Scandinavian Working Papers in Economics

Konkurrensverket Working Paper Series in Law and Economics,
Konkurrensverket (Swedish Competition Authority)

No 2014:2: Trust, Leniency and Deterrence

Maria Bigoni (), Sven-Olof Fridolfsson (), ChloƩ Le Coq () and Giancarlo Spagnolo ()
Additional contact information
Maria Bigoni: University of Bologna
Sven-Olof Fridolfsson: The Swedish Competition authority (Konkurrensverket), Research Institute of Industrial Economics (IFN)
ChloƩ Le Coq: Stockholm School of Economics, SITE
Giancarlo Spagnolo: Tor Vergata University, Stockholm School of Economics, SITE, and CEPR

Abstract: This paper presents results from a laboratory experiment studying the channels through which di erent law enforcement strategies deter cartel formation. With leniency policies o ering immunity to the rst reporting party, a high ne is the main determinant of deterrence, having a strong e ect even when the probability of exogenous detection is zero. Deterrence appears to be mainly driven by `distrust'; here, the fear of partners deviating and reporting. Absent leniency, the probability of detection and the expected ne matter more, and low nes are exploited to punish defections. The results appear relevant to several other forms of crimes that share cartels' strategic features, including corruption and nancial fraud.

Keywords: Antitrust; Betrayal; Cartels; Collusion; Distrust; Fines; Leniency; Whistleblowers

JEL-codes: C92; D03; K21; K42; L41

38 pages, September 18, 2014

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