Cartel Arrangements Research Articles

The role of patents in cartel stability

Motivation: Oligopolistic firms entering a collusive agreement often face the prisoner dilemma problem which makes such agreements inherently unstable. There has been a wide discussion in the literature on a variety of solutions to stabilize cartel arrangements. Only recently, it has been pointed out that patents could play an important role in cartel creation and functioning. However, there is a need for a formal modelling to better understand the role of patents in market competition.
 Aim: In this paper, we consider the impact of patent rights on the competition of duopolists in the final product market. We assess the incentives of firms holding essential patents to create a cartel. Our main objective is to investigate the role of patents in cartel stability.
 Results: Using game-theoretical approach, we show that it is beneficial for the patent-holding duoplists to form a cartel. Moreover, it is demonstrated that the existence of patents may help eliminate the prisoner dilemma problem faced by the participants of collusive agreement and significantly contribute to cartel stability. These conclusions suggest that patents may play an important role in restricting market competition.

“The Mother of Combines”: Representations of the United States in Early Canadian Discourse on the Combines Problem and the Formation of Canadian National Identity

AbstractIn 1887, Canada was in a fervour over so-called “combines,” a term used to cover price-fixing schemes, pool agreements, trusts, and other cartel arrangements. The public debate led to the passage in 1889 of the Anti-Combines Act, the world’s first modern competition statute, enacted a year prior to the United States’ Sherman Antitrust Act. But while Canada acted before its neighbour to the south, the United States was omnipresent in the Canadian debates in four ways: as a benchmark against which the Canadian economy and the combines problem should be judged; as a model for potential legal action; as a potential economic liberator; and as the very source and propagator of the combines problem. Canadians thus alternately presented the United States as saviour or devil, as paragon or antithesis. The result was a paradox of a sort: Canadians borrowed American ideas in order to avoid becoming American.

The Applicability of Art. 101 TFEU to Horizontal Algorithmic Pricing Practices: Two Conceptual Frontiers

As the use of pricing algorithms in electronic commerce has become ubiquitous, competition authorities have become alert to the potential anti-competitive outcomes that might arise from the use of such computerised tools by market players, particularly those who compete directly against each other in digital markets. This paper seeks to explore the extent to which existing European competition law principles are applicable to market players who pursue algorithmic pricing strategies to achieve sub-competitive parallel pricing outcomes, diminishing the degree of price competition that might otherwise exist between them. In particular, we will focus on situations where no agreement exists between the market players, starting from the premise that their actions are non-collusive in the sense that they are not implementing some sort of cartel arrangement via electronic means. The interesting legal question which emerges is whether, in the absence of a specific anti-competitive agreement, plan or scheme that has been concluded between competing undertakings, an infringement of the existing competition law rules can nevertheless be established against those whose deliberate algorithmic pricing activities produce stifling effects on price competition in online marketplaces, resulting in harms to competition similar to what they would have achieved had they actually reached such an agreement beforehand. Two conceptual frontiers will be scrutinised in greater detail: (1) whether or not the concept of a “concerted practice” can be applied to such algorithmic pricing conduct; and (2) whether or not a credible theory of competitive harm can be constructed in such scenarios.

Complementary Bidding and the Collusive Arrangement: Evidence from an Antitrust Investigation

A number of recent papers have proposed that a pattern of isolated winning bids may be associated with collusion. In contrast, others have suggested that bid clustering, especially of the two lowest bids, is indicative of collusion. In this paper, we present evidence from an actual procurement cartel uncovered during an anticollusion investigation that reconciles these two points of view and shows that both patterns arise naturally together as part of a cartel arrangement featuring complementary bidding. Using a difference-in-difference approach, we compare the extent of winning-bid isolation and clustering of bids in Montreal's asphalt industry before and after the investigation to patterns over the same time span in Quebec City, whose asphalt industry has not been the subject of collusion allegations. Our findings provide causal evidence that the collusive arrangement featured both clustering and isolation. We use information from testimony of alleged participants in the cartels to explain how these two seemingly contradictory patterns can be harmonized.

