Denying leniency to cartel instigators: Costs and benefits

A large number of countries have introduced successful leniency programs into their competition law enforcement to encourage colluding firms to come forward with evidence that will help detect cartels and punish price-fixers. This paper studies a feature of some of these programs that has received relatively little attention in the literature: the inclusion of “no immunity for instigators clauses” (NIICs). These provisions deny leniency benefits to parties that instigate cartel behavior or function as cartel ringleaders. Our results show that NIICs can lead to increased or decreased levels of cartel conduct. By removing the instigator's benefit from cooperating with the authorities, a NIIC undoes some of the destabilizing benefit the leniency program was intended to generate and thereby furthers cartel stability. On the other hand, the instigator faces an asymmetrically severe punishment under a NIIC and this can reduce the incentive to instigate in the first place. •We study policies that deny leniency benefits for cooperation by cartel instigators.•Denying leniency may reduce the incentive to instigate and reduce the likelihood of collusion.•It may also reduce incentives to cooperate with authorities, enhancing cartel stability.•With asymmetric firms it can also strengthen the weakest link in cartel, increasing stability.•Net effect on likelihood and durability of collusion depends on values of enforcement parameters.