marker systems. Minimum-evidence standards provide high-evidence firms with proper incentives to report. They are better at deterring than is ringleader discrimination. Under a marker system only one firm reports so that the antitrust authority never gets the entire available evidence. Appropriate minimum-evidence standards make a marker system redundant.
Vorheriger Artikel An Empirical Analysis of Countervailing Power in Business-to-Business Bargaining
Nächster Artikel Sharing Audience Data: Strategic Participation in Behavioral Advertising Networks

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Fußnoten
1
Further theoretical research includes Cyrenne (1999), Harrington and Chang (2009), Harrington (2013), Sauvagnat (2015), and Harrington and Chang (2015); empirical and experimental research includes Bigoni et al. (2012, 2015), Brenner (2009), and Miller (2009). For a survey, see Spagnolo and Marvão (2016).
 
2
Perfect and symmetric evidence is a special case of our set-up. Yet, we do not find a negative effect of ringleader discrimination. This is due to the different sequencing. In Chen et al. (2015) firms set quantities and later decide whether to reveal or not. In our framework firms decide simultaneously about quantities and their reporting strategy; these decisions are thus perfectly coordinated. Therefore, we do not encounter many of the subgames that Chen et al. have to deal with.
 
3
See US Department of Justice (2008) and European Commission (2006).
 
4
The US system does not allow for leniency for a second-reporting firm. By contrast, the EU program offers reduced leniency also to all other firms that are not first to come forward, provided that the additional information is sufficiently valuable.
 
5
See US Department of Justice (2008). Likewise, the European Commission requires that the evidence has to enable the Commission to find an infringement of Article 101 TFEU (European Commission 2006).
 
6
“The Division frequently gives a leniency applicant a “marker” for a finite period of time to hold its place at the front of the line for leniency while counsel gathers additional information through an internal investigation to perfect the client’s leniency application. While the marker is in effect, no other company can ‘leapfrog’ over the applicant that has the marker” (Department of Justice 2008).
 
7
Actually, the AA determines \(\alpha\) and p by the choice of the size and the allocation of its personnel; see Sect. 2.1.
 
8
The AA thus does not make type I errors, i.e., punish non-colluding firms. See, e.g., Block and Sidak (1980) for a discussion of antitrust enforcement when courts make errors.
 
9
Communication, even when it is not followed by anti-competitive behavior, is considered illegal.
 
10
The assumption of independence is less restrictive than it perhaps seems. Suppose all of the evidence is in the firms’ possession, scattered on hard drives. Through a dawn raid the AA seizes the hard drives. Yet, the relevant pieces of information are hidden in tons of terabytes that the AA has to scan tediously using its personnel. For example, in the recent Libor/Euribor/Tibor cases, the Swiss Competition Commission (COMCO) scanned more than 9 million pages of communication (www.​newsd.​admin.​ch/​newsd/​message/​attachments/​46714.​pdf). We rule out strategic destruction of evidence; see also Footnote 25. Accordingly, a firm submits either all of its available evidence, or it does not report at all.
 
11
By contrast, settlement is a tool to speed up the procedure to reach a decision. Both the US Department of Justice and the European Commission require that the parties plead guilty to settle a cartel case.
 
12
The US Department of Justice requires that leniency applicants “confess participation in a criminal antitrust violation” (Department of Justice 2008). However, the Department of Justice has to carry out the investigation and prove an infringement.
 
13
In the air cargo cartel Lufthansa received full immunity from fines under the European Commission’s leniency program because it was the first to provide information about the cartel (www.​europa.​eu/​rapid/​press-release_​IP-10-1487_​en.​htm?​locale=​en). Nevertheless, Lufthansa filed an appeal “based on legal considerations” (www.​bloomberg.​com/​news/​2011-01-27/​japan-airlines-appeals-48-8-million-antitrust-fine-at-eu-court.​html).
 
14
In the road construction bid-rigging cartel of the Swiss Canton of Argau one cartel member had painstakingly kept records of the ex ante agreed upon bids; see www.​weko.​admin.​ch/​aktuell/​00162/​index.​html?​lang=​fr.​.​.​.
 
