Last month the managing directors of four cement makers in the western region met at a hotel and agreed to hold prices at ₹420 a bag. You are the compliance head of Narmada Cement. Each quarter you advise the board on one move. Your three rivals each follow a fixed strategy, which you must infer from their behaviour.
Tip: rivals see price movements with a one-quarter lag. A leniency application ends the cartel at once and opens a case against every member.
| Other firms colluding | You collude | You cheat |
|---|---|---|
| All 3 | 10 | 16 |
| 2 of 3 | 7 | 12 |
| 1 of 3 | 5 | 8 |
| None | 3 | 4 |
Whatever the others do, cheating pays more this quarter. If everyone reasons that way, all earn 4 instead of 10: the prisoner's dilemma. A quarter in which anyone applies for leniency is competitive for all (4 each).
| Q | You | Rivals | Your profit | Heat | Event |
|---|---|---|---|---|---|
| No quarters played yet. | |||||
Set the policy levers, then run 200 simulated cartels. Each run is repeated with leniency switched off so you can see what the programme changes.
In the repeated game each firm weighs a one-off gain from undercutting (taking the whole market for a period) against its share of the cartel profit in every future period. Collusion is self-enforcing only when the discount factor δ is at least a threshold δ*; with no enforcement δ* = 1 - 1/N. Leniency raises the value of leaving, because the firm that undercuts and reports first also escapes the fine, so δ* rises and fewer cartels can hold together.
Prohibition. Section 3(1) of the Competition Act, 2002 bars agreements that cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India. Under s.3(3), an agreement between competitors that directly or indirectly fixes prices, limits output, shares markets or rigs bids is presumed to have an AAEC. A cartel of cement makers holding a common price falls squarely within s.3(3). Cheating on the cartel does not take a firm outside it; the firm remains a party to the agreement for the period it was in.
Penalty. Under s.27(b), the CCI may impose a penalty of up to 10% of the average turnover of the preceding three financial years. For cartels, the proviso allows a penalty on each member of up to three times its profit for each year of continuance of the cartel, or 10% of its turnover for each year of continuance, whichever is higher. These are ceilings; the CCI fixes the actual amount after considering aggravating and mitigating factors. This game assumes the ceiling is imposed so the stakes are visible.
Leniency. Section 46 lets the CCI impose a lesser penalty on a cartel member who makes a full, true and vital disclosure. The Competition Commission of India (Lesser Penalty) Regulations set priority by marker order: the first applicant may receive a reduction of up to 100%, the second up to 50%, and the third up to 30%. Each is an "up to" ceiling; the actual reduction depends on the timing of the application, the value its evidence adds and continuous cooperation. The game grants each ceiling in full for simplicity.
Lesser penalty plus. The Competition (Amendment) Act, 2023 introduced "lesser penalty plus": an applicant in one cartel investigation who discloses a different, previously undisclosed cartel may receive an additional reduction in the first case, besides leniency in the second.
Why leniency destabilises cartels. A cartel is a repeated prisoner's dilemma held together by the threat of future punishment. Leniency changes the pay-offs: the first firm through the regulator's door can escape most or all of the fine, while those who wait bear the full penalty. Each member now fears that another will report first, and the fear itself is enough to trigger a report. Distrust becomes self-fulfilling: a race to the regulator.
Teaching simulation with fictional firms, not legal advice. Figures are stylised. Built by Anshuman Sahoo, Law Matters Academy.