The Effects of Private Damage Claims on Cartel Stability: Experimental Evidence
Normann, H.-T., 46th Annual Conference of the European Association for Research in Industrial Economics (EARIE), Barcelona, Spanien.
Recently, private damage claims in cartel cases have gained attention and triggered a debate aboutpotentially negative effects they may have on leniency, hitherto a prime tool to uncover cartels. Privatedamage claim actions can lead to a trade off between public and private enforcement and harm theattractiveness of leniency programs because whistleblowers only obtain no or only restricted protectionagainst third-party damage claims. This may actually stabilize cartels. We run a repeated homogeneous-good Bertrand triopoly experiment to study this trade off. Firms can choose whether to join a cartel andmay apply for leniency afterwards. Our design extends existing leniency experiments by adding a stagewith possible private damages after a cartel has been uncovered (either through a whistleblower or by thecartel authority). We further investigate two communication formats. We compare unrestricted chat tothe structured announcements (of “acceptable” prices or price ranges) the literature has focussed on. Wefind that the implementation of private damage claims decreases cartel formation but makes cartels morestable. The impact on consumer welfare depends on the form of communication.