15
In the gas insulated switchgear case the leniency applicant ABB informed the European Commission about a market sharing agreement between European and Japanese producers. In its decision the Commission relies not only on the evidence submitted by ABB, but additionally on the statements of Mr M., a former employee who had represented ABB at the operational level during the cartel period. Accordingly, ABB was not in possession of all the evidence due to staff turnover; see curia.europa.eu/juris/document/document.jsf?text=&docid=80216&pageIndex=0&doclang
=EN&mode=req&dir=&occ=first&part=1.
 
16
For more on this argument see Kobayashi (1992) and Herre et al. (2012).
 
17
In the airfreight cartel decision the European Commission writes: “Accordingly, many contacts which do not amount to decisive evidence of an infringement in themselves are nevertheless relevant, when assessed with other contacts, to establishing the single and continuous infringement”; see www.​ec.​europa.​eu/​competition/​antitrust/​cases/​dec_​docs/​39258/​39258_​7008_​7.​pdf.
 
18
Using the Bertrand example greatly simplifies the notation because \(\underline{\pi }=\pi _C=0\) and \(\pi _D=2\pi _M\). All of our results hold for the general case with \(\underline{\pi }\le \pi _C<\pi _M<\pi _D\); see the earlier version of the paper: papers.ssrn.com/sol3/papers.cfm?abstract\(\_\)id=2474998.
 
19
In Motta and Polo (2003) firms can also collude on the reporting strategy. They agree ex ante to collude by setting \(q_M\) if there is no investigation and by reporting and setting \(q_C\) if there is an investigation. After an investigation with agreed upon reporting, they continue to play their collusive strategy. Through an investigation the AA temporarily “interrupts” collusion: what is called “cartel desistence” in the literature. We have chosen the harshest punishment, mainly for reasons of tractability; for a similar approach see, e.g., Harrington (2008). Allowing firms to collude on their reporting strategy makes it more difficult to deter collusion. Our qualitative results do not, however, change. See the Appendix for an analysis of this collude and reveal strategy.
 
20
See Motta and Polo (2003) for a similar approach; in their set-up the staff size is exogenously given, so that the AA may not be able completely to deter collusion.
 
21
As we will show later, this policy is, however, not optimal.
 
22
Following the literature we assume that the deadweight loss from the cartel exceeds enforcement costs so that full deterrence maximizes total surplus.
 
23
This assumes that firms also play (N, N) in the no-investigation subgame. In the next section we show that this is indeed the case.
 
24
A proper notation would be \(p_{(N,N),(R,R)}(\alpha )\) where (N, N) denotes the firms’ strategies in the no-investigation and (R, R) in the investigation subgame. Since for all relevant deterrence constraints firms play (N, N) in the no-investigation subgame, we suppress (N, N) and write as a shortcut \(p_{R,R}(\alpha )\).
 
25
Note that with minimum standards firms have an incentive to keep evidence in order to qualify for leniency (see also Aubert et al. 2006; Agisilaou 2012). Therefore, our assumption that evidence cannot be destroyed is less restrictive with minimum standards than without. This may be seen as a further argument in favor of minimum standards of evidence.
 
26
Since the proof of Proposition 2 is similar to the proof of Proposition 1, we skip it.
 
27
One of the reasons that the Department of Justice denies leniency to ringleaders is its concern about recidivism. There is evidence that recidivism is a problem in the EU; see Zhou (2015) and Marvão (2016). A proper analysis of recidivism requires a dynamic model that includes the cartel formation process. We follow here the approach taken in the literature and employ a static framework.
 
28
Herre et al. (2012) also derive the deterring effect of ringleader discrimination when firms are sufficiently symmetric.
 
29
If the AA is constrained to use a uniform standard across all industries, for certain industries the standard may be so low that all firms qualify for leniency. Then the use of a marker may also make sense.
 
Literatur
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Metadaten
Titel
Optimal Leniency Programs When Firms Have Cumulative and Asymmetric Evidence
verfasst von
Marc Blatter
Winand Emons
Silvio Sticher
Publikationsdatum
29.07.2017
Verlag
Springer US
Erschienen in
Review of Industrial Organization / Ausgabe 3/2018
Print ISSN: 0889-938X
Elektronische ISSN: 1573-7160
DOI
https://doi.org/10.1007/s11151-017-9586-8

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