Hard-core Cartels Research Articles

INDIA'S NEW COMPETITION LAW: A COMPARATIVE ASSESSMENT

This paper critically examines India's new Competition Act. I begin by examining the working of its predecessor, the 1969 Monopolies and Restrictive Trade Practices Act. Earlier studies, as well as a survey of recent cases undertaken for this paper, show that most cases under that Act involved consumer complaints and contractual disputes unrelated to competition. Very few cartels were prosecuted, the development of a rule of reason for vertical agreements was hamstrung by the legislature, and merger review was terminated in 1991. Thereafter, judgments increasingly tried to enforce “fair” business conduct “in the public interest,” often protecting competitors rather than competition. India thus has little relevant experience for the many technical economic criteria in the Competition Act. Although the new Act has several positive features, it is riddled with loopholes that might condone hard-core cartels, predatory pricing, and potentially anticompetitive cross-border mergers, while it also perpetuates the earlier tendency to penalize “unfair” behavior with no bearing on competition. I argue that several institutional limitations will also impair the Act's effectiveness and conclude with a plea for capacity building and phased implementation.

WHAT DO WE REALLY KNOW ABOUT EXPORT CARTELS AND WHAT IS THE APPROPRIATE SOLUTION?

This article responds to Florian Becker's article in this journal, The Case of Export Cartel Exemptions: Between Competition and Protectionism. Professor Becker provides a number of insights into various approaches that battling export cartels may take. I take issue with three of Becker's main themes. First, Becker underplays the importance of political economy issues in the creation and perpetuation of export cartel exceptions from antitrust. A public choice understanding of export cartels is critical to formulating any effective remedy for export cartels. Second, Becker assumes that export cartels are hard-core cartels and that they are a serious problem in international antitrust. In fact, there is very little empirical data on export cartels and nearly all of it comes from the United States. Therefore, it is difficult to say with any great certainty whether export cartels are a problem and how serious a problem they are. Third, Becker ignores the role that international organizations such as the OECD and ICN can play to reduce the effects of export cartels. After surveying different possible solutions, I propose a WTO transparency regime to address export cartels more effectively.

Optimal Deterrence and Private International Cartels

The focus of this paper is on penalties imposed on modern private international cartels. I begin by showing that deterrence of recidivism of overt collusion is the overarching objective of the world's leading antitrust regimes, and I sketch the theory of optimal deterrence in the context conduct by hard-core cartels. Beginning in the late 1980s, fine-setting standards became more precise and progressively harsher. U.S. Sentencing Guidelines for cartels came based on a corporate defendant's affected commerce and certain objective culpability factors. Alternatively, large fines could be assessed by a double-damages criterion. Combined with parallel treble damages from private suits that often accompany fines, the substantial increase in total penalties has led some legal writers to criticize U.S. cartel sanctions as having reached supra deterrent levels. Fines imposed on cartels by the European Union and other jurisdictions have also risen in the past decade, thus adding to concerns about supra deterrence in the case of global cartels. On the other hand, there are at least eight legal-economic arguments that support the proposition that contemporary monetary sanctions on global cartels are inadequate to deter recidivism. Previous attempts to analyze optimal cartel sanctions have generally remained at a theoretical level. In the few cases where optimal fines have been discussed empirically, the studies have relied on assumed point estimates of key parameters, the fines considered have been those of only one jurisdiction, private settlements have been ignored, only current monetary values employed, and the scenarios have been generic cartel situations. To attempt to resolve this debate, formulas are presented and parameterized with data that takes into account the specific characteristics of modern private international cartels. This paper considers five important cases: cartels that operate within North America (fined only, civil settlements only, and both), within the EU, and across two or more continents (global cartels). Empirical data needed to operationalize the formulas are drawn from a comprehensive sample of 283 international cartels discovered since January 1990. Moreover, actual affected sales, penalties, and damages are adjusted to account for the time value of money. Optimal penalties are derived as a function of damages caused by the cartels. Probability distributions of the relevant variables result in a range of optimal penalties for the five cartel scenarios. Optimal corporate monetary sanctions are compared to both the median and the harshest actual international cartel fines and settlements. This exercise supports the view that with rare exceptions actual corporate cartel penalties up to 2005 have been sub optimally deterrent.

Sense and Nonsense of Rules on Proof in Cartel Cases

EC competition law has undergone major changes in the last years. A so-called more economic approach has been introduced: for vertical restrictions safe harbours were created for undertakings with low market shares and only a limited number of hard-core restrictions are still considered detrimental for the economy. For horizontal agreements, the Commission adopted guidelines and new group exemptions allowing for more flexibility for certain types of agreements that can have pro-competitive effects. Where hard-core cartels are concerned, there is no question of introducing more flexibility at a policy level. On the contrary, due to procedural reforms, decentralisation and the successful introduction of leniency programs, the focus of the Commission and most national competition authorities is now on cartels and large fines are imposed. Even in hard-core cases there is some pressure on the competition authorities to have sufficient consideration for economic reality and impact on the market. This pressure is coming from the insights of economic doctrine, but also from the courts upon review. It is the result of a growing attention for issues of proof and evidence that we can observe in the last years in several areas of competition law. Community courts are requiring the Commission to substantiate adequately its findings of infringement of competition law by demonstrating adverse effect on the market place. Similar requirements are imposed by national courts when it comes to justifying the sanctions that are imposed by national competition authorities. This stricter approach towards proof is, at least partly, inspired by the seriousness of the sanctions that are imposed on companies. Increasingly high sanctions bring more attention for rights of defence and rules on proof and evidence. The impression could exist that there is a contradiction between on the one hand more economics and more flexibility, and on the other hand a stricter approach when it comes to the procedural framework in which specific competition cases are dealt with. The paper addresses how to reconcile a more economics-based approach to competition law with procedural rules, in particular rules on proof and evidence. First, a short description is given of the general characteristics of rules on proof and their role in the legal system with special attention for general principles of law. Then the relevant specific characteristics of EC law and of cartel cases are described, as well as a number of recent developments that have their impact on proof. Thirdly, an attempt is made to define the practical features of workable rules on burden of proof and standard of proof and some proposals are made to develop a pragmatic approach that reconciles the different, seemingly contradictory trends in current competition law. This approach requires both economists and lawyers to deviate somewhat from their dogmas for the sake of efficient enforcement of competition law.

