Information Session

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Cartels and Compliance Joshua Gans Melbourne
Business School
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(No Transcript)
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Compliance Programs

• Many Australian firms are being advised to
  initiate training and compliance programs so that
  employees are aware of potential violations of
  the Trade Practices Act
• Raises awareness as to what is illegal, magnitude
  of corporate and individual penalties and to the
  evidence required to prove these.

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Issues in Relation to Cartels

• Does instituting a compliance program reduce
  risks of being charged with a price fixing
  violation?
• Does instituting a compliance program reduce the
  risks of fixing prices?
• Should penalties be lower for companies with a
  compliance program?

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Effects of a Compliance Program

• Decrease risk of communication between firms
• Increase risk that if communication attempted,
  firm will report it
• More optimal management of hard evidence
• May keep or search for hard evidence
• May destroy hard evidence

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Some Insights

• Profitability of collusion
• A firm with a compliance program requires a
  larger share of the rents for collusion to be
  worthwhile (so can bribe employees not to report
  it)
• Sustainability of collusion
• Compliance programs only impact on sustainability
  if authority treats those with programs
  differently

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Asymmetric Treatment for Firms

• Should firms with compliance programs get softer
  treatment?
• No, costs associated with being caught are lower
  so more likely to find collusion profitable
• Should firms with compliance programs get harsher
  treatment?
• No, will then be seen as a better collusive
  partner as less likely to renege

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Asymmetric Treatment for Employees

• Should employees who have participated in a
  compliance program be treated harsher?
• Yes, assists the firm in creating expectations
  that compliance is important and makes them less
  likely to have a weak compliance program

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Complements Leniency

• Does a compliance program complement a leniency
  policy?
• Yes, if the goal of a leniency policy is to
  construct a revelation mechanism then a
  compliance program is useful.
• Firms have an incentive to institute this so that
  individuals understand leniency and will act
  quickly.

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Summary

• Compliance programs need to be strong to be
  effective
• As penalties are after the fact there is no
  case for asymmetric treatment of firms based on
  compliance
• There is a case for treating employees who
  participate in a compliance program harsher
• Compliance programs are useful for firms in a
  leniency regime and complement it.