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On the Design of Leniency Programs

  • Zhijun Chen
  • Patrick Rey

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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File URL: http://www.jstor.org/stable/pdfplus/10.1086/674011
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File URL: http://www.jstor.org/stable/full/10.1086/674011
Download Restriction: Access to the online full text or PDF requires a subscription.

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Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

Volume (Year): 56 (2013)
Issue (Month): 4 ()
Pages: 917 - 957

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Handle: RePEc:ucp:jlawec:doi:10.1086/674011
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. Aubert, Cécile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," Economics Papers from University Paris Dauphine 123456789/13637, Paris Dauphine University.
  2. Joseph E. Harrington, Jr, 2005. "Optimal Corporate Leniency Programs," Economics Working Paper Archive 527, The Johns Hopkins University,Department of Economics.
  3. Massimo Motta & Michele Polo, . "Leniency Programs and Cartel Prosecution," Working Papers 150, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Frezal, Sylvestre, 2006. "On optimal cartel deterrence policies," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1231-1240, November.
  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. Spagnolo, Giancarlo, 2004. "Divide et Impera: Optimal Leniency Programmes," CEPR Discussion Papers 4840, C.E.P.R. Discussion Papers.
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