Cartel Prosecution Research Articles

An Empirical Assessment of the European Commission’s Cartel Prosecutions, 2010–2019

This is a quantitative analysis of the European Commission’s cartel decisions in the 2010–2019 decade. It assesses the way the Commission’s 2006 guidelines on fines were applied in practice and the operation of the leniency and settlement procedures. It also provides an overview of the types of cartels prosecuted, how they were detected, and how long the Commission took to investigate a cartel. It looks at rends in the Commission’s enforcement activity and assesses some frequently made claims such as whether recidivism is rife; whether the Commission’s leniency program is excessively generous and disproportionately benefits larger, more culpable firms; how much the settlements procedure reduces the length of the Commission’s investigations; and why the Commission takes so long to conclude its investigations.

Cartel Prosecution: The Larger the Tip, the Smaller the Iceberg

Cartel Prosecution: The Larger the Tip, the Smaller the Iceberg

Realisticity of Individual Choice Model Does Matter: On Cartel Prosecution

Criminal prosecution of monopolistic activities in the form of market cartelization is the most sensitive tool for individuals, which can have both a serious deterrent effect and limit behavior that is beneficial to public welfare. This paper discusses the theoretical aspects of the issue of choosing a regime of antitrust enforcement in connection with the design of amendments and enforcement of the norms of Article 178 of the Criminal Code of the Russian Federation, taking into account possible differences between the initialization, conclusion of a cartel agreement and participation in it. The article shows that there are various options for the relationship between the concept of conclusion and participation in the agreement, including anti-competitive one. However, this requires the application of realistic assumptions regarding the behavior of individuals. Practical issues of designing criminal penalties for cartels are considered taking into account various legal concepts, including the form and types of guilt, as well as on the basis of a comparison with other articles of the Criminal Code that punish collective unlawful acts. In connection with the problem of reproduction of an inhospitable tradition, the Russian antitrust identified the risks of imputed imputation (risks of I type errors) and insufficient punishment of the cartel organizer (risks of II type errors) in case of underestimating the importance of economic concepts based on the principle of methodological individualism and the assumption of bounded rationality of individuals.

The Rise and (Potential) Fall of U.S. Cartel Enforcement

Government enforcement against collusion, now viewed by the Supreme Court as the “supreme evil” in antitrust, has gone through various phases of enforcement in the United States. There have been periods in which cartels have been able to collude more or less effectively given various institutional tools at the disposal of the government. By analyzing enforcement and prosecutions data over a long time horizon, 1969–2016, this Article examines the attributes of cartel enforcement over time and the changing use of tools to assist with detection and punishment. We provide a comprehensive description of critical cartel enforcement events and institutional developments from 1890 to the present. Our examination of the data includes a detailed descriptive analysis which tends to reveal three broad phases of U.S. cartel enforcement and prosecutions. The most recent data indicate a marked decline in the number of prosecutions, but sharp increase in per capita penalties. We also conduct regression-based estimation of the potential quantitative impact of the key institutional innovations to foster detection and prosecutions. Based on the raw data as well as our estimation, we comment on the potential factors that may be driving lower prosecutions in the more recent years. Finally, we briefly compare some key data between U.S. and European Commission cartel prosecutions to examine potential dynamic interlinkages.

Lead Jurisdiction Concepts: Prospects and Limits for Rationalizing International Competition Policy Enforcement

Lead jurisdiction models represent one option how to extend and enhance contemporary interagency cooperation among competition policy regimes. They constitute a multilateral, case-related form of cooperation that is suited to effectively create a one-stop-shop for the prosecution of international cartels, the handling of cross-border mergers and acquisitions and the governance of international antitrust cases. Thus, lead jurisdiction models offer considerable economic benefits. However, they also entail several caveats. Three possible working problems and downside effects of lead jurisdiction models in international competition policy enforcement are discussed in this paper.

