Year of Publication

2015

College

Martin School of Public Policy and Administration

Degree Name

Master of Public Administration

Executive Summary

Korea Fair Trade Commission (KFTC) is in charge of competition and consumer protection policies in South Korea. Of these policies, the cartel leniency program is the most powerful enforcement tool to regulate cartel activities which expropriate consumer surplus and create social welfare deadweight loss. The cartel leniency program grants exemptions or reductions in penalties to firms involved in the cartel activities when they cooperate with the cartel investigation of a competition authority. The Korea cartel leniency program was first adopted in 1997 and considerably revised in 2004.

The cartel leniency program can enhance the cartel detection or discovery ability of a competition authority (detection effect). The cartel leniency program also can deter the formation of new cartels or can break up the existing cartels (deterrence effect). However, there exist criticisms of the cartel leniency program because the program can be against social justice or the program can be more favorable to the big conglomerate companies. Based on these criticisms, bills to revise the current program have been discussed in the Korea National Assembly.

My research shows that the cartel leniency program as revised in 2004 is a powerful cartel enforcement tool. The 2004 leniency program considerably enhanced the cartel detection ability of KFTC. The total cartel discoveries increased about 10 per year and the discoveries of the influential cartels increased about 9 per year after the adoption of the 2004 program. The total cartel fines and the average cartel fines per discovery also increased $215 million and $8 million respectively after the adoption of the 2004 program. The results are net of other variables that can affect the cartel discoveries and they are statistically significant. Considering the fact that the increasing ratio of the discoveries of the influential cartels was greater than that of the total cartel discoveries and the total and average cartel fines also increased considerably after the adoption of the 2004 program, it is hard to say that the program is more favorable to the big conglomerate companies. Although there was no statistically significant evidence in accordance with a deterrence effect, just focusing on the recent discovery numbers indicates that the deterrence effect may, in fact, be occurring and can be identified in the near future.

Therefore, leaders should be cautious about the revision of the current cartel leniency program. The revision of the current cartel leniency program should be based on the objective analysis on the effect s of the current program. KFTC should advertise the program and its efficacy more aggressively to get support for the program from the public.

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