Determinants of self-reporting: an experiment on corporate leniency programs

Competition authorities around the world have adopted leniency programs which create incentives for cartel members to self-report or to come forward and provide information that will be sufficient to pursue prosecution. Although leniency programs have led to the crackdown of cartels, it is unclear whether some designs are more effective than others in encouraging cartel members to self-report. We conducted a laboratory experiment to determine whether risk of being caught, magnitude of the penalty, and reduction in fines when caught—the common parameters of a leniency program—affect the likelihood of self-reporting. We show that application for leniency was rare, and occurrence was not systematically linked to the penalty, detection risk or fine reduction. Also, implementing a leniency program did not result in fewer cartels nor lower offer prices compared to a scenario where a competition authority exists but does not implement a leniency program. There is an indication that the opportunity to self-report inadvertently provided an impetus for players to cooperate. This casts doubt on the marginal welfare effect of leniency programs in practice.