Moral Transgression in the Pursuit of Excellence
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An Experimental Analysis of Anti-trust Enforcement under Avoidance
Competition law offenders use a multitude of avoidance activities – such as consulting with anti-trust experts, destroying or covering up of incriminating evidence, lobbying for favourable policy guidelines, restructuring of a firm’s finance – to reduce their potential anti-trust fines. This paper explores the effect of such activities on formation, activity and stability of cartels by means of a market experiment. We implement a 2×2 factorial design with and without the ability to incur avoidance activities vs. the existence (or non-existence) of a leniency. To the extent of our knowledge, we are the first to address avoidance activities from a behavioral perspective, and our results indicate that many of the theoretical predictions are confirmed in an experimental setting, while some critical results turn out to be different in the data. The results show that the possibility to avoid punishment may trigger more risk-averse firms to collude, which translates into a higher rate of cartel formation. We find that not only avoiding firms charge higher prices, while in general the possibility to use avoidance reduces the rate of price deviations; firms that engage in avoidance deviate more than twice as often when a leniency programme exists. Additionally, there is evidence that some firms utilize avoidance as an alternative means to avoid being punished for price deviations by other self-reporters.
