Edited by Joseph E. Harrington Jr and Yannis Katsoulacos
Chapter 2: Corporate Leniency with Private Information: An Exploratory Example
Joseph E. Harrington Jr1 2.1 INTRODUCTION One of the most important policy developments in US antitrust policy in recent decades is the 1993 revision of the Corporate Leniency Program by the Department of Justice (DOJ). Originally created in 1978, this program allows corporations, who are engaging in illegal antitrust activity (such as price-fixing), to receive amnesty from government penalties if they come forward and cooperate. The 1993 revision made it possible for amnesty to be awarded even when an investigation had been started and made it a condition that the DOJ ‘has not received information about the illegal activity being reported from any other source.’ This means that amnesty is limited to one firm per cartel. The appeal of these programs for discovering cartels and acquiring the evidence to effectively prosecute them has resulted in the adoption of some form of a corporate leniency program by more than 50 countries and jurisdictions. In light of the importance of leniency programs in practice, there has been a considerable amount of research exploring how leniency programs affect the incentives to collude and to report cartels. Beginning with the pioneering paper of Motta and Polo (2003), the primary force in theoretical analyses is that the competition authority may catch the colluding firms and, in anticipation of that prospect, firms may apply for leniency; this I will refer to as the ‘prosecution effect.’ For example, in Harrington (2008), the probability of the competition authority discovering and successfully prosecuting the cartel varies over time and...
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