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In a paper, Dong, 2019 mentioned that leniency laws can destabilize the cartel or induce the formation of new cartels. Their argument is as below

- Leniency destabilize the cartels

On the one hand, leniency laws destabilize cartels, as they reduce leniency applicant’s costs of defection and potentially increase the costs of its rivals, who may have to pay fines imposed by the antitrust authority

It can be understood that the leniency applicant can got the amnesty policy why their rivals can be fined.

- However, I do not understand how the leniency laws are ineffective or even induce the formation of new cartels as the paragraph below. Could you please kindly explain it to me:

On the other hand, the anticipated costs of collusion could decrease if firms expect to be the first to apply for leniency, which would enable them to pay lower fines than in the case without leniency and impose extra costs on their rivals (e.g., the negative effects noted by McCutcheon, 1997; Spagnolo, 2000; Motta and Polo, 2003; Chen and Rey, 2013). This would stabilize existing cartels or even induce the formation of new ones

I understand that if every firm thinks that it will be the "betrayal" before attending to a new cartel, this will encourage the establishment of the new cartel because these firms will bare in mind that they will be the first betrayal. Is not it? If it is the case, is there any name for this phenomenon? Thanks in advance.

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  • $\begingroup$ 'is there any name for this phenomenon' What phenomenon do you mean exactly? The one were 'every firm thinks that it will be the "betrayal" before attending to a new cartel'? This is very specific, and such narrow terms usually do not get their own specific phrase. $\endgroup$
    – Giskard
    Commented Dec 3, 2021 at 8:00
  • $\begingroup$ Thanks @Giskard, The phenomenon I want to ask here is that every firm believes it will be the first one to betray the cartel $\endgroup$ Commented Dec 3, 2021 at 8:08
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    $\begingroup$ As I wrote, this is very specific, and such narrow terms usually do not get their own specific phrase. $\endgroup$
    – Giskard
    Commented Dec 3, 2021 at 8:34

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