Corporate Leniency in a Dynamic World: The Preemptive Push of an Uncertain Future
32 Pages Posted: 17 Oct 2013 Last revised: 11 Feb 2014
Date Written: February 2014
This paper investigates how leniency programs can induce collusive offenders to self report in a dynamic setting, where the risk of independent detection evolves stochastically over time. We show how this uncertainty about the future can push firms into preemptive application, and that these preemptive incentives may unravel to the point where firms apply long before the risk of independent detection is in any way imminent. The analysis sheds light on factors and policy instruments which favor such an unraveling effect. These include: little discontinuity in time and state, firms' patience, and a relatively harsh treatment of firms which fail to preempt others. In contrast, the described effects do not necessarily require a very high absolute level of leniency reduction, or even rewards.
Keywords: cartel, collusion, leniency program, preemption, dynamics
JEL Classification: D43, D84, K21, K42, L41
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