Competition policy and its importance for the economy

The article analyzes and discusses topics such as competitition and it’s importance for markets. Competition is a cornerstone of our economic and social order. The fact that competition leads to the best overall economic results is now undisputed in most economies around the world. Effective competition encourages businesses to push forward. They must make an effort to win customers. As a consequence, consumers can benefit directly from better quality at lower prices. Competition Agencies increased the effectiveness of their cartel prosecution efforts, for example by establishing specialized anti-cartel divisions, revising their leniency programme and lauchinannonymous whistle-blowing system. High-level fines can only gave a deterrent effect if the cartel members have reason to expect that their cartel activities will be uncovered. The leniency programme as one of the sources available for uncovering anti-competitive agreements this also has a strong deterrent effect. Cartel members must expect at all time that one of them might have reported the illegal agreements to the competition authorities. The prosecution of illegal hardcore cartels [1] is of key relevance for effective competition protection and, as such, has a direct positive effect in the economy and costumers. Cartels cause great harm to the economy because they lead to higher prices, lower product quality and less innovation. This harm can only be prevented if cartels are effectively prosecuted. Also, anti-competitive agreements lead to excessive prices coupled with inferior product quality. At the same time the elimination of competition undermines the innovative power of businesses.Cartels thus hurt the economy as a whole and the consumer in particular. The motivation to study competition policy and its importance for economy is step to introduce more economic possibilities and partnerships in our developing world.

Whistle-Blowers on the Board? The Role of Independent Directors in Cartel Prosecutions

AbstractMarket reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors on their boards. Independent directors serving on cartel-indict...

Policy Innovations, Political Preferences, and Cartel Prosecutions

Though antitrust cartel cases have received significant attention, the policy determinants and the political preferences that guide such enforcement remain understudied. We empirically examine the intertemporal shifts in U.S. cartel cases during the period 1969–2013. This period has seen substantive policy innovations with increasing penalties that are related to fines and jail terms. There appear to be four distinct cartel policy regimes: pre-1978, 1978–1992, 1993–2003, and 2004–2013. Our empirical estimates show significant variation in the number of cartel cases initiated and the penalties imposed across the policy regimes. The more recent regimes are characterized by far fewer cartel cases initiated, but with substantially higher penalties levied on firms and individuals. While effective deterrence is one explanation for these patterns, we are more inclined to conclude that U.S. cartel enforcement has seen an underlying shift away from focusing on smaller cartels to larger and multinational cartels. In terms of political effects, our results reveal no clear inter-political party effect, but there appear to be interesting intra-political party effects. We find that particular Presidencies matter for cartel enforcement, and variation across Presidential administrations led to marked shifts in the total number of cartel cases initiated. Overall, the shifts in the prosecution patterns portray changing policy priorities and a search for the optimal enforcement design to curtail one of the clearest sources of welfare loss, collusion.

Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions

Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors on their boards. This finding is robust to self-selection and is pronounced when independent directors hold more outside directorships and fewer stock options -- when those directors have fewer economic ties to indicted firms. Results are even stronger when independent directors' appointments were attributable to SOX, preceded their CEO's own appointment, or followed class action suits -- when directors have fewer ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support in other firms. Firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs. They are also more likely to dismiss scandal-laden CEOs after public indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to mitigate those costs. We argue that understanding these incentive-compatible dynamics is key in designing strategies for cartel detection and prosecution.

Policy Innovations, Political Preferences, and Cartel Prosecutions

While price-fixing cartel prosecutions have received significant attention, the policy determinants and the political preferences that guide such antitrust prosecutions remain understudied. We empirically examine the intertemporal shifts in U.S. antitrust cartel prosecutions during the period 1969-2013. This period has seen substantive policy innovations with increasing penalties related to fines and jail terms. There appear to be four distinct cartel policy regimes: pre-1978, 1978-1992, 1993-2003, and 2004-2013. Our empirical estimates show significant variation in the number of cartels prosecuted and the penalties imposed across the policy regimes. The more recent regimes are characterized by far fewer cartels prosecuted, but with substantially higher penalties levied on firms and individuals. While effective deterrence is one explanation for these patterns, we are more inclined to conclude that US cartel enforcement has seen an underlying shift away from focusing on smaller cartels to larger and multinational firms. In terms of political effects, our results reveal no clear inter-political party effect on cartel prosecutions, but there appear to be interesting intra-political party effects. We find that particular Presidencies matter for cartel prosecutions, and variation across Presidential administrations led to marked shifts in the total number of cartels prosecuted. Overall, the shifts in the number of cartels prosecuted and penalties levied portray changing policy priorities and a search for the optimal enforcement design to curtail one of the clearest sources of welfare loss, collusion.

