Leniency programs and cartel prosecution

We study the enforcement of competition policy against collusion under leniency programs, which give reduced tines to firms that reveal information to the Antitrust Authority. Leniency programs make enforcement more effective but they may also induce collusion, since they decrease the expected cost of misbehaviour. We show that in the optimal policy the former effect dominates, calling for leniency programs when the Antitrust Authority has limited resources. We also show that these programs should apply to firms that reveal information even after an investigation is started. (C) 2002 Elsevier Science B.V. All rights reserved.