Cartel Deterrence Research Articles

A Primer on Damages of Cartel Suppliers Determinants, Standing US vs EU and Econometric Estimation

While private actions for damages by customers against price-cartels receive much attention, the treatment of other groups affected by such conspiracies is largely unresolved. This article narrows the research gap with respect to suppliers to a downstream price cartel. First, we show that such suppliers incur losses driven by a direct quantity, a price and a cost effect. We then analyze whether suppliers are entitled to claim these losses as damages in the two leading competition law regimes. We find that, while the majority view in the US denies standing, the emerging position in the EU and important member states is to grant supplier standing. We argue that this can indeed be justified in view of the different institutional context and the goals assigned to the right to damages in the EU. We finally present an econometric approach based on residual demand estimation that allows to quantify all determinants of cartel suppliers’ damages, thereby showing that supplier damage claims are a viable option in practice that can contribute to full compensation and greater cartel deterrence.

CARTEL OVERCHARGES AND THE DETERRENT EFFECT OF EU COMPETITION LAW

This article examines cartel overcharges for the European market. Using a sample of 191 overcharge estimates and several parametric and semiparametric estimation procedures, the impact of different cartel characteristics and the market environment on the magnitude of overcharges is analyzed. The mean and median overcharge rates are found to be 20.70 percent and 18.37 percent of the selling price and the average cartel duration is 8.35 years. Certain cartel characteristics and the geographic region of cartel operation influence the level of overcharges considerably. Furthermore, empirical evidence reveals that from an ex-post perspective the currently existing fine level of the EU Guidelines is insufficient for optimal cartel deterrence, suggesting further adjustments.

Cartel Deterrence through Criminal Enforcement: A Rejoinder to Lande and Davis

Lande and Davis defend their claim that private damages actions are a greater deterrent than criminal cartel enforcement but continue to miss two key points: Incarcerating individuals deters cartels in a manner that no financial penalty can, and cartel deterrence requires the detection tools available only in criminal enforcement.

Fines, leniency, and rewards in antitrust

This article reports results from an experiment studying how FINES, LENIENCY, and REWARDS for whistleblowers affect cartel formation and prices. Antitrust without LENIENCY reduces cartel formation but increases cartel prices: subjects use costly FINES as punishments. LENIENCY improves antitrust by strengthening deterrence but stabilizes surviving cartels: subjects appear to anticipate the lower postconviction prices after reports/LENIENCY. With REWARDS, prices fall at the competitive level. Overall, our results suggest a strong cartel deterrence potential for well‐run LENIENCY and REWARD schemes. These findings may also be relevant for similar white‐collar organized crimes, such as corruption and fraud.

The U.S. Strategic Petroleum Reserve and Cartel Deterrence

This paper presents a novel purpose for the US Strategic Petroleum Reserve (SPR) for national energy security. In a repeated game framework, this paper demonstrates how a reserve of sufficient size can potentially deter OPEC from any noncompetitive quantity-setting behavior indefinitely, thus achieving indirect energy independence. The paper derives the minimal levels of reserves necessary to maintain a steady- fillll state in dynamic equilibrium. A calibration of the model returns feasible target levels for the SPR.

The Effects of Ringleader Discrimination on Cartel Stability and Deterrence – Experimental Insights

Cartel ringleaders make significant contributions to enabling illegal collusive agreements to function. According to US legislation, ringleaders are excluded from corporate leniency programs. Since 2002, under EU regulations, ringleaders may qualify for a reduction of fines. To date, both antitrust laws treat cartel ringleaders differently. We analyze the impact of this difference in a cartel experiment. Given a low probability of detection through an authority, we find that excluding ringleaders from leniency facilitates cartel formation, stabilizes collusion and leads to significantly higher market prices. The opposite holds for a high probability of detection. Here, the results are in line with the situation when every player can apply for leniency.

Bargaining in the Shadow of the European Settlement Procedure for Cartels

In its recently implemented settlement procedure for cartels, the European Commission pledges not to negotiate the appropriate sanction. The Commission offers a take-it-or-leave-it 10% reduction of the ultimate fine only in exchange for acknowledgment of the facts. Yet there are at least three dimensions open for bargaining in cartel cases. One is the determination of the fine base to which the 10% reduction is applied. A second is the additional percentages of fine reductions that are awarded to subsequent leniency applicants. A third is the phrasing that the Commission uses in its public communications about the case - including the eventually published formal decision. The Commission’s consistent negation of any negotiation space may well be part of its bargaining strategy. The door on fine discount discussions shut, talks are channeled to the other bargaining points, where the Commission has more leeway to find an agreement. By disabling the only hard bargaining point, however, the Commission may unintentionally have put itself in a weak bargaining position. To avoid detrimental effects on the overall deterrence of cartels in Europe, the European Commission should credibly commit itself to being a tough negotiator, if not by enabling individual percentage fine reductions after all, then by embedding a binding and full independent review of all settlement proposals in the procedure.

