Prosecution and Leniency Programs: The Role of Bluffing in Opening Investigations
Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research
This paper characterizes the optimal investigation and leniency policies when the Competition Authority is privately informed about the strength of a cartel case. I show that the Competition Authority can then exploit firms' uncertainty about the risk of conviction to obtain confessions even when the case is weak. More generally, I show that offering full leniency allows the Competition Authority to open more successful investigations (what I refer to as the `activism effect' of leniency), which overall raises both cartel desistance and cartel deterrence. Finally, I discuss the policy implications of the model.
Number of Pages in PDF File: 31
Keywords: Antitrust Law and Policies, Cartels, Collusion, Self-Reporting
JEL Classification: K42, K21, L41
Date posted: May 2, 2011 ; Last revised: November 23, 2014
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