Collusion in Industrial Economics and Optimally Designed Leniency Programmes – A Survey

Panayiotis Agisilaou is a PhD student in the School of Economics and the ESRC Centre for Competition Policy – here is a summary of his recent working paper which draws on his thesis. The full working  paper is here 


  • Collusion among firms is one example of a situation in which free markets fail to efficiently allocate the scarce resources of an economy.
  • The negative effect of collusion on the welfare of consumers calls for government intervention.
  • The goals of antitrust policy are to dissolve existing cartels and to deter new cartels from forming in the future.
  • Leniency programmes are a powerful tool at the disposal of antitrust authorities. These aim to incentivise colluding firms to come forward and denounce their unlawful conduct.


  • The aim of this paper is to enhance our understanding of how leniency policies impact on cartel formation and sustainability.
  • The author provides a critical and systematic overview of the most influential contributions to the economics literature on collusion and leniency programmes in antitrust.
  • Also provided is a review of the literature on the economics of generic law enforcement, with a focus on self-reporting schemes, for crimes committed either by individuals or groups of individuals.


  • Post-investigation leniency may provide colluding firms with incentives to reveal evidence of significant added value to the antitrust authority. As a result, the judicial procedure accelerates and the costs of investigation diminish.
  • The deterrence effects of a leniency programme may be indirectly amplified to the extent that the savings made by the authority are used to conduct further market investigations.
  • The punishment strategy adopted by colluding firms to enforce their illegal agreement influences the deterrence effects of leniency programmes.
  • The restriction of eligibility to the first reporting firm curbs the ability of colluding firms to exploit the leniency programme.
  • The offer of a reward to the first self-reporting firm provides a powerful incentive to firms to self-report.
  • When colluding firms retain asymmetric evidence, the extension of eligibility for leniency to more than one firm facilitates the procedure for prosecuting cartels.
  • A more transparent leniency programme allows firms to accurately estimate the benefits accruing from a leniency application.
  • More severe punishment for repeat offenders enhances the efficacy of a leniency programme.
  • A confidential application procedure restricts firms’ abilities and scope to exploit the leniency programme.
  • A leniency programme for individuals is more effective than a corporate leniency programme.
  • Reduced fines (because of lenient treatment) make collusion less costly ex-ante (a pro-collusive effect).
  • Wrongly designed leniency programmes may provide firms with a credible mechanism to curb the opportunism which is inherent to illegal cartel agreements. Thus, contrary to policy objectives, a poor leniency programme may exacerbate cartel formation and/or render an existing cartel more robust.
  • A poorly designed leniency programme for individuals may have adverse effects on intra-firm hiring strategies and inter-firm benign cooperation.

CCP Seminar: Antitrust as a tool for regulation: EU energy markets

The CCP’s Spring seminar series continues on Friday 1st March with our very own Burçak Yalcin (CCP and UEA Law School) presenting her research on ‘Antitrust as a tool for regulation: EU energy markets‘. An extended abstract for her seminar can be found below.


The European electricity and gas markets have experienced significant changes since the idea of liberalisation was raised in the 1980s with the aim of creating well-functioning markets that ensure secure energy supplies at competitive prices, which are key to achieving growth and consumer welfare in the European Union (hereafter EU). To achieve this objective the EU decided to open up Europe’s gas and electricity markets to competition and to create a single European energy market. As a first real step, the first electricity Directive 96/92/EC was adopted in 1996, and the gas Directive 98/30/EC was enacted in 1998. In 2003, the legislative process took a major step forward with the adoption of the second electricity and gas Directives 2003/54/EC and 2003/55/EC attempting to create a competitive single European market. These Directives have made a significant contribution towards the creation of electricity and gas markets that are fully open to competition. Nevertheless, on the 10th of January 2007, the Commission published the final report on the Sector Inquiry[1] identifying a number of deficiencies, namely: a high level of market concentration in wholesale markets, an insufficient level of unbundling between network operations and supply activities, and thus the existence of vertical foreclosure. Regarding these findings, the Commission issued the so-called third legislative package in 2009 with namely the provisions of full ownership unbundling and third party access regime.

