DP4840 Divide et Impera: Optimal Leniency Programmes

Author(s): Giancarlo Spagnolo
Publication Date: December 2004
Keyword(s): amnesty, antitrust, cartels, collusion, competition policy, corruption, immunity, law enforcement, leniency, oligopoly, organized crime, repeated games, risky cooperation, whistleblowers
JEL(s): L13, L44
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4840

Leniency programmes (or policies) reduce sanctions against cartel members that self-report to the Antitrust Authority. We focus on their ability to directly deter cartels and analogous criminal organizations by undermining internal trust, increasing individual incentives to ?cheat? on partners. Optimally designed ?courageous? leniency programmes reward the first party that reports sufficient information with the fines paid by all other parties, and with finitely high fines achieve the first best. ?Moderate? leniency programmes that only reduce or cancel sanctions, as implemented in reality, may also destabilize and deter cartels by (a) protecting agents that defect (and report) from fines; (b) protecting them from other agents? punishment; and (c) increasing the riskiness of taking part to a cartel.