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On the Design of Leniency Programs

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  • Chen, Zhijun
  • Rey, Patrick

Abstract

Leniency programs contribute to destabilizing collusion but can also be abused and generate perverse effects. This paper develops a simple model capturing this trade-off, which we use to relate the optimal leniency policy (the carrot) to the effectiveness of investigations (the stick). We show that it is always desirable to offer some leniency before an investigation is launched; it is also optimal to offer some leniency once an investigation is underway when investigations are unlikely to succeed in uncovering cartels, absent self-reporting. Our analysis also confirms the usefulness of restricting leniency to the first informant only; in contrast, it does not support prohibiting leniency for repeat offenders.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 452.

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Date of creation: Apr 2007
Date of revision: Jan 2012
Handle: RePEc:ide:wpaper:7038

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References

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  1. Motta, M. & Polo, M., 1999. "Leniency Programs and Cartel Prosecution," Economics Working Papers eco99/23, European University Institute.
  2. Spagnolo, Giancarlo, 2004. "Divide et Impera: Optimal Leniency Programmes," CEPR Discussion Papers 4840, C.E.P.R. Discussion Papers.
  3. Frezal, Sylvestre, 2006. "On optimal cartel deterrence policies," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1231-1240, November.
  4. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
  5. Joseph E. Harrington, Jr, 2006. "Modelling the Birth and Death of Cartels with an Application to Evaluating Antitrust Policy," Economics Working Paper Archive 532, The Johns Hopkins University,Department of Economics.
  6. Aubert, Cecile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1241-1266, November.
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Citations

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Cited by:
  1. Acconcia, Antonio & Immordino, Giovanni & Piccolo, Salvatore & Rey, Patrick, 2013. "Accomplice-Witness and Organized Crime: Theory and Evidence from Italy," CEPR Discussion Papers 9543, C.E.P.R. Discussion Papers.
  2. Emilie Dargaud & Andrea Mantovani & Carlo Reggiani, 2013. "The fight against cartels: a transatlantic perspective," Working Papers 2013/31, Institut d'Economia de Barcelona (IEB).
  3. Dessí, Roberta & Piccolo, Salvatore, 2009. "Two is Company, N is a Crowd? Merchant Guilds and Social Capital," CEPR Discussion Papers 7374, C.E.P.R. Discussion Papers.
  4. Roldan, Flavia, 2011. "Covert networks and antitrust policy," IESE Research Papers D/932, IESE Business School.
  5. Flavia Roldán, 2008. "Collusive networks in market sharing agreements in the presence of an antitrust authority," Economics Working Papers we085024, Universidad Carlos III, Departamento de Economía.
  6. Natalia Pavlova & Andrey Shastitko, 2014. "Effects Of Hostility Tradition In Antitrust: Leniency Programs And Cooperation Agreements," HSE Working papers WP BRP 58/EC/2014, National Research University Higher School of Economics.
  7. Evgenia Motchenkova & Rob Laan, 2011. "Strictness of leniency programs and asymmetric punishment effect," International Review of Economics, Springer, vol. 58(4), pages 401-431, December.
  8. Michiel Bijlsma & Roel van Elk, 2008. "Opportunistic competition law enforcement," CPB Discussion Paper 110, CPB Netherlands Bureau for Economic Policy Analysis.
  9. Jensen, Sissel & Kvaløy, Ola & Olsen, Trond & Sørgard, Lars, 2013. "Crime and punishment: When tougher antitrust enforcement leads to higher overcharge," UiS Working Papers in Economics and Finance 2013/2, University of Stavanger.
  10. Salvatore Piccolo & Giovanni Immordino, 2012. "Optimal Accomplice-Witnesses Regulation under Asymmetric Information," CSEF Working Papers 304, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Sauvagnat, Julien, 2014. "Are leniency programs too generous?," Economics Letters, Elsevier, vol. 123(3), pages 323-326.

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