Role of Industry Context in The Firm Environmental-Financial Performance Link: Evidence from the Extractive Sector

Extant studies on the impact of corporate environmental performance on firm financial performance have produced contradictory findings. Empirical findings remain inconclusive largely due to faulty theorising and methodology. One key assumption is that the evidence from a particular research can be generalised across contexts, whereas these differ from industry to industry. A good example of an industry with theoretically and methodologically valid peculiarities is the extractive sector owing to the sector's centrality in the discourse on business role in climate change and environmental sustainability. We therefore argue for an idiographic perspective that allows theory and design that are sensitive to the industry's idiosyncrasies. In this paper, we draw on 94 firms that involve in extractive business based on the S&P 500 index. The results show that environmental performance has no significant association with extractive firms' financial performance. Meanwhile, results based on full data set (S&P 500 including the extractive firms) depict a significant positive relationship. This confirms our hunch regarding the idiosyncratic nature of the extractive industry, which include the non-substitutability of the industry's products with a very high demand and low chance of consumer boycott. The study reflects the nature of the extractive sector which is characterised by cartel arrangement where most firms operate like monopolists with little or no substitute for their products. This, however, portends some disturbing insights about why some of the firms in this sector perhaps sometimes exhibit cavalier attitudes in their environmental action with little or no significant impacts on their long-term value. We discuss the theoretical and policy implications of the study.

PRESIDENTIALIZATION AND PROCEDURAL RULES CHANGE: THE CASE OF THE SOUTH KOREAN NATIONAL ASSEMBLY

AbstractThe common assumption of legislative politics is that the majority party structures procedural rules to suit its interests. In a presidentialized context, however, presidential electoral incentives prevail over majority party's incentives when voting on procedural rules changes and the threat of punishing majority-party defectors is not credible when those defectors vote with the presidential candidate. To test these claims, I analyze the case of the procedural reform in the South Korean National Assembly. The case study reveals that 1) the leading presidential candidate of the ruling majority Saenuri Party compromised on the procedural reform bill that imposes restrictions on the majority party's cartel arrangement due to presidential electoral incentives; 2) a significant number of Saenuri Party members defected from the majority of their co-partisans to vote with the presidential candidate; and 3) career advancement ratio and re-nomination ratios demonstrate that those defectors were not punished afterwards.

Industrial Economy: How Africa Should Industrializee

Continual Africa reliance to allegedly “good” policies to industrial growth from the Developed countries and the international development policy establishment (IDPE) such as the IMF, World Bank, World Trade Organization (WTO) and donor governments such as (DFID and IFC) may further capacitate Africa’s failure to industrialize. Allegedly “good” policies have not been able to generate the PROMISED growth dynamism in the Developing countries growth during the decades of its implementation. When Africa emerged from its long economic hibernation around the turn of the 21st century, African industry was no longer competing with the high-wage industrial “North,” as it had in the 1960s and 1970s. From the historical facts about the developmental experience of the Developed countries (official history of capitalism), it is evident that “it is when a country has gotten out of protection all that it can offer, it too will adopt free trade”. African countries are not already on the frontier of technological development, as such, protective duties and restrictions are inevitable if Africa is to turn the corner in its current industrial development QUEST, contrary to intentionally misguided belief of free trade. Export subsidies, tariff rebates on inputs used for exports, conferring of monopoly rights, cartel arrangements, directed credits, investment planning, manpower planning, R&D support and promotion of institutions for public-private co-operation are additional tools suggested in the article in regards to Africa’s industrial and development success.

Collusion/Competition

Ever since the U.S. Supreme Court opinion in Matsushita, various U.S. district courts have issued a series of rulings that appear to constitute a new learning on the economics of collusive behavior and to elevate the economic evidentiary bar for successful proof of price-fixing and bid-rigging. The rulings use game theory constructs expressed as pure, interdependent behavior that theoretically can result in supracompetitive prices in the absence of any agreement. The most recent explanation of this learning is contained in the 2016 titanium dioxide (TiO2) opinion Valspar v. E. I. DuPont, which raises the bar for proving a Sherman Act Sec. 1 violation. This and earlier rulings appear counterintuitive when their reasoning is tested against the context of Judge Richard Posner’s opinion on the value of circumstantial evidence in High Fructose Corn Syrup and In re Text Messaging. This article identifies market structure and behavioral features typically found in cartel arrangements, and tests the efficacy of what is perceived as a new learning on collusion/competition with empirical data from twelve alleged price-fixing conspiracies successfully litigated over the past two decades.

