THE PRODIGAL CORPORATION: AN ANALYSIS ON THE EFFECTIVENESS OF THE ACCC’S IMMUNITY POLICY FOR CARTEL CONDUCT ANTHONY GRAY, BONNIET. NGUYEN and ANDREW WAIT University of Sydney We examine the impact of the ACCC’s leniency policy (Immunity Policy) on cartel stability.The policy, by reducing the fines of the first cartel members who cooperate with competition authorities, can act to deter collusion. However, we find that care is needed in how a leniency policy is implemented. It is possible that the leniency policy can make collusion easier to sustain than in its absence. Further, the ACCC’s Cooperation Policy, which applies to all parties who assist the Commission with an investigation, can act to undermine the effectiveness of the leniency policy. I. Introduction Collusion and cartels seriously reduce economic welfare. 1 As a consequence collusion is illegal in Australia; under the Consumer and Competition Act 2010 the maximum penalties for collusive behaviour is set at $10 million for corporations and $500,000 for individuals for civil offences. 2 Despite these penalties, and equivalent measures in other countries, cartels continue to form and effectively operate (for example, see Levenstein and Suslow (2006, 2011)). A major recent devel- opment in enforcement of competition law in Australia has been the introduction of a leniency policy that reduces the penalties for cartel members who cooperate with authorities. This follows the introduction of similar leniency programs in the United States of America in 1993 and the European Union in 1996. Such programs aim to hinder the operation and establishment of cartels by providing a greater incentive for those involved to cooperate with competition authorities. It is also intended that by eliciting greater information about what otherwise are secretive activities, providing leniency to informants will increase the likelihood of successful court action. The purpose of this paper is to examine the effect of the Australian leniency program. In doing so, we are also able to contribute to the literature on how cartel stability is affected by leniency programs. The Australian Competition and Consumer Commission (ACCC) introduced the ‘Leniency Policy for Cartel Conduct’in June 2003 (ACCC, 2003). The Leniency Policy was specifically aimed at deterring the formation and continued operation of cartels within Australia. 3 The policy was doi: 10.1111/1467-8454.12006 1 Graeme Samuel, former Chairman of the Australian Competition and Consumer Commission (ACCC), has referred to cartels as ‘. . . a cancer on the Australian economy’ (Samuel, 2005). 2 See Consumer and Competition Act 2010 (Cth) s76. 3 A high profile case in which ACCC made use of the Leniency Policy concerned anti-competitive conduct in the corrugated fibreboard container industry, involving an agreement between Visy Board Pty Ltd and Amcor Ltd. Proceedings were successfully brought against Visy Board Pty Ltd and the Chairman of the Visy Group Richard Pratt, amongst others, for price fixing and market sharing under the equivalent provisions of the Trade Practices Act 1974 (the predecessor to the Consumer and Competition Act). Amcor Ltd and its former senior executives received immunity from prosecution for their alleged involvement, in exchange for information and their continued cooperation (ACCC, 2007). © 2013 The Authors Australian Economic Papers © 2013 Wiley Publishing Asia Pty Ltd, University of Adelaide and Flinders University