Prosecution and Leniency Programs: The Role of Bluffing in Opening Investigations
The Journal of Industrial Economics, Vol. 63, Issue 2, pp. 313-338, 2015
31 Pages Posted: 2 May 2011 Last revised: 16 May 2016
Date Written: September 1, 2013
Abstract
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.
Keywords: Antitrust Law and Policies, Cartels, Collusion, Self-Reporting
JEL Classification: K42, K21, L41
Suggested Citation: Suggested Citation
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