Babcock and Wilcox Ltd, the ‘Babcock Family’ and regulation 17/62: A business response to new competition policy in the early 1960s

This article explores through the lens of the British company Babcock and Wilcox Ltd the response of a group of European companies to the threat posed to their activities by the new EEC competition policy in the early 1960s. Regulation 17/62 was set to ban the market-sharing agreements which had been in place for many years between the companies in Europe. The article tracks their deliberations over the most suitable response that would allow market sharing to continue while minimising the risk of discovery. This rare insight into the inner discussions of cartel arrangements also highlights the role of legal advice in the solution adopted.

Strategic management in cartelized environment: case of Hisham Packaging, Dubai

Subject area Business-to-business (B2B) marketing, microeconomics and strategic management. Study level/applicability Target audience can be MBA students who are taking B2B marketing, microeconomics and strategic management courses. Case overview On 1 January 2015, Hamza joined Hisham Packaging, Dubai, United Arab Emirates (UAE) as the CEO. Hisham Packaging specialises in production of corrugated boxes of various sizes, both in plain and printed forms. Most of Hamza’s experiences have been in the automobile industry, where his focus was on Lean operations rather than marketing. After joining Hisham Packaging, he learnt that in service industry like printing and packaging, the business focus is more customer-oriented than process-orientated. In the packaging industry, each customer’s requirement is unique and customised with variety and small volumes. What was shocking to him was that there is an informal cartel arrangement among major corrugated box suppliers in the country and without the consent of the cartel members, he cannot take any major decision like expanding the business or accepting or dropping a customer. Hamza discussed the scenario with his sales manager Ahmad to see what strategy to adopt for the growth of the company. He was trying to figure out what next? Like any other newly joined CEO, Hamza also had plans to increase the market share and make the operations Lean. He quickly found that it would be difficult for him to make any major impact on the existing business due to the constraints and he needed a different strategic move to grow the company. Expected learning outcomes The outcomes include understanding of market dynamics, cartelization of companies based on market structure and strategy building. Students learn that an organization’s performance is just not dependent on how the managers plan, organize and control but it also depends on the competitors and customer’s strategies. Students learn how to apply strengths, weaknesses, opportunities, and threats (SWOT) analysis, Porter’s Five Forces analysis and PESTEL analysis in developing business strategy. Supplementary materials Teaching note is attached. Subject code CSS 8: Marketing

9th Amendment to the Czech Competition Act

On 9 October 2012, the President of the Czech Republic signed Act No. 360/2012 Coll., amending Act No. 143/2011 Coll., on the Protection of Competition, as amended (the ‘Competition Act’), and Act No. 40/2009 Coll., the Criminal Code, as amended (the ‘Criminal Code’). The Amendment became effective on 1 December 2012.The main objective of the Amendment Act is to improve the effectiveness of detecting cartel arrangements by the Czech Office for the Protection of Competition (the ‘Office’). Many of the legal tools covered by the Amendment were already in use before its promulgation – either on the basis of existing soft laws of the Office or in fact, without any legal backing. Their introduction directly into the Competition Act is expected to increase legal certainty and thus make their use more effective. They include, most of all, the leniency programme and the settlement procedure. Seen as novel is the introduction of certain material consequences of both instruments particularly with respect to the range of potential penalties and criminal law consequences associated with them.The Amendment also expressly regulates the Office’s right to refrain from taking action against anti-competitive practices because of their minor harmful effects. The purpose of such ‘prioritisation’, which is a manifestation of the opportunity principle, is to free up the Office’s sparse resources in order to enable it to investigate more serious violations. Although this should be seen as a legitimate goal, it also entails risks which are addressed in this paper.Last but not least, the Amendment introduces a new power into the Competition Act which allows the Office to supervise public administration bodies in order to determine whether their activities restrict competition. This is quite a controversial step which could ultimately create the impression that the principles of competition protection take priority in the Czech legal order over all other national interests. This impression is strengthened by the general wording of the relevant provision.Each of these major amendments is described and thoroughly commented on in a separate section of this paper. The final part presents other changes introduced by the aforementioned Amendment Act relating mainly to jurisdictional and technical issues that might also be of interest.

Antidumping and Market Competition: Implications for Emerging Economies

While the original justification of the antidumping laws in the industrial economies was to protect domestic consumers against predation by foreign suppliers, by the early 1990s the laws and their use had evolved so much that the opposite concern arose. Rather than attacking anti-competitive behavior, dumping complaints by domestic firms were being used to facilitate collusion among suppliers and enforce cartel arrangements. This paper examines the predation and anti-competitiveness issues from the perspective of the “new users” of antidumping — the major emerging economies for which antidumping is now a major tool in the trade policy arsenal. We examine these concerns in light of important ways in which the world economy and international trading system have been changing since the early 1990s, including more firms and more countries participating in international trade, but also more extensive links among suppliers and consumers through multinational firm activity and vertical specialization.

