Assessing the Effects of a Road Surfacing Cartel in Switzerland

Abstract

The last couple of years have seen an increasing interest in the evaluation of competition policy both in practice and in academia. With respect to the former, the Office of Fair Trading in the UK, for instance, recently started to estimate the ‘positive impact’ of ist activities on direct benefits to consumers. In academia, recent research shows an increasing interest in special topics such as the effectiveness of merger control, the effects of competition policy interventions or the robustness of certain methods to evaluate competition policy.Against this background, this paper assesses the impact of the detection of a hard-core cartel in the Swiss market for road surfacing on post-cartel competition. In addition to an investigation of supply-side factors, demand-side factors, and market prices, the paper also derives estimates of the economic effects of the decision. The results indicate that the detection of the cartel may have led to short-term price reductions; however, the persistent collusion-friendly industry structure forecloses larger and durable gains for the customers.With respect to the implications of the case study for general cartel policy, one improvement possibility would be to carry out screenings to identify potentially collusionfriendly industries by using a set of collusion factors. Subsequently, these suspicious industries should then be investigated more closely focusing on market structure, market behavior and market results, possibly in the form of ‘inquiries’ conducted by the UK Competition Commission. Such an approach would not only raise the probability to detect cartels directly but it would also create a signal for the firms in the respective industries that they are on a watch. Ideally, one of the companies becomes nervous enough to decide to apply for leniency.