By Christopher Spaeth & Sven Grüner (Martin Luther University of Halle-Wittenberg)
Collusion by companies through cartels harms consumers by fixing prices and restricting output. To combat cartels, leniency programs are frequently used in the European Union (EU). Penalty is reduced for the company that reports the cartel, to the Antitrust Authorities first. The induced trust problem and the increased attractiveness for the individual company to deviate from the cartel agreement can lead to effective cartel deterrence. Besides leniency, incentive-based whistleblowing is another institutional innovation that could deter cartels, which, however, is still only rarely used in the EU. This paper presents an experimental examination of the efficacy of leniency and whistleblowing programs as well as the interaction of both. We find that in a protected environment, attaching whistleblowers to leniency programs has the potential to significantly reduce the willingness to cartelize, the size of established, and the rate of undetected cartels.
