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Do discriminatory leniency policies fight hard‐core cartels?
Author(s) -
Clemens Georg,
Rau Holger A.
Publication year - 2018
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12281
Subject(s) - cartel , amnesty , core (optical fiber) , hard core , incentive , mechanism (biology) , law and economics , business , industrial organization , economics , microeconomics , political science , law , politics , computer science , philosophy , physics , epistemology , telecommunications , statistical physics
This paper experimentally analyzes the effects of nondiscriminatory and discriminatory leniency policies on hard‐core cartels. We design a mechanism to form a hard‐core cartel, which allows that multiple ringleaders emerge. Ringleaders often take a leading role in the coordination and formation of hard‐core cartels. A leniency policy that grants amnesty to all “whistle‐blowers” except for ringleaders may therefore reduce the incentive to become a ringleader and disrupt cartel formation. Yet, our experimental results show that whistle‐blowing rarely occurs. Paradoxically, the discriminatory leniency policy induces firms to become ringleaders. We find that firms create trust among other firms when acting as ringleaders. This signaling effect ultimately facilitates coordination in the explicit cartel.