Corporate Leniency and Incentives for Collusion

Abstract

Leniency programs entail that the competition agency waives some fraction of the fines for a former cartel member, provided that it comes forward with information. I use a game theoretical collusion model from Harrington (2008), where the competition authority has an endogenous policy choice. The model is utilized to analyse how the degree of leniency impacts the firms collusion decision. The result implies that it is in fact optimal to offer full amnesty to the first firm to come forward. Furthermore, when firms have private information about the probability of prosecution, the probability of whistle-blowing and conviction increases. This is provided that leniency is sufficiently generous.