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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

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

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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

Sauvagnat, Julien, Prosecution and Leniency Programs: The Role of Bluffing in Opening Investigations (September 1, 2013). The Journal of Industrial Economics, Vol. 63, Issue 2, pp. 313-338, 2015 . Available at SSRN: https://ssrn.com/abstract=1826324 or http://dx.doi.org/10.2139/ssrn.1826324

Julien Sauvagnat (Contact Author)

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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