Leniency programs under demand uncertainty: cartel stability and the duration of price wars

Content Provider	Semantic Scholar
Author	Charistos, Konstantinos
Copyright Year	2016
Abstract	Leniency programs reduce sanctions against cartel members that either report spontaneously the existence of the infringement or cooperate during the investigation and facilitate prosecution. This paper investigates the impact of leniency programs on cartel stability when demand is uncertain and firms cannot perfectly observe their rival’s choices. We show that pre-investigation leniency may or may not be effective in destroying the cartel, but in neither case affects the duration of price wars. Post-investigation leniency may have ambiguous welfare effects, in affecting both cartel stability and price wars duration. LPs applying in situations where leniency is not urgently needed may be not only ineffective, but also welfare reducing. Hence, in markets where negative demand shocks are sufficiently frequent, leniency policies may produce undesirable effects.
Starting Page	35
Ending Page	46
Page Count	12
File Format	PDF HTM / HTML
DOI	10.1007/s00712-015-0466-0
Alternate Webpage(s)	http://aphrodite.uom.gr/econwp/pdf/dp082015.pdf
Alternate Webpage(s)	https://doi.org/10.1007/s00712-015-0466-0
Volume Number	118
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article