many other countries passed legislation of antitrust laws, one after another. Antitrust law is also called competition law. It’s often used to keep the market from unfair competition or stop firms forming a private cartel. A cartel is a formal agreement among competing firms. Firms get together to set their business strategies in order to raise their benefit. In this way, firms can definitely expand their magnitude and get abnormal profit by reducing competition. But these actions can be harmful for the social welfare. In order to regulate or forbid collusion (also called cartel agreement), the antitrust authorities would set their own antitrust laws in view of their own circumstances. Leniency policy is a new policy that has been applied in recent years.
In this paper, we used a game-theoretical model to analyze the equilibrium belonging to cartel. It isn’t always bad for social welfare when there are cartels in society. Sometimes, cartels may be good for the whole society. Hence, the antitrust authorities have to find their own solutions to raise the whole social welfare.
In Europe commission (EC), if firms have collusive agreement and become a cartel, they will be forbidden by the Cartel office unless the actions of collusion are helpful for production or distribution of goods. At the same time, cartels should improve the development of technique and economy and ensure that consumer’s welfare is guaranteed definitely. That is to say, firms won’t be punished if the collusion is beneficial for consumers’ welfare as well as the whole social welfare. And it wouldn’t be necessary to submit an appliance in advance in the most European countries. This kind of mechanism in Europe is much similar with the United States.
Antitrust division has a power of prosecutorial discretion which means they can process the cases as they want. Hence there would be case selection. If the antitrust
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authorities think the cartels are harmless to the society, they may ignore and drop the cases. The reason is that they think they don’t have enough resource to handle all the cases. In Taiwan, antitrust authority is called Fair Trade Commission. Collusion won’t be allowed basically, but under some particular circumstances, firms can also exempt from the Fair trade Act. The most obvious difference between American law (or EC’s law) and Taiwanese law is that firms must submit appliance in advance no matter what situations in Taiwan. If not, cartels are always illegal without registration. Even if the collusion is beneficial to the whole social welfare, it’s surely unacceptable in Taiwan.
In order to control the actions of cartels, the antitrust authorities introduce a mechanism to influence the strategies that firms would take. Antitrust law has a kind of reward program which we call leniency policy or leniency program. Leniency policy was introduced for the first time by the United States in 1978 that allowed firms to be the whistle blowers and to have a reduction of fine payment under some specific conditions. Sometimes the whistle blowers can exempt from all the punishment. At first, only a few firms applied for this leniency program because it wasn’t very transparent and it brought some kind of uncertainties. Consequently, it was revised significantly in 1993. Leniency policy is really a key factor for the cartel office to affect the actions of firms. So the legislations of this kind of laws become much more and more important.
Consequently, we discuss whether the equilibrium derived from the game-theoretical model, fit the antitrust law or not. And we will measure the welfare from the standpoint of the whole society.
At the end of this section, let’s introduce the framework of this article: section 1 is the introduction that we talk about the history of Antitrust Law and leniency policies, section 2 is the literature review, section 3 is the basic model that we used to
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立 政 治 大 學
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Na tiona
l Ch engchi University
analyze the equilibriums, section 4 is the part about the stable equilibrium of firms’
strategies, and section 5 is the conclusion that we got.
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We spend some time to know some papers over the past. Motta and Polo (2003) studied and concluded that the government should let the confessors or the whistle blowers have the full immunity to all the other firms under the model is the equilibrium. And they also put emphasis on that a leniency program may encourage pro-collusive effect as the Antitrust Authority is short of resources. Hence, they leniency program is the second best and should be implemented as the authority has sufficient resources. Ellis and Wilson (2003) assumed that there are three ways firms can choose: comply with the collusion rules and become a cartel, comply with the leniency policy, squeal to the Antitrust Authority and be detected by other forms under a probability or not be detected fortunately. The studies showed that firms may squeal to the cartel office because they want to beat the competitors by lowering their profit and raise their cost which caused by the fines. And this is a strategic advantage for the firms to squeal. They also thought the concentration of market is an important element to affect cartel. When the market is under less concentration, leniency policy may destabilize the cartel. On the contrary, leniency programs make firms become stronger cartels when they don’t induce firms to confess to the Antitrust Authority. Firms have the mechanism of self-stabilization. Spagnolo (2004) thought that under dynamic analysis, leniency policy would be useful if the cartel office create incentives for firms to cheat on partners. So the incentive is the super high reward for the first one to squeal. And the reward is from the fines paid by all other parties. When leniency policy is implemented in reality, may also destabilize and deter cartel by (a) protecting the squealers from fines; (b) protecting them from the others agents’ punishment; (c) increasing the riskiness of being a cartel. Compare to the view of Motta and Polo (2003), the difference between them is that leniency is affective only because of immunity by the view of Motta and Polo (2003). Aubert et al. (2006) discussed about