Deterrence and Detection of Cartels: Using all the Tools and Sanctions

The United States applies a diverse array of tools and sanctions to deter and detect cartels. Because cartel activity is treated as a serious crime, a formidable array of criminal investigative tools is available, and convicted individuals are imprisoned. Private damages actions also yield substantial recoveries. The many tools and sanctions support each other in various ways, making each significant. But the claim that private damages actions provide the most important deterrent to cartels in the United States ignores the enormous assistance provided by criminal enforcement, misses much that is critical in deterring cartels, and mistakenly assigns credit for detecting cartels.

Cartel Sanctions and Deterrence

Cartel Sanctions and Deterrence

International Cartel Deterrence: A Selected Bibliography

International Cartel Deterrence: A Selected Bibliography

Cartel Destabilization and Leniency Programs – Empirical Evidence

Leniency programs as a tool for cartel detection and cartel destabilization, have been implemented since the early nineties. Theoretical work has shown that leniency programs can be eff ective in enhancing cartel detection and deterrence, but these e ffects are not straight-forward. It is even possible that there is an increase in the total number of cartels. Empirical evidence shows that the positive e ffect on cartel deterrence seems to dominate, but cannot provide definite evidence, as inference is derived only by detected cartels. This study uses a more direct measure of success: the intensity of competition at the industry level of OECD countries. An instrumental variable approach, reveals a positive e ffect on industries' competition intensity of leniency programs indicating e ffectiveness in cartel destabilization and eff ective deterrence.

Going Once, Going Twice, Reported! Cartel Activity and the Effectiveness of Leniency Programs in Experimental Auctions

We experimentally examine the effectiveness of antitrust policies against bidding rings in the English auction (EN) and the first-price sealed-bid auction (FP). We consider both traditional antitrust policy (without a leniency program) and modern antitrust policy (with a leniency program). In EN, neither antitrust policy has a significant effect on cartel deterrence, cartel stability, cartel recidivism, and winning bids. In FP, traditional antitrust policy deters cartel formation, destabilizes cartels, reduces the probability that a cartel re-establishes, and reduces the average winning bid. In contrast, while a leniency program has no additional effect on cartel formation or cartel recidivism, it makes cartels more stable and reduces the winning cartel bid.

The UK Cartel Offence: Lame Duck or Black Mamba?

A criminal offence requiring Ghosh dishonesty was introduced in the UK by the Enterprise Act 2002, primarily to enhance cartel deterrence as a complement to corporate fines. Yet the first convictions resulted from a US plea bargain in 2008. This paper identifies three obstacles to enhancing deterrence through the cartel offence. First, Norris v USA and a public survey suggest relatively weak perceptions of cartels persist in the UK. It was envisaged that convictions would remedy this, but prosecutors will continue to be very selective about the cases they bring to trial if there are doubts as to whether price fixing alone is viewed as objectively dishonest. Secondly, any increase in criminal enforcement risks discouraging leniency applications to the European Commission, because corporate immunity granted on the Community level does not automatically protect employees from criminal prosecution in national courts. There is also no conclusive mechanism for direct settlement, as there is in the US. Thirdly, sizeable benefits and purportedly low detection rates mean deterrence may be weak if custodial sentences do not become the norm. Further sanctions such as Director Disqualification Orders can play an important role in ensuring cartelists do not seek immediate reemployment at a high level.

Global Antitrust Prosecutions of International Cartels: Focus on Asia

International cartelists today face antitrust investigations and possible fines in a score of national and supranational jurisdictions. This article aims at providing quantitative information about the size and impacts of international cartel activity in Asia and uses a sample of modern private cartels to evaluate the relative effectiveness of three prominent Asian antitrust authorities. The sample consists of legal and economic information on 433 international cartels detected in Asia and the rest of the world during 1990–2007.The need for assertive anti–cartel enforcement in Asia is demonstrated by the large affected commerce and economic injuries of known international cartels. Affected sales of detected Asian–region cartels combined with global cartels that fixed prices in Asia totals at least US$1.1 trillion in 1990–2007. The losses imposed on Asian consumers were at least $500 billion. While more than $45 billion in penalties has been imposed world wide, it is doubtful that such monetary sanctions can deter modern international cartels. Optimal cartel deterrence is frustrated by the failure of compensatory private suits to take hold outside of North America, a reluctance to act against global cartels, and the low fines in most Asian jurisdictions. Of the three selected jurisdictions, the Korean FTC has the best record of anti–cartel enforcement in Asia, but even the KFTC?s surcharges are recouping less than 15 percent of damages to its citizens. Without significant increases in cartel detection, in the levels of expected fines or civil penalties, or expansion of the standing of buyers to seek compensation,international price fixing will remain rational business conduct.

