Leniency programs encourage corporate cooperation with antitrust authorities by offering immunity or fine reductions for reporting illegal cartels. While prior studies suggest these programs discourage collusion and destabilize existing cartels, experimental evidence in environments with unrestricted communication indicates that the effectiveness of leniency is not clear-cut. We conduct a laboratory experiment in such an environment to examine the interaction between leniency programs and follow-on private damages, proposing the use of Fair Funds to maintain victim compensation and preserve incentives for leniency application. Contrary to theoretical predictions, we find that the prospect of private damages can increase cartel formation, though this effect is mitigated when our Fair Funds compensation scheme is introduced. In addition, leniency applications decline when private damages are introduced, but this decline is partially offset by the presence of Fair Funds.
