Cartel Formation and Cartel Stability - Experiments on the Role of the Leniency Rule and with open Communication
Final Report Abstract
Cartel prosecution is an important part of the work of antitrust authorities all around the world because cartels can severely harm social welfare. Recently, many antitrust authorities introduced leniency rules to destabilize existing cartels and hinder the formation of new ones. These regulations promise exemption from fines to a firm that has participated in a cartel if it reports the cartel to the authority and provides evidence that leads to the sanctioning of the other firms involved in the cartel. Since such a leniency rule not only provides an incentive to report existing cartels, but may also make it more attractive to form a cartel in the first place, it is unclear whether the leniency rule all in all achieves its goal of improving markets’ competitiveness. Empirically, it is difficult to judge the success of these rules because researchers cannot observe the number of functioning cartels but only the detected ones. Therefore, experimental studies on the topic are needed. However, previous experimental studies have simplified the decision framework in many aspects so that it is hard to draw conclusions about the effects of the leniency rule on real cartels from their results. Within this project, we make three main contributions: first, we provide several improvements of the design of economic experiments testing instruments of competition policy that aim at increasing the external validity of this type of experiment. These new design features can be applied to other economic experiments in the area of competition policy, regardless of the specific policy instrument being evaluated. Second, we use a design with these improvements to examine the question of how leniency affects cartel formation in a market. Interestingly, in this experiment with improved external validity, leniency has no effect on firms' illegal behavior, in contrast to previous experiments in the literature. Third, we use a set of novel text mining approaches to examine communication between participants in the role of firms in the experiment. In doing so, we show that such an approach is well suited to replace the manual coding of chat messages into predefined categories by humans.
Publications
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The leniency rule revisited: Experiments on cartel formation with open communication. International Journal of Industrial Organization, 76, 102728.
Andres, Maximilian; Bruttel, Lisa & Friedrichsen, Jana
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The Leniency Rule Revisited: Experiments on Cartel Formation with Open Communication. SSRN Electronic Journal, 2021.
Andres, Maximilian; Bruttel, Lisa & Friedrichsen, Jana
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How Communication Makes the Difference between a Cartel and Tacit Collusion: A Machine Learning Approach. SSRN Electronic Journal, 2022.
Andres, Maximilian; Bruttel, Lisa & Friedrichsen, Jana
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How communication makes the difference between a cartel and tacit collusion: A machine learning approach. European Economic Review, 152, 104331.
Andres, Maximilian; Bruttel, Lisa & Friedrichsen, Jana
