Research Seminars in Law and Economics | Hans-Theo Normann
The Effects of Private Damage Claims on Cartel Stability (with Bodnar, Fremerey and Schad)
Thursday 23 May 2019 (11h00 - 12h30) - Internef - 231
Recently, private damage claims in cartel cases have gained attention in Europe and triggered a debate about potentially negative effects they may have on leniency, a prime tool to uncover cartels. Private damage claim actions can lead to a trade off between public and private enforcement and harm the attractiveness of leniency programs because whistleblowers only obtain no or only restricted protection against third-party damage claims. This may actually stabilize cartels. We run a repeated homogenous-good Bertrand triopoly experiment to study this trade off. Firms can choose whether to join a cartel and may apply for leniency afterwards. Our design extends existing leniency experiments by adding a stage with possible private damages after a cartel has been uncovered (either through a whistleblower or by the cartel authority). We further investigate two communication formats. We compare unrestricted chat to the structured announcements (of "acceptable'' prices or prince ranges) the literature has focused on. We find that the implementation of private damage claims decreases cartel formation but makes cartels more stable. Effects on consumer welfare depends on the form of communication.