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

Trust, Salience and Deterrence: Evidence from an Antitrust Experiment

We present results from a laboratory experiment identifying the main channels through which different law enforcement strategies deter organized economic crime. The absolute level of a fine has a strong deterrence effect, even when the exogenous probability of apprehension is zero. This effect appears to be driven by distrust or fear of betrayal, as it increases significantly when the incentives to betray partners are strengthened by policies offering amnesty to “turncoat whistleblowers”. We also document a strong deterrence effect of the sum of fines paid in the past, which suggests a significant role for salience or availability heuristic in law enforcement.Betrayal; Collusion; Corruption; Distrust; Fraud; Organized Crime; Whistleblowers

Trust, Salience and Deterrence: Evidence from an Antitrust Experiment

We present results from a laboratory experiment identifying the main channels through which different law enforcement strategies deter organized economic crime. The absolute level of a fine has a strong deterrence effect, even when the exogenous probability of apprehension is zero. This effect appears to be driven by distrust or fear of betrayal, as it increases significantly when the incentives to betray partners are strengthened by policies offering amnesty to “turncoat whistleblowers”. We also document a strong deterrence effect of the sum of fines paid in the past, which suggests a significant role for salience or availability heuristic in law enforcement

Index Contracts and Spot Market Competition

It has long been argued that long-term contracts enhance competition, but the repeated nature of many markets has been neglected. This paper analyzes the impact of long-term contracts on the ability to sustain collusive outcomes. I consider a simple model where firms have signed index contracts and repeatedly interact on the spot market. The contracts specify a quantity and a price indexed to the spot price where the indexation can take different forms. It is shown that these contracts facilitate collusion on the spot market provided that the indexation to the spot price is sufficiently strong

The Length of Contracts and Collusion

Many commodities (including energy, agricultural products and metals) are sold both on spot markets and through long-term contracts which commit the parties to exchange the commodity in each of a number of spot market trading periods. This paper shows how the length of forward contracts affects the possibility of collusion in a repeated pricesetting game. We find that as the duration of contracts increases, collusion becomes harder to sustain. Nevertheless, firms with low discount factors that would not be able to sustain collusion without contracts, can always sustain some collusive prices above marginal cost, provided that they sell enough contracts. Hence long-term contracts have an ambiguous impact on collusion. Such ambiguity is due to the interaction of two effects, the gain-cutting effect, which reduces the immediate gain from defection, and the protection effect, which reduces the amount of punishment that deviators can receive

The Length of Contracts and Collusion

Many commodities (including energy, agricultural products and metals) are sold both on spot markets and through long-term contracts which commit the parties to exchange the commodity in each of a number of spot market trading periods. This paper shows how the length of forward contracts affects the possibility of collusion in a repeated pricesetting game. We find that as the duration of contracts increases, collusion becomes harder to sustain. Nevertheless, firms with low discount factors that would not be able to sustain collusion without contracts, can always sustain some collusive prices above marginal cost, provided that they sell enough contracts. Hence long-term contracts have an ambiguous impact on collusion. Such ambiguity is due to the interaction of two effects, the gain-cutting effect, which reduces the immediate gain from defection, and the protection effect, which reduces the amount of punishment that deviators can receive

Cross-country report:a first cross-country analysis and profiling of social enterprises prepared by the SEFORÏS research consortium

This cross-country report shares first insights from the World's Largest Panel Study of Social Enterprises, which covers seven European Countries (Germany, Hungary, Portugal, Romania, Spain, Sweden, the United Kingdom), China and Russia. It captures the behavior and characteristics of representative samples of social enterprises in these countries who are employers. The report covers a range of topics from profiling social enterprise directors and their social enterprises, to innovation activities and barriers, their entrepreneurial orientation, social missions, social impact metrics to summarizing policy recommendations that social entrepreneurs would like to see being implemented in their countries. Who should read this report? The report is written for social enterprises, social enterprises support organisations and policy makers who want to get an overview of social enterprise in the UK. Thank you to all the social entrepreneurs who made this report possible by participating in our study