On the Design of Leniency Programs 1

@inproceedings{Chen2007OnTD,
  title={On the Design of Leniency Programs 1},
  author={Zhijun Chen and Patrick Rey},
  year={2007}
}
We develop a simple framework for analyzing the optimal design of leniency programs, which allow cartel members to denounce their collusive agreements. We highlight a basic trade-off between two opposite forces: leniency can destabilize cartels, by encouraging firms to report and bring evidence to the antitrust authority, but it can also reduce the expected penalties that cartel members face. We characterize the optimal leniency rates, both before any investigation and once an investigation is… CONTINUE READING

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