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Challenges and co-ordination of leniency programmes – MARVÃO – June 2018 OECD discussion

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This presentation by Catarina MARVÃO, Assistant Lecturer, Department of Accounting and Finance, Dublin Institute of Technology, was made during the discussion “Challenges and co-ordination of leniency programmes” held at the 127th meeting of the OECD Working Party No. 3 on Co-operation and Enforcement on 5 June 2018. More papers and presentations on the topic can be found out at oe.cd/2gt.

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Challenges and co-ordination of leniency programmes – MARVÃO – June 2018 OECD discussion

  1. 1. ROUNDTABLE ON “CHALLENGES AND COORDINATION OF LENIENCY PROGRAMMES” CATARINA MARVÃO DUBLIN INSTITUTE OF TECHNOLOGY, SCHOOL OF ACCOUNTING & FINANCE OECD, 5 JUNE 2018
  2. 2. WHAT IS THE REAL GOAL? “You can’t catch a thief with an economist”, Scott Hammond But: (1) there will be no “thieves” if we can deter them; (2) they may be scared enough to self-report.
  3. 3. CAN WE SCARE THEM OFF IN THE EU? OF COURSE WE CAN! IF… LP reduction 1streporter (Detection) High Paid Fines Jail & Revealed Pref. Access to LP documents for damage claims Deterrence
  4. 4. CAN WE SCARE THEM OFF IN THE EU? CHALLENGE 1 – LENIENCY INFLATION LP reduction 1streporter (Detection) High Paid Fines Jail & Revealed Pref. Access to LP documents for damage claims Deterrence Leniency reductions applied to 52% of the fines! • Average LP reduction = 45% of the fine. • On average 6/7 members  4 LP reductions. • 38% cartels convicted in the US  16 cartels where same firms received immunity in US and EU. • In some cases (e.g. Auto parts), all firms get leniency (+settlements!). Much more generous with followers than optimal LP according to research.
  5. 5. EU TREND: LENIENCY INFLATION 0% 5% 10% 15% 20% 25% 30% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Share of fines where immunity (left) or a leniency reduction (right) were granted, EC
  6. 6. CAN WE SCARE THEM OFF IN THE EU? CHALLENGE 1I – STRATEGIC USE OF LENIENCY LP reduction 1streporter (Detection) High Paid Fines Jail & Revealed Pref. Access to LP documents for damage claims Deterrence Fines: • Higher… but cartels still form. • Strong distortive effect of F highlighted (Bigoni et al. 2015). • Political issues limit fines, eg. banks which are “too big to fine”. • Strength of sanctions more important than detection probability • No criminal penalties… yet. • No revealed preferences that agents involved in collusion are sanctioned by shareholders (eg. CEOs being fired). (Marvão and Spagnolo, 2018b)
  7. 7. EU RECIDIVISM • No definite determinants of industry recidivism (Levenstein et.al 2016) • Recidivism (Marvão, 2015) • 1998-2014, 510 fined cartel members, 117 cartels • 89 MO (110 MO 1998-5/2018) • 10 RO (new cartel post-investigation) • 5 RO-Werden et al. (new cartel post-fine) • Learn how to “play the game” • Form “sacrificial” cartels to learn • Use LP to sustain MMC • Coordination of LP applications
  8. 8. EU RECIDIVISM 110 MO 1998-5/2018. Recidivists get more leniency and can play the LP game (Marvão 2014, 2015). Firm name Headq. Nb. cartels Nb. case s % F with LP reductions % F with Full Immunity % F with Settlem. Akzo Nobel Netherlands 9 8 78% 33% 22% BASF Germany 9 2 100% 0% 22% F. Hoffmann-La Roche Switzerland 9 2 100% 0% 22% Hitachi Japan 8 7 63% 0% 50% Arkema France / Elf Aquitaine France 7 6 86% 0% 0% Samsung South Korea 7 6 100% 43% 43% Sumitomo Electric Ind. Japan 7 3 100% 86% 86% Denso Japan 6 3 100% 83% 100%
  9. 9. CAN WE SCARE THEM OFF IN THE EU? CHALLENGE III – NEW DAMAGE DIRECTIVE LP reduction 1streporter (Detection) High Paid Fines Jail & Reveale d Pref. Access to LP documents for damage claims Deterrence • Compromise between private and public antitrust enforcement is not required (Bucirossi et al. , 2015)). 2014 EU Directive on damage actions • partially limits the liability of the immunity recipient; • limits the information that is available to the claimants by restricting access to LP applications. Restricting access to LP statements is even more worrying given the increasing number of cases in which the EC awards some degree of LP reductions to - and then settles with - most or all the members of a cartel.
  10. 10. CAN WE SCARE THEM OFF IN THE EU? LP reduction 1streporter (Detection) High Paid Fines Jail & Revealed Pref. Access to LP documents for damage claims Deterrence RISK: • Many cartels, i.e, poor deterrence (high market distortion) • Many cases (high prosecution/litigation costs) Note: Little attention distrust as the most important and efficient deterrence channel (Bigoni et al.2015 and Marvão and Spagnolo 2018a)
  11. 11. FINAL THOUGHTS  Currently, the EU scenario is one where the number of EC cartel fines has increased, there is an excessive use of leniency both in terms of the number and the magnitude of leniency reductions granted and damage legislation prevents the use of LP statements for damage claims.  However, cartels continue to form, repeat offenses by the same firms continue to occur (up to 9 times in the past 20 years) and these firms seem to be able to take advantage of the EU LP; and there are no clear signs of deterrence from the EU LP.  There is a pressing need to introduce (and implement) criminalization in the EU, possibly complemented with other tools such as structural remedies, screens or whistleblower rewards.

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