Prosecution and Leniency Programmes: The Role of Bluffing in Opening Investigations

This paper characterizes the optimal investigation and leniency policies when the Competition Authority is privately informed about the strength of a cartel case. We show that the Competition Authority can then exploit firms' uncertainty about the risk of conviction to obtain confessions even when the case is weak. More generally, we show that offering full leniency allows the Competition Authority to open more successful investigations (what we refer to as the ``activism effect'' of leniency), which overall raises both cartel desistance and cartel deterrence. Finally, we discuss the policy implications of the model.