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Corporate Leniency Programs when Firms have Private Information: The Push of Prosecution and the Pull of Pre-emption

Authors


  • I very much appreciate the comments and suggestions of three anonymous referees and the Editor, of Faruk Gul, Martin Peitz, seminar participants at the University of Copenhagen, and conference participants at CRESSE 2011 (Rhodes, Greece), and the research assistance of Weining Bao.

Abstract

A corporate leniency program provides relief from government penalties to the first member of a cartel to cooperate with the authorities. This study explores the incentives to apply for leniency when each cartel member has private information as to the likelihood that the competition authority will be able to convict them without a cooperating firm. A firm may apply for leniency because it fears being convicted (‘prosecution effect’) or because it fears another firm will apply (‘pre-emption effect’). Policies by the competition authority to magnify concerns about pre-emption—and thereby induce greater use of the leniency program—are also explored.

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