However, in spite of these regulatory steps, the liberalisation process has yet to successfully bear fruit. Consequently the Commission seeks to remove deficiencies of liberalisation by utilising competition law as a relevant vehicle.[2] This aim was stressed by the former Competition Commissioner, Neelie Kroes. She stated that ‘… I intend to use our competition tools actively to speed up the liberalisation process in gas and electricity markets’.[3]

With the modernisation of EU competition law, i.e. with the adoption of Council Regulation 1/2003 on the implementation of the competition rules laid down in Article 81 and 82 of the Treaty (Articles 101 and 102 TFEU) in May 2004, the Commission was granted a perfect tool to eliminate deficiencies of the energy markets through competition law. Article 9 of Regulation 1/2003, for the first time, entails a public settlement procedure where the Commission can conclude its investigations by rendering behavioural or structural commitments binding upon undertakings who suggest them, instead of issuing a prohibition decision, when the commitments address the Commission’s concerns over competition. Case law shows that the Commission tends to impose behavioural or structural remedies on the basis of Article 9 of the Regulation so as to conclude, in a short period of time, most of the investigations carried out into competition in the energy markets.

The presentation will first clarify the differences between prohibition and commitments proceedings in order to comprehend the possible reasons behind the approach of the Commission to conclude the investigations on the basis of Article 9, rather than Article 7 of the Regulation. Secondly, it will analyse the decisions of the Commission, in particular the cases of E.ON (Case COMP/39388-38389), RWE (Case COMP/39402), and ENI (Case COMP/39315) in which structural remedies were imposed. The aim of this analysis is to examine whether the Commission deliberately uses Article 9 of the Regulation in order to further regulate the markets as well as to create a well-functioning single European energy market by imposing structural remedies. Finally, the presentation will discuss the role of competition law and the Commission in the energy regulation by taking into account both the borders of and the interaction between competition policy and regulatory policy.


1.  Commission, ‘DG Competition Report on Energy Sector Inquiry’ SEC(2006) 1724.

2.  IP/06/1768 ‘The Commission takes action against Member States which have still not properly opened up their energy markets’ (2006); P. Kuoppamaki, Talus, P., ‘ Relationship Between General Competition Laws and Sector Specific Energy Regulation’ (2010) Vol.8 Issue. 1 Oil, Gas and Energy Law Intelligence (OGEL).

3.  Commission Press Release ‘Competition: Commission secures improvements to gas supply contracts between OMV and Gazprom’ IP/05/195 (2005).

CCP Seminar: Explaining the Surprising Strength of the European Competition Policy

We are delighted to welcome Laurent Warlouzet (LSE/Artois) as our guest speaker at this week’s CCP seminar on Friday 22nd February. He will be presenting his research on ‘Explaining the Surprising Strength of the European Competition Policy: The Sutherland Breakthrough (1985-88)‘. A preliminary version of Laurent’s abstract can be found below.

The development of a strong European competition policy was not a natural phenomenon, although it is usually considered as a mechanical consequence of the Single Act, of the ordoliberal nature of the Treaty of Rome and of the rise of neoliberal ideas. This paper will argue 1) that the strengthening of the European Competition Policy was surprising, and 2) that it was greatly linked to some initiatives taken by Peter Sutherland, commissioner for competition between 1985 and 1988.

Policy Brief: What is the price of pay-to-delay deals?


  • A pay-to-delay deal (or ‘reverse payment’) involves a payment from a branded drug manufacturer to a generic manufacturer to delay market entry.
  • Pay-to-delay deals are on the rise on both sides of the Atlantic.
  • According to the Federal Trade Commission, pay-to-delay deals stifle competition from lower-cost generic medicines and have cost US consumers on average $3.5 billion per year. Read more of this post

Georg von Graevenitz presents Trademark Cluttering

Further to his Working Paper and the Policy Brief, Georg von Graevenitz presented “Trademark Cluttering” at WIPO in January 2013. The link below will take you to his presentation.

