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An Empirical Assessment of the European Leniency Notice

An Empirical Assessment of the European Leniency Notice. Andreas Stephan Norwich Law School & ESRC Centre for Competition Policy. The European Leniency Notice. Cartels are secretive agreements Leniency programmes enhance deterrence: inducing self-reporting

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An Empirical Assessment of the European Leniency Notice

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  1. An Empirical Assessment of the European Leniency Notice Andreas Stephan Norwich Law School & ESRC Centre for Competition Policy

  2. The European Leniency Notice • Cartels are secretive agreements • Leniency programmes enhance deterrence: inducing self-reporting • Immunity to first firm to come forward (only) • Introduced in US in 1978; not effective until 1993 reforms • DG Comp adopted leniency in 1996. Reformed in 2002 and 2006. • By April 2007, 23 cases opened by 1996 leniency notice and 8 under 2002 notice. Fines exceeding €6 billion • As early as 2001, leniency notice heralded as ‘indisputable success’ • RESEARCH QUESTION: Has the leniency notice succeeded in uncovering active cartels, or failed ones?

  3. Sources of data / information • DG Competition press releases and final decisions • DOJ press releases • Industry journals / newspapers

  4. 1996 Notice: Distilling US enforcement success • DOJ press releases: US equivalent investigations usually precede (and sometimes contemporaneous with) EU investigations. • Incentives to reveal much stronger in the US • Imprisonment of individuals – immunity • Some anonymity for revealing firm • Plea bargaining • 34 EC investig. opened after July 1996, but before 2002 reforms. • 23 opened as a result of leniency applications

  5. 1996 Notice: Distilling US enforcement success Proportion of US leniency success (Jul 1996 – Apr 2007) • 63% of leniency success (in terms of fines) on back of US

  6. 1996 Notice: Distilling US enforcement success A closer look at EU only leniency success (8): • 4 involved Brewers – First failed a year before DG Comp investigation opened. • Carbonless Paper had also failed. • Needle cartel had failed – revealing firm had been forced to join by ringleader. • First of two Copper Plumbing Cartels revealed by Mueller, which joined the cartel a decade after it was formed.

  7. 1996 Notice: Cartels in the chemicals industry 1996 Leniency Success Industry Breakdown (Jul 1996 – Apr 2007) • In all 11 cases, leniency applications made after cartels ceased

  8. VITAMINS AVENTIS SA AVENTIS SA AVENTIS SA (F. Hoffman-La Roche) Methylglucamine BASF AG Animal Feed Methionine Animal Feed Vitamins Citric Acid ARCHER DANIELS MIDLAND AKZO NOBEL DEGUSSA Amino Acids - Lysine Sodium Gluconate CHIEL JADANG CORP, DAESANG CORP & AJINOMOTO AKZO NOBEL Food Flavour AKZO NOBEL Organic Peroxides Sorbates ATOFINA HOECHST MCAA Chemicals

  9. 1996 Notice: Cartels in the chemicals industry The Failing Chemicals Cartels 1. Links to other cartels 2. New Entry from China 3. Arbitrage 4. Decline, overcapacity, and rising costs 5. Barriers to entry, substitutability, distrust 6. Asia Crisis 7. Mergers, acquisitions and restructuring

  10. The revised 2002 Leniency Notice • 2002 reforms increased clarity and certainty • Replaced ‘determining role’ with ‘coerce others’ • Immunity available after investigation opened • But, firms still required to put immediate end to involvement • 2006 reforms have remedied this, made immunity criteria easier to satisfy, and introduced marker system for leniency • ECN Model ‘Leniency Program Programme’ • European Leniency design brought into line with US

  11. 2002 Notice: More of the same? 2002 Leniency Success: Fines (to April 2007) • Less dependence on prior / simultaneous US policy success

  12. 2002 Notice: More of the same? 2002 Leniency success industry breakdown (to Apr 2007) • But still high proportion in Chemical industry – same old faces?

  13. 1996 Leniency Notice 2002 Leniency Notice MCAA Chemicals Acrylic Glass ATOFINA (now Arkema) Organic Peroxides Methionine DEGUSSA Hydrogen Peroxide VITAMINS SOLVAY Rubber Chemical Animal Feed Vitamins AKZO NOBEL Sodium Gluconate BAYER AG GROUP (Haarman & Reimer) Synthetic Rubber Citric Acid

  14. Key Findings / Implications • Leniency notice has largely uncovered failed, not active cartels • Discounting the cost of collusion; taming the end-game • Harming competitors (former cartel partners) • Priority to leniency applications from active cartels • Design of leniency appears close to optimal (2006 reforms) • Problem may be inadequate sanctions

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