Counter Collusive Effect of Leniency Program

The leniency program is to reduce the sanction if a wrongdoer voluntarily confesses his behavior or cooperates extraordinarily with investigation authority. To study the effect of the program for self-report on collusion, we consider a repeated procurement auction model where each colluder simultaneously chooses ‘confess’ or ‘no confess' after every bidding. Unlike the previous literature which emphasizes no or only negative effect, it shows that the leniency program can be counter-collusive. The simple intuition is that a deviator of the collusion will get less sanction through his/her self-report, which makes the deviation less costly and collusion sustainment more difficult.