Presentation – trademark cluttering

Policy Brief: Trade Mark Cluttering – Evidence from EU Enlargement


  • Since the mid-1990s, medical regulators in the United States and Europe regulate the names of those drugs that are only available on prescription. The aim is to protect consumers from medication errors that result from drug name confusion.
  • The producers of these drugs may submit between three and four invented names per drug to medical regulators to reduce the chance of rejection. But unused registered trade marks clutter the trade mark register, raising search costs for other trade mark applicants who must establish whether trade marks on the register are in use.
  • Enlargement of the European Union increased regulatory uncertainty for pharmaceutical firms because the number of medical regulators that had to approve invented names for pharmaceutical products increased sharply at the time. Read more of this post

Non-Discrimination Clauses in the Retail Energy Sector

Each month we collect up and record all the outputs made by CCP members. To give people an idea of the scope of the research we undertake we publish the abstracts and links to papers written by our colleagues in the Centre.

Morten Hviid and Catherine Waddams have published Non-Discrimination Clauses in the Retail Energy Sector in The Economic Journal.

The British energy regulator has recently reviewed a non-discrimination licence condition imposed to ensure that energy retailers charge the same mark-up in different regions. Loyalty by many to incumbent firms necessitated heavy discounting by entrants to attract customers, which had led to regional price discrimination. Matching characteristics of the energy market to models of discrimination, we identify the necessary conditions for the licence condition to have a positive effect for consumers, and particularly ‘vulnerable’ consumers. The licence condition is likely to have reduced competition in the mainstream energy markets, which seems confirmed by the regulator’s subsequent review of the retail market.

The role of ‘freedom’ in EU competition law

Each month we collect up and record all the outputs made by CCP members. To give people an idea of the scope of the research we undertake we publish the abstracts and links to papers written by our colleagues in the Centre.

Pinar Akman has published The role of ‘freedom’ in EU competition law in Legal Studies.

An initial reading of EU competition law jurisprudence and literature may suggest that there might be a competition-related freedom in the EU, expressed along the lines of ‘freedom of competition’ or ‘freedom to compete’. If competition is to be protected as a ‘freedom’ rather than merely as a ‘policy’, what this freedom involves should be established. It is important to establish the role of ‘freedom’, since it has been argued that EU competition law is a product of or has been significantly influenced by ‘ordoliberalism’. Under ordoliberalism, protecting the ‘economic freedom’ of market actors is the aim of competition policy. This paper examines the entire jurisprudence of the EU Courts to establish the role of ‘freedom’ in EU competition law as perceived by the EU Courts. This inquiry establishes whether ordoliberalism has so fundamentally influenced the jurisprudence that welfare-based objectives cannot be adopted as an/the objective of EU competition law. This is the first such comprehensive study regarding ‘freedom’ in EU competition law. The paper demonstrates that there is little quantitative or qualitative support for the ordoliberal argument when one considers the relevant jurisprudence. A quantitative analysis of the case-law and in particular the historical trend raises serious doubts concerning the validity of the conventional ordoliberal-influence thesis.

Do Depositors Benefit from Bank Mergers?

We were pleased to hear from former CCP Member John Ashton recently. He has been awarded a prize for his paper “Do Depositors Benefit from Bank Mergers? An Examination of the UK Deposit Market” which was based on a CCP working paper.


John Ashton award announcement

Congratulations to John! You can find his paper on the journal website.

CCP Seminar: Authorized Generic Entry prior to Patent Expiry

The CCP seminar series continues on Friday 8th February when we welcome Silvia Appelt (OECD) who shall be presenting her paper entitled ‘Authorized Generic Entry prior to Patent Expiry: Reassessing Incentives for Independent Generic Entry‘. An abstract for her study can be found below.


Patent holders attempt to mitigate the loss of monopoly power by authorizing generic entry prior to patent expiry. Off-patent competition could be adversely affected if authorized generic entry substantially lowered the attractiveness of subsequent generic entry. This study assesses the impact of authorized generic entry on generic entry decisions in the course of recent patent expiries in Germany. I make use of micro data and estimate recursive bivariate probit models to account for the endogeneity of authorized generic entry. The results show that authorized generic entry has no significant effect on the likelihood of generic entry. Originators’ endeavor to expand the scope of business and rent-seeking motives drive authorized generic entry decisions.