From ‘Mono’ to ‘Stereo’: Fine-Tuning Leniency and Settlement Policies

The article brings out the ambivalent role played by leniency and settlement policies in today’s cartel enforcement. Both occupy a prime position in the prosecution of cartels, whilst nevertheless having the potential, if not carefully managed, to undermine deterrence. The article first discusses leniency and settlements within the context of economic theories on deterrence and optimal sanctions. The key practical challenges in the operation of leniency and settlement policies are then outlined, providing examples from recent European Commission and United Kingdom practice, as well as from experiences further afield. There is a risk that over-reliance on leniency and settlements compromises fairness, particularly in the context of the often one-dimensional manner in which these tools are deployed. In the second part, the article argues that beyond a purely economics-driven paradigm, the effective administration of leniency and settlement policies requires fairness and due process to be accommodated in equal measure. Due process within penalty-setting has multiple facets, such as respecting the principles of transparency and equality of treatment, to name but a few. The message in the final part is that competition agencies need to consider ways in which to administer remedies more effectively, addressing the goals of deterrence, restoration and behaviour control in a more coherent manner.

Policy Innovations, Political Preferences, and Cartel Prosecutions

While price-fixing cartel prosecutions have received significant attention, the policy determinants and the political preferences that guide such antitrust prosecutions remain understudied. We empirically examine the intertemporal shifts in U.S. antitrust cartel prosecutions during the period 1969-2013. This period has seen substantive policy innovations with increasing penalties related to fines and jail terms. There appear to be four distinct cartel policy regimes: pre-1978, 1978-1992, 1993-2003, and 2004-2013. Our empirical estimates show significant variation in the number of cartels prosecuted and the penalties imposed across the policy regimes. The more recent regimes are characterized by far fewer cartels prosecuted, but with substantially higher penalties levied on firms and individuals. While effective deterrence is one explanation for these patterns, we are more inclined to conclude that US cartel enforcement has seen an underlying shift away from focusing on smaller cartels to larger and multinational firms. In terms of political effects, our results reveal no clear inter-political party effect on cartel prosecutions, but there appear to be interesting intra-political party effects. We find that particular Presidencies matter for cartel prosecutions, and variation across Presidential administrations led to marked shifts in the total number of cartels prosecuted. Overall, the shifts in the number of cartels prosecuted and penalties levied portray changing policy priorities and a search for the optimal enforcement design to curtail one of the clearest sources of welfare loss, collusion.

Something to remember him by: Commissioner Joaquín Almunia's farewell gift

This article examines the last full week of work for the European Commission's former Vice-President and Competition Commissioner Joaquín Almunia. In that week came the announcement of the settlement of cartel action for manipulation of financial benchmarks and a speech on the European Commission's directive on private actions in antitrust. By linking the two, Almunia has given notice that the likely outcome of cartel prosecution in Europe for benchmark manipulation is a succession of private actions by the ultimate victims of that manipulation.

How Can Competition Agencies Use Behavioral Economics?

Behavioral economics is both mainstream and timely. The financial crisis raised important issues of market failure, weak regulation, moral hazard, and our poor understanding of how key markets operate. One therefore expects lawyers and economists to bring the current economic thinking to competition agencies, some of which are already taking note. How should the competition agencies respond? This article examines how competition agencies can consider behavioral economics' implications on four levels: first as a gap filler, that is, to help explain “real world” evidence that neoclassical economic theory cannot explain; second, to assess critically the assumptions of specific policies, such as merger review and cartel prosecutions; third, to revisit fundamental questions, such as what is competition and what are the goals of competition law; and fourth, to assess how behavioral economics will affect the degree of convergence of competition law among the over 100 jurisdictions with competition laws today.

