Trust and Recidivism; the Partial Success of Corporate Leniency Program in the Laboratory
Tinbergen Institute Discussion Paper No. TI 06-067/1
33 Pages Posted: 7 Aug 2006
Date Written: August 2006
An experiment is conducted were subjects interact repeatedly to examine the effect of a particular leniency program on cartel formation, cartel stability and cartel recidivism. The program leads to lower prices for three reasons. First, non-cooperators are more persistent in their behavior which effectively blocks cartel formation in their respective groups. Second, members of groups that do form a cartel defect more often thus reducing the average cartel lifetime. Third, the difference between the agreed-upon price and the undercutting price is larger. The leniency program does not however affect the probability that a dismantled cartel is re-established.
Keywords: cartels, corporate leniency programs, Bertrand competition, experiment
JEL Classification: C92, D43, L41
Suggested Citation: Suggested Citation