Patents, Antitrust, and the Rule of Reason

For a century and a half the Supreme Court has described perceived abuses as conduct that reaches the of the That phrase, which evokes an image of boundary lines in real property, has been applied to both government and private activity and has many different meanings. It has been used offensively to conclude that certain uses are unlawful because they extend beyond the of the patent. It is also used defensively to characterize activities as lawful if they do not extend beyond the patent's scope. In the first half of the twentieth century the phrase was imported from law into antitrust law, where it continues to be used to assess license agreements or other arrangements involving patents, as well as settlements of infringement cases.While the scope of the patent metaphor might remain useful for assessing conduct thought to be inconsistent with law, it is generally not a helpful antitrust tool. Offensive antitrust use of the of the test often identified practices as anticompetitive when they were in fact competitively harmless. By contrast, defensive antitrust use of the of the formulation creates a silo that protects collusion or anticompetitive exclusion from antitrust scrutiny. The result limits adversity between a patentee and potential licensee or infringer, producing a socially costly collusive equilibrium that benefits the parties but harms consumers.A pervasive problem of the of the test is that it confuses value with product value. For example, both product price fixing and product market division agreements contained in licenses have been found to fall within the of the patent. If the price fix or market division lasts no longer than the duration of the patent, then it is no more harmful to customers than a patentee's simple solo production under its patent.Recognizing this, several courts have concluded that product price fixes should be unlawful under the antitrust laws only if the patents involved are likely to be invalid, making the license nothing more than a cover for collusion. The important question is not validity, however, but rather value. Many perfectly valid patents have little value because they add little to a licensee's technology, or alternative patents or technological routes exist that serve the same purpose. Further, this phenomenon is ubiquitous. Cartel markups in industries prone to collusion run in the range of 20% to 50% over the pre-cartel price. By contrast, average royalty rates on licensed patents average around 3%, and this value is much larger than the value of the great majority of patents that are never licensed. The real problem of product restraints in licenses is that they are attempts to attribute the full product cartel markup to the patents being licensed. Only a tiny percentage of patents do anything like that. A better rule for identifying the boundaries of antitrust liability than the of the formulation permits antitrust intervention in the case of post-issuance conduct that is not explicitly authorized by the Patent Act. Of course, only a relatively small proportion of such conduct will actually violate the antitrust laws. With immunity off the table, however, assessing the competitive and innovation effects of challenged practices involves questions of antitrust law, not of law. Seen this way, certain questions such as a pioneer patentee's agreement to refrain from entering the market with an authorized generic become fairly easy. Such agreements are nothing more than cartel arrangements under which a firm agrees to make another firm's production more profitable by restraining its own output. Under the of the test as the Actavis dissenters would have applied it the equilibrium period of delay is up to the expiration date of the patent. In that case, however, the agreement never involves a license at all. During the life of the the generic firm produces nothing, and once the expires it no longer needs a license.Outside of damages measurement, law has no tool kit for assessing either the market or even the innovation effects of a particular practice. While that criticism may seem harsh, the reality is that law has developed in relative isolation from any significant inquiry into how patents function in the marketplace. The result gives antitrust policy a comparative advantage, not only for assessing competition effects but ironically, even for assessing innovation effects.

HARM AND OVERCHARGE IN THE SOUTH AFRICAN PRECAST CONCRETE PRODUCTS CARTEL

The harmful effects of cartels depend on a number of features including the size of the over-charge and the durability of the cartel. This paper examines the effect of a very longrunning cartel in a market with low barriers to entry and unstable demand, the South African precast concrete products cartel. We describe how the cartel’s arrangements overcame these dual challenges and examine mark-ups against alternative measures of the competitive counterfactual. This includes a discussion of the use of punishment mechanisms, the implications of vertical integration, how the cartelists adapted to entrants, and the effect of information exchange on firms apparently not part of the explicit cartel. These considerations also have implications for the transition after the end of the explicit cartel arrangements and the extent to which coordinated outcomes may persist. There are particular implications in South Africa where the Competition Appeal Court has held that the penalty calculation should take account of the cartel mark-up.

