Snitches get stiches - An empirical study of the probability to self-report and cartel stability under the European Commission leniency program

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: In an effort to combat illegal cartel activities taking place in the European Union, in 1996 the European Commission decided to implement a leniency program for self-reporting firms who, in return for information about their cartel, could receive a substantial reduction, or a total exemption from any fines that would have otherwise been imposed on them. The wellbeing and survival of cartels is dependent on the trust and dynamics between the members, and a leniency program strives to upset the balance between them. This thesis aims to empirically assess which factors affect the probability for a firm to self-report, as well as which factors affect cartel stability in general, when they are operating under a leniency program. This is done by looking at data on detected cartels between 2001 and 2016 from press releases, official case summaries and publicly available case documents gathered from the European Commission’s website and on this data run a binary probit regression on the probability for a firm to self-report, and a multivariate regression on the duration of cartels. Our results show that the individual members’ expected shares of the cartel fine, if detected, has a positive effect on the probability of self-reporting, while the extent to which firms want to avoid uncertain situations has a negative effect. On a cartel level we find that both the number of firms in a cartel, and differences in size among cartel members, has positive effects on cartel duration, whereas the presence of a repeat offender amongst the cartel members has a negative effect on cartel duration, if the cartel was sentenced under the European Commission’s revised leniency program from 2006.

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