THE MODEL OF CRIMINAL ACTIVITY AND EFFECTIVE CARTEL DETERRENCE

Cartels, or secret agreements between competitors, are universally recognized as the most harmful of all types of anticompetitive conduct. Facing the challenges associated with globalization of the market economy, competition authorities in all parts of the world are increasing their efforts to design and implement modern instruments, effective enforcement procedures and adequate sanctions in order not only to detect and punish, but also to deter cartels.In this paper, we analyze the deterrent properties of the competition policy within the legal framework of the European Union. Applying the classical deterrence theory based on the model of criminal activity, we identify two key factors that affect the degree of deterrence of anticompetitive behavior: adequate sanctions and the probability of detection. We further discuss the level of fines, leniency programs and direct settlement procedures, both the latter as instruments to enhance the probability of cartel detection.By employing the methods of meta-analysis and meta-synthesis of economic and legal literature, cartel case studies, and descriptive statistical analysis, our attempt is to show that during the past decades the European competition authorities have focused on efforts to increase the effectiveness of cartel prosecution and to achieve better deterrence by numerous alterations in the European competition law, such as extensions of the fine spectrum or leniency programs or introduction of a direct settlement procedure, and that these efforts have proven to be rather successful for preventing the formation of anticompetitive agreements.

Multi‐Market Collusion with Demand Linkages and Antitrust Enforcement

This paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand‐related markets. We show that cartel prosecution can have a knock‐on effect: bringing down a cartel in one market reduces profits and cartel stability and leads to the break‐up of the cartel in the adjacent market. Cartel prosecution can also have a waterbed effect: disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets. We discuss the impact of dynamic cartel formation on consumer surplus, explore antitrust spillovers, the optimal scope of antitrust interventions and cartel formation with local firms.

Cartel Prosecution in Germany: Recent Developments Concerning the Method of Setting Fines

In June 2013, the Federal Cartel Office published revised guidelines for the setting of fines that presumably will result in higher fines for larger companies. The methodology set forth in the revised guidelines differs significantly from the methodology applied by the EU Commission. Parallel to that, the Federal Constitutional Court (Interest on Fine case) and the Federal Supreme Court (Grey Cement case) recently confirmed that two key provisions of the statutory sanctions framework of German competition law do not infringe German constitutional law. Recent case law illustrates that under German competition law appellants face the risk that the Court of Appeal may increase a fine imposed by the Federal Cartel Office.

The Implications of Behavioral Antitrust

Behavioral economics is now mainstream. It is also timely. The financial crisis raised important issues of market failure, weak regulation, moral hazard, and our lack of understanding about how many markets actually operate. As behavioral economics (with its more realistic assumptions of human behavior) goes mainstream in academia and the business world, one expects lawyers and economists to bring the current economic thinking to the competition agencies. How should the competition agencies respond? This paper examines how competition authorities can consider the implications of behavioral economics on four levels: first as a gap filler, i.e., to help explain “real world” evidence that neoclassical economic theory cannot explain; second to assess critically the assumptions of specific antitrust policies, such as merger review and cartel prosecutions; third to revisit three fundamental antitrust questions, namely what is competition, what are the goals of competition law, and what should be the legal standards to promote those goals; and fourth, to assess how behavioral economics will affect the degree of convergence/divergence of competition law among the over 100 jurisdictions with competition laws today.

How should young institutions approach competition enforcement? Reflections on South Africa's experience

The South African competition regime established under the Competition Act of 1998 has been acclaimed as a success story of competition policy in an ‘emerging economy’. This paper critically reflects on the South African experience at different levels and draws lessons specifically for the expansion of competition law in Africa. It briefly assesses the record by the main areas of mergers, cartels and abuse of dominance. It then reflects particularly on two strategic areas: a) the importance of prioritisation and proactive analysis of market outcomes, including with regard to making corporate leniency work for prosecution of cartels; and, b) the framework for settlements with companies. It highlights the implications of these areas given the challenges of developing institutional capabilities in African countries.

CAREER DEVELOPMENT AFTER CARTEL PROSECUTION: CARTEL VERSUS NON-CARTEL MANAGERS

I examine the career development of managers after they have been subjected to cartel prosecution by the Netherlands Competition Authority (NMa). A representative function is used as an indicator for a career outcome after prosecution. I compare the career development of Dutch managers involved in a cartel with that of a control group of Dutch managers of non-cartel companies. I analyze the different factors that may influence the career development of cartel-involved managers. This article concludes that cartel-involved managers face negative career effects after the prosecution of the cartel. A cartel-involved manager has a lower probability of a representative function than another manager. This negative career effect is smaller if the cartel was active in the construction sector. This outcome might point at a different culture towards cartels in the construction sector in the Netherlands, which seems plausible considering the wide-ranging cartel that existed in this sector between 1998 and 2001.