Prosecution and Leniency Programs: The Role of Bluffing in Opening Investigations

Julien Sauvagnat

Journal of Industrial Economics, 2015, vol. 63, issue 2, 313-338

Abstract: type="main">

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.

Date: 2015
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