Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments

Leniency policies and rewards for whistleblowers are being introduced in ever more fields of law enforcement, though their deterrence effects are often hard to observe, and the likely effect of changes in the specific features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the effects of fines, leniency programs, and reward schemes for whistleblowers on firms' decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with differentiated goods and uncertain duration, and we run several treatments different in the probability of cartels being caught, the level of fine, the possibility of self-reporting (and not paying a fine), the existence of a reward for reporting. We find that fines following successful investigations but without leniency have a deterrence effect (reduce the number of cartels formed) but also a pro-collusive effect (increase collusive prices in surviving cartels). Leniency programs might not be more efficient than standard antitrust enforcement, since in our experiment they do deter a significantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price significantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects' ability to form cartels and sustain high prices, and almost complete deterrence is achieved. We also analyze post-conviction behavior, finding that there is a strong expost deterrence (desistance) effect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we find a strong cultural effect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions differ with culture.Anti-trust; Collusion; Experiment; Leniency

Fines, Leniency and Rewards in Antitrust: An Experiment

This paper reports results from an experiment studying how fines, leniency programs and reward schemes for whistleblowers affect cartel formation and prices. Antitrust without leniency reduces cartel formation, but increases cartel prices: subjects use costly fines as (altruistic) punishments. Leniency further increases deterrence, but stabilizes surviving cartels: subjects appear to anticipate harsher times after defections as leniency reduces recidivism and lowers post-conviction prices. With rewards, cartels are reported systematically and prices finally fall. If a ringleader is excluded from leniency, deterrence is unaffected but prices grow. Differences between treatments in Stockholm and Rome suggest culture may affect optimal law enforcement.Cartels; Collusion; Coordination; Competition policy; Deterrence; Desistance; Law enforcement; Price-fixing; Punishment; Recidivism; Whistleblowers

The design and efficiency of loyalty rewards

The goal of this paper is to reexamine the optimal design and efficiency of loyalty rewards in markets for final consumption goods. While the literature has emphasized the role of loyalty rewards as endogenous switching costs (which distort the efficient allocation of consumers), in this paper I analyze the ability of alternative designs to foster consumer participation and increase total surplus. First, the efficiency of loyalty rewards depend on their specific design. A commitment to the price of repeat purchases can involve substantial efficiency gains by reducing price-cost margins. However, discount policies imply higher future regular prices and are likely to reduce total surplus. Second, firms may prefer to set up inefficient rewards (discounts), especially in those circumstances where a commitment to the price of repeat purchases triggers Coasian dynamics.Loyalty rewards, Coasian dynamics, Price commitment, Coupons

An experiment on markets and contracts : do social preferences determine corporate culture?

This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three treatments. In the last treatment, TR3, four principals, who face four teams of two agents, compete by offering the agents a contract from a fixed menu. In this menu, each contract is the optimal solution of a (complete information) mechanism design problem where principals face agents’ who have social (i.e. interdependent) distributional preferences a’ la Fehr and Schmidt [19] with a specific parametrization. Each agent selects one of the available contracts offered by the principals (i.e. he “chooses to work” for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. In the first two treatments, TR1 and TR2, we estimate individual social preference parameters and beliefs in the effort game, respectively. We find that social preferences are significant determinants of the matching process between labor supply and demand in the market stage, as well as principals’ and agents’ contract and effort decisions. In addition, we also see that social preferences explain the matching process in the labor market, as agents display a higher propensity to choose to work for a principal with similar distributional preferences.

Loyalty Programs. Role, Structure and Potential Benefits

A loyalty program consists of an integrated system of marketing activities, aimed at increasing members’ loyalty by rewarding customers according to their purchasing frequency and amount spent. Loyalty schemes, customer clubs and sales promotion techniques are the most common relationship tools used in marketing practice. To join the program and receive a card, consumers must fill in a registration form, providing demographic, behavioural or even psychographic data. Loyalty schemes and customer clubs offer long lasting benefits to participants. Sales promotion techniques can be used both as tools to attract new customers, as well as instruments to stimulate repurchase behaviour. The potential of a loyalty scheme to achieve members depends mainly on rewards value, diversity and timing. Similar, the success of clubs depends on whether customers perceive enough relational benefits according to their personal interests. Although currently, loyalty programs have become very popular, programs effectiveness and implicitly the managerial decision to implement them are determined by different factors, including: homogeneity of supply and products purchase frequency, competition and consumer demand characteristics and the internal environment of the company.Customer clubs, loyalty schemes, relationship marketing, rewards, sales promotion techniques

Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts

This paper reports experimental evidence on a stylized labor market. The experiment is designed as a sequence of three phases. In the rst two phases, P1 and P2; agents face simple games, which we use to estimate subjects social and reciprocity concerns, together with their beliefs. In the last phase, P3; four principals, who face four teams of two agents, compete by o¤ering agents a contract from a xed menu. Then, each agent selects one of the available contracts (i.e. he "chooses to work" for a principal). Production is determined by the outcome of a simple effort game induced by the chosen contract. We nd that (heterogeneous) social preferences are signi cant determinants of choices in all phases of the experiment. Since the available contracts display a trade-of between fairness and strategic uncertainty, we observe that the latter is a much stronger determinant of choices, for both principals and agents. Finally, we also see that social preferences explain, to a large extent, matching between principals and agents, since agents display a marked propensity to work for principals with similar social preferences