Free Movement of Judgments: Increasing Deterrence of International Cartels Though Jurisdictional Reliance

This article challenges the conventional wisdom that not much can be done under the existing atomistic system of antitrust enforcement to solve the problem of sub-optimal deterrence of international cartels. Low deterrence results from the fact that international cartels are generally prosecuted by only a fraction of the jurisdictions harmed by them and that monetary sanctions in those jurisdictions are generally based on harm to their domestic markets only. To solve this problem, this article proposes a novel legal tool which enables countries to adopt and rely upon foreign findings of international hard-core cartels, provided that the foreign decisions meet criteria that ensure that such reliance is reasonable and fair. As elaborated, this free movement of judgments holds potential to overcome the main obstacles to efficient deterrence and to significantly increase both domestic as well as global welfare. Its costs can also be largely overcome by designing appropriate solutions. The political implications are also not prohibitive. As shown, jurisdictions already rely on foreign judgments that do not significantly differ from the decisions at hand.

Latin America Cartel Control

International cartelists today face antitrust investigations and possible fines from a score of national and supranational antitrust authorities. This paper provides quantitative information about the size and impacts of international cartel activity in Latin America and uses a sample of modern private cartels to evaluate the relative effectiveness of the four most active Latin American antitrust authorities: Argentina, Brazil, Chile, and Mexico. The sample consists of legal and economic information on 433international cartels discovered in Latin America and the rest of the world during 1990-2007.The need for assertive anti-cartel enforcement in Latin America is demonstrated by the large affected commerce and economic injuries of known international cartels. Affected sales of the 16 Latin American-region cartels exceeded US$20 billion. In addition, at least 84 large global cartels also fixed prices in Latin America, but only four of them were investigated. Affected sales in Latin America from discovered cartels both types totals $150 to $200 billion. The overcharges Latin American consumers were at least $35 billion in 1990-2007. More than 4000 companies (56 headquartered in Latin America) have been convicted of international price-fixing violations, of which more than 200 are recidivists.While more than US$48 billion in penalties has been imposed world-wide, it is doubtful that such monetary sanctions can deter modern international cartels. The three with the most consistent legal responses to global cartels are the United States, Canada, and the EU, which accounted for 95% of worldwide penalties. Yet, optimal cartel deterrence is frustrated by the failure of compensatory private suits to take hold outside of North America and the low fines in Asian and Latin American jurisdictions. Of the three selected jurisdictions, the Brazilian antitrust authority has the best record of anti-cartel enforcement in Latin America, but even CADE's surcharges are recouping less than 10% of the prosecuted cartels' damages. Without significant increases in cartel detection, in the levels of expected fines or civil penalties, or expansion of the standing of buyers to seek compensation, international price fixing will remain rational business conduct.

Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments

Leniency policies and rewards for whistleblowers are being introduced in ever more fields of law enforcement, though their deterrence effects are often hard to observe, and the likely effect of changes in the specific features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the effects of fines, leniency programs, and reward schemes for whistleblowers on firms' decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with differentiated goods and uncertain duration, and we run several treatments differing in the probability of cartels being caught, the level of fine, the possibility of self-reporting (and not paying a fine), the existence of a reward for reporting. We find that fines following successful investigations but without leniency have a deterrence effect (reduce the number of cartels formed) but also a pro-collusive effect (increase collusive prices in surviving cartels). Leniency programs might not be more efficient than standard antitrust enforcement, since in our experiment they do deter a significantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price significantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects' ability to form cartels and sustain high prices, and almost complete deterrence is achieved. If the ringleader is excluded from the leniency program the deterrence effect of leniency falls and prices are higher than otherwise. As for tacit collusion, under standard antitrust enforcement or leniency programs subjects who do not communicate (do not go for explicit cartels) tend to choose weakly higher prices than where there is no anti-trust enforcement. We also analyze post-conviction behavior, finding that there is a strong ex-post deterrence (desistance) effect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we find a strong cultural effect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions differ with culture.

