Coordination Problem for Leniency Programs against International Cartels

Author Name IWANARI Hiroo  (Consulting Fellow, RIETI / Director, Competition Policy Planning Office, General Secretariat, The Fair Trade Commission of Japan) /KAWAGOE Toshiji  (Faculty Fellow, RIETI / Lecturer, School of Systems Information Science, Future University-Hakodate) /KIMURA Yuji  (RIETI) /MATSUBAE Taisuke  (Graduate School of Economics, Waseda University) /TAKIZAWA Hirokazu  (Fellow, RIETI)
Creation Date/NO. March 2006 06-J-014
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Theoretical research on leniency programs has thus far focused on cartels formed within a country. The purpose of this paper, in contrast, is to analyze the situation where a cartel is formed internationally. We consider a model with two oligopolistic firms operating in two countries. The antitrust authority in each country chooses either to implement a leniency program or use traditional, probabilistic investigation to detect and/or deter cartel activity. Given the combination of antitrust policies in both countries, the two firms simultaneously play market games. Assuming a situation in which information on a cartel activity spills over to the other, we analyze strategic interdependency faced by the antitrust authorities. Several possible policy objectives of the antitrust authority are considered. We find that if the objective is to maximize revenues from the penalty imposed on cartels, there exists an asymmetric equilibrium in which one country chooses to free-ride the other's choosing a leniency program.