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Imperfect Leniency Program
Park Jung-hee  |  qkrwjdgmlwkd@gmail.com
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승인 2012.06.05  10:05:07
트위터 페이스북 미투데이 요즘 네이버 구글 msn
 
Nongshim, Samyang, Ottogi, and Korea Yakuit. Four companies had shared information about their products with one another and fixed the prices of key items between 2001 and 2010, according to the state-run antitrust watchdog. Nongshim, dominating almost 70 percent of the domestic ramen market, first increased the ramen prices, and then other companies followed in several periods. For example, the leader sent an email to others containing information about the ratio of increase in prices with the sales figures and when new product lists will be released. Nongshim insisted that since they occupy 70 percent of the market, they would not take part in price fixing. Under law, in light of Nongshim reporting the price-fixing voluntarily before others, it qualifies them for penalty remission. Nongshim, the market leader, was fined the largest amount of 107.7 billion won, followed by Samyang with 11.6 billion Won, Ottogi with 9.7 billion Won, and Korea Yakult with 6.2 billion Won.
 
   
 
The Introduction of Leniency Program
Leniency program is one of the antitrust tactics in which antitrust authorities provide cartel participants with considerable pecuniary incentives- exemption of antitrust fines up to the whole amount for the first self-reporter, then by half to the second self-reporter. Without the cooperation of companies engaging in price-rigging and whistle-blowing, it cannot be demonstrated easily, so voluntary reporters receive a reduced sentence. The United States Department of Justice introduced the program first, thinking that companies would not be able to fix prices in collusion if the trust amongst them was damaged. After the United States introduced the leniency program in 1978, Korea followed in 1997.
*Cartel: cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these.
 
Prisoner’s Dilemma
Two suspects are arrested and interrogated separately. Each is offered a deal as follow;

 
Prisoner B stays silent (cooperates)
Prisoner B confesses (defects)
Prisoner A stays silent (cooperates)
Each serves 1 month
Prisoner A: 1 year
Prisoner B: goes free
Prisoner A confesses (defects)
Prisoner A: goes free
Prisoner B: 1 year
Each serves 3 months

Theoretically, it is in the best interest of both players to remain silent because they will go free for lack of evidence. However, in reality, both prisoners usually choose to testify because they cannot be certain of the other prisoner’s decision.
Leniency program is like a ‘Prisoner’s Dilemma’. If all companies that participated in price-rigging do not report voluntarily, none of them will be fined. However, in the recent incident, one company reported voluntarily for its own sake and their bad behavior became known. Maybe this is the principle of the Leniency Program.
 
Misuse of Leniency Program
These days, large companies take advantage of the program. There is a noticeable misuse of the Leniency program in the field of life insurance companies. Large companies made bad use of the fact that the first self-reporter is free from penalty and that the second and third self-reporters pay a half and a fifth of the fine. They benefited by approximately 250 billion Won by misusing this fact.
 
What is the solution of Leniency Program’s ill use?
The application of Leniency program is limited once to each company. If so, there will be little chance that the price-fixing may recur after one exposure.
Moreover, consumers try to campaign about a boycott of those companies and some civil groups should be active in protecting small companies because price-rigging itself is ignoring and betraying consumers. By doing this, companies should realize how important consumers are.
Above all, the focus should not be on which company reported first, but on picking out the real company leading the price-rigging. KFTC (Korea Fair Trade Commission) should reveal the whole story, regarding information about which company started the price fixing and which company was damaged most. Usually the large companies lead the price-fixing, so the real victim can be said to be the other smaller companies who blindly follow the major companies.
The reason why there are harmful consequences in our society, is because the program is not perfect yet. Therefore, every time the problem appears, efforts in finding the solution should be put in thoroughly, little by little, so that victims can be decreased.
 
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