The United States Department of Justice Antitrust Division's Cartel Enforcement: Appraisal and Proposals

This paper evaluates the effectiveness of the efforts of the Antitrust Division of the U.S. Department of Justice to detect, indict, and deter horizontal collusion during 1990-2007 and offers policy suggestions likely to improve that enforcement. Division leaders emphasize that collusion is the agency's number-one priority. Paradoxically, there is evidence that the number, size, and injuriousness of discovered cartels is increasing. This is particularly true for international cartels. The number of cartel investigations has not risen appreciably. Moreover, the number of criminal Section 1 cases filed annually fell. From 1995-99 to 2004-06 cartel cases filed fell by 49%. The number of corporations charged annually dropped continuously throughout 1995 2007. There now is a significant and growing backlog of criminal investigations and unresolved matters. Although the Division is bringing fewer Section 1 cases, the monetary penalties imposed on convicted corporate price fixers have grown. The total amount of cartel fines imposed is $4.2 billion. While an impressive amount, damages recouped by U.S. private plaintiffs are roughly four times as large. Division policy statements place great weight on the deterrence value of predictably high prison sentences for convicted cartel managers. Not only the frequency but also the severity of prison sentences has increased. These trends are positive in terms of cartel deterrence. Higher cartel penalties would better serve cartel deterrence. The Division can take several stepsthat do not require new legislation. They include: substituting the global affected sales of cartels members in place of U.S. sales when computing the base fine, applying the principle of joint and several liability to maximum fines, using the middle or upper end of the Guidelines' range as the standard starting demand in plea negotiations, applying strong culpability multipliers to recidivists, and requiring cartel fines to include pre-plea interest. Other improvements would require changes in the U.S. Sentencing Guidelines (USSGs). For example, the 10% overcharge assumption should be raised to at least 20 or 30%, with the latter applying to international conspiracies. To effectively deter cartels, a substantial increase in Division positions and budget is amply justified.

Global Antitrust Prosecutions of International Cartels: Focus on Asia

International cartelists today face antitrust investigations and possible fines in a score of national and supranational jurisdictions. This paper aims at providing quantitative information about the size and impacts of international cartel activity in Asia and uses a sample of modern private cartels to evaluate the relative effectiveness of three prominent Asian antitrust authorities. The sample consists of legal and economic information on 433 international cartels detected in Asia and the rest of the world during 1990-2007. The need for assertive anti-cartel enforcement in Asia is demonstrated by the large affected commerce and economic injuries of known international cartels. Affected sales of detected Asian-region cartels combined with global cartels that fixed prices in Asia totals at least US$1.1 trillion in 1990-2007. The losses imposed on Asian consumers were at least $500 billion. While more than $45 billion in penalties has been imposed world wide, it is doubtful that such monetary sanctions can deter modern international cartels. Optimal cartel deterrence is frustrated by the failure of compensatory private suits to take hold outside of North America, a reluctance to act against global cartels, and the low fines in most Asian jurisdictions. Of the three selected jurisdictions, the Korean FTC has the best record of anti-cartel enforcement in Asia, but even the KFTC's surcharges are recouping less than 15% of damages to its citizens. Without significant increases in cartel detection, in the levels of expected fines or civil penalties, or expansion of the standing of buyers to seek compensation, international price fixing will remain rational business conduct.

Recent Developments in US Antitrust

A major issue for US antitrust enforcement in the last year or so has been how to achieve maximum detection and deterrence of cartels, even at the cost of weakening certain sanctions. Thus, new legislation protects first-to-confess price fixers from criminal penalties and from trebling of damages owed to customers. To the same end, US enforcement agencies have sought to cut back the ability of foreign victims of the non-US aspects of worldwide cartels to obtain damage relief in American courts. This approach has been justified primarily as facilitating the operation of leniency policies by decreasing the scope, or uncertainty, of the private damage action consequences of confession. Closing US courts to foreign victims has also been justified in terms of the expressed wishes of the US allies (e.g. Germany, Japan, Canada) to fashion their own private remedy policies for their residents. In merger enforcement, trends are steady, but many litigated merger cases were decided against the Government, which could not always support its theories of probable consumer injury with hard facts. Cases involving misuse of intellectual property continue to be aggressively fought, particularly where dubious means are used to enshrine a patented invention as part of an industry standard. US efforts toward international cooperation and harmonisation have had a steady pattern of achievement, but some difficult issues of policy and practice seem intractable, particularly centralisation of merger control and harmonisation of approaches to private remedies.