Chapter 3 The Impact of the Corporate Leniency Program on Cartel Formation and the Cartel Price Path

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Business Economics and Public Policy Papers
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Economics
Public Affairs, Public Policy and Public Administration
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Chen, Joe
Harrington, Joseph E
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Previous research exploring the effect of corporate leniency programs has modeled the oligopoly stage game as a Prisoners' Dilemma. Using numerical analysis, we consider the Bertrand price game and allow the probability of detection and penalties to be sensitive to firms' prices. Consistent with earlier results, a maximal leniency program necessarily makes collusion more difficult. However, we also find that partial leniency programs—such as in the U.S.—can make collusion easier compared to offering no leniency. We also show that even if cartel formation is not deterred, a leniency program can reduce the prices charged by firms.

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2007-01-01
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Contribution to Economic Analysis
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At the time of publication, author Joseph E. Harrington Jr. was affiliated with the John Hopkins University. Currently, he is a faculty member in the Business, Economics and Public Policy Department of the Wharton School at the University of Pennsylvania.
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