Cárteles corporativos y desafíos de los modelos europeos del mercado de trabajo

Proponemos que una de las principales causas de las deficiencias que presentan los mercados de trabajo europeos es la existencia de carteles corporativos, a traves de los cuales el estado ha delegado varias maneras de regular el poder para empleados y empleadores que actuan como carteles. El analisis indica que estos carteles no actuan en interes del empleo ya que son dificiles de encajar con las demandas de una economia moderna basada en el conocimiento. Por tanto, una modernizacion de los modelos de mercado de trabajo Europeos se hace necesaria.

Evolution of Cartel Practice in Croatia

This paper analyses the development of cartel enforcement practice in Croatia since the first Competition Act was adopted in 1995, i.e. since the Competition Agency was established in 1997. Until 2009 only five decisions have been adopted which deal with the issue of cartel arrangements between competitors. The facts of these cases are presented and main legal issues discussed. The authors point out to three underlying characteristics of the ten-year enforcement practice: (a) all cartel cases concerned explicit collusion; (b) in all cartel cases there was an association of undertakings that promoted collusion and/or helped to enforce the cartel; (c) undertakings gave self-incriminating statements in the proceedings before the Competition Agency. On the basis of these characteristics the authors conclude that the fight against cartels in Croatia is still in its infancy. Some awaited legislation changes (introduction of leniency, competence of the Competition Agency to decide on fines) should make cartel enforcement more viable in the future.

INTERNATIONAL NEWS AGENCIES, NEWS-FLOW, AND THE USA–AUSTRALIA RELATIONSHIP FROM THE 1920S TILL THE END OF THE SECOND WORLD WAR

Prior to the Second World War, news-flow between the US and Australia was constrained by the lack of a direct submarine cable or wireless telegraphy link between the two countries and by the fact that Australian coverage of international news largely emerged out of an ‘imperial press system’ centred in London. ‘Imperial preference’ in news was facilitated by global cartel arrangements amongst international news agencies whereby the London-based agency, Reuters, was given priority access to the Australian news market. This article examines these constraints on the development of US-Australian news links prior to the Second World War. It also looks at the way the Second World War transformed the situation as the strategic interests of the two countries became aligned. The article demonstrates the importance of news agencies and news-flow in the history of international relations.

Buying Negative Agenda Control in the U.S. House

We explore the foundations of the legislative party cartel, as theorized by Cox and McCubbins (1993, 2005), to determine how majority‐party moderates who suffer net policy losses from the majority leadership's use of negative agenda control are kept from defecting from the cartel arrangement. First, we identify formally the group of majority‐party members who are net policy losers. We find that those members occupying the initial 30% of the space within the majority‐party blockout zone—that space closest to the floor median—are hurt on a pure policy basis by the cartel arrangement. Second, we find that members in this “30% zone” are rewarded disproportionately by majority‐party leaders (relative to members in other intervals on the same side of the floor median) via side payments in the form of campaign contributions. In addition, majority‐party members within the 30% zone receive side payments commensurate with their particular policy loss.

Concentration and competitiveness of the banking market in Serbia: Current situation and possible future changes under the influence of market consolidation

Serbia is a bank-centered financial market, which means that the analysis of concentration and competition is important. Currently, the banking market is weakly to moderately concentrated or mildly oligopolistic. In the future, we can expect a consolidation of the banking market in terms of reducing the number of banks and strengthening the market power of the largest banks. Possible channels of consolidation are the sales of the remaining state owned banking package, takeovers between banks and the disappearance of some banks as a result of competitive selection. The paper analyzes the possible scenarios for the future consolidation and their impacts on the competitive dynamics. The authors argue in favor of a positive impact of a more moderate consolidation on competition indicators, but are also warning the regulator to prevent excessive concentration and cartel arrangements.

Single, Overall Agreement in EU Competition Law

This article examines the concept of a single, overall agreement in EU competition law, in particular in relation to Article 101 TFEU. The concept has generated great controversy, not least because it can affect whether or not the Commission’s power to impose penalties is time-barred. While such limitation makes enforcement harder, companies also have a right to certainty. The article explains the origin and implications of finding a single, overall agreement (also known as a single and continuous infringement). The article then suggests five conditions for characterizing agreements and/or concerted practices as the constituent elements of a single, overall agreement. In particular, it argues that it is not necessary for each offending undertaking to produce every one of the cartelized products. Rather the key issue should be the interdependence between the various cartel arrangements and, for example, whether their duration, types of cartel behaviour and objectives are closely linked.