TCOU · The Cost of Uncertaincy - A Study on the Reform of the European Commission's Leniency Program

The Cost of Uncertaincy - A Study on the Reform of the European Commission's Leniency Program

This project examines the effectiveness of the European Commission’s 2002 reform of its leniency program — a key tool used to detect and dismantle cartels. Cartels, which involve firms colluding to fix prices or restrict output, harm consumers and undermine fair competition. Leniency programs incentivize cartel members to self-report by offering varying degrees of fine reductions those who come forward early and provide meaningful cooperation with enforcement authorities. In 2002, the European Commission reformed its leniency program to make it more transparent and generous, with the expectation that clearer and stronger incentives would improve cartel detection and deterrence. Assessing the reform’s impact is theoretically and empirically challenging. From a theoretical perspective, the effect of stronger leniency incentives on the overall cartel population is ambiguous. On one hand, stronger incentives to self-report can destabilize existing cartels and deter new ones from forming. On the other hand, a more predictable and generous leniency regime may give cartel members a credible tool to discipline internal defection, thereby increasing cartel stability. Empirically, the main difficulty lies in the fact that the total population of cartels — including those that are never discovered — is not observable. Researchers only have access to the subset of cartels that were investigated and made public. This project set out to overcome this limitation by applying an alternative empirical strategy — one that draws inferences about the unobserved cartel population from the characteristics of the observed subset. The project aimed to evaluate whether the 2002 reform achieved its intended goals: increasing the rate at which cartels are discovered and discouraging the formation or persistence of collusive agreements. The research focuses on analyzing cartel-level data over a 25-year period to assess changes in cartel duration — a key indicator of deterrence — before and after the reform.

Data: CORDIS, © European Union