Variable Geometry Europe - Patching Together what Works in the Fight Against Hard-Core Cartels: Carrots, Sticks, Custody and Leniency

The issue of fighting cartel-behaviour in the European Community has been continually addressed both by the European Commission and National Competition Authorities. Concerted practices in corporate governance pursuant to Article 81 EC, continue to be a major problem to the promotion of a competitive Common Market. This paper aims to analyse these efforts in terms of their effectiveness, and efficiency. By way of viewing select EU Member States anti-cartel provisions, and comparing these to their intra-EC as well as to their U.S. pendants, differences as to the efficiency and the effectiveness of the analysed policies should become evident to the reader. Explicitly, the relevant U.K., U.S., German and French provisions are reviewed. At the Conclusion of this debate, it will be argued that an effective anti-cartel regime must consist of a severe sanctioning regime complimented by a clear and concise leniency policy integrating the notion of Amnesty Plus, thus providing corporate decision makers with a clear and concise structure in corporate governance. The reader should thus acquire a good understanding of the analysed regimes, while noticing the variable geometry, which is current European Competition Law.

European Competition Policy in International Markets

Changes in the institutional, technological and economic environment raise new challenges to the European competition policy. In this context, it is timely for European authorities to appraise the external dimension of the European competition policy as well as its articulation with current internal reforms. Globalisation can increase the costs of monitoring and seriously reduce the ability of European authorities to tackle cross-border anti-competitive conducts. In addition, conflicts are exacerbated by industrial policy motivations. As it is unlikely that the sole application of the territoriality and extraterritoriality principles to competition rules could yield an optimal international competition system, globalisation calls for higher levels and types of cooperation. Given that bilateral cooperation and especially the implementation of comity principles could be of no value when laws or interests are sources of international conflicts, three main paths could be therefore encouraged: The continuous harmonization of rules through the joint action of OECD and ICN; the higher cooperation in the confidential information exchange; the establishment of global anti-trust institutions. Although WTO is legitimate in judging questions related market access and entry barriers, it is less equipped to assess international hard core cartels or M&A reviews. As a substitute for WTO, a multilevel system, like the EU system, could be promoted. For political and pragmatic reasons, it could be composed in a first step of a hard core of countries like the EU, Japan and the U.S. It could be associated with the creation of an international Court of Justice for competition. In addition to these external reforms, some internal reforms could be required. Competition authorities have to develop further competition advocacy to give a higher priority to competition issues in other EU policies and national regulation. A parallel and complementary reform could consist in making the European competition agency independent from State Members' interference.

Optimal Fines in Cartel Cases and the Actual EC Fining Policy

Based on the main results of the economics of punishment, an analysis of the elements necessary to set the optimal fine is carried out with specific reference to the hard-core cartels. Even though the lack of data hinders the exact application of the theoretical framework in the real world, it can still provide useful guidelines. Fining policies may be evaluated with regard to the achievement of the highest deterrent effect at the lowest possible costs In particular, with regard to the EC practice on fines, a possible source of inefficiencies could have been the “qualitative approach” lying behind the 1998 Guidelines. Once a deterrent sanction has to be set within the legal ceilings, the actual effect of the infringement (or a proxy of it) has to be taken into account, leaving aside the tendency to stick to legal categories. Moreover, if the methodology of such an assessment is clearly made public, the danger of uncertainty is wiped away, whereas legal categories have to be stretched in order to achieve results consistent with the deterrent aim and the proportionality constraint, with a consequent loss of transparency. The recent 2006 Guidelines on fines represent a major step forward on that matter. This article has been shortlisted for the 1st World Competition Young Writers Award.

Untying the Knot: The Case for Overruling Jefferson Parish

Jefferson-Parish test for whether a tying arrangement violates the antitrust law should be abandoned. It should be replaced with a rule of reason analysis that examines whether there are adverse economic effects that outweigh potential economic benefits. There is widespread support in the modern antitrust and economics literature for adopting a rule of reason approach to tying and virtually no support for treating tying as unlawful by firms with market power. Analyzing tying under a rule of reason would help complete the economic rationalization of antitrust law that started with Sylvania and under which treatment has been narrowed mainly to hard-core cartel behavior that has no pro-competitive benefits. Such a rule of reason analysis should be structured to screen out cases in which there is no plausible basis for believing that tying could have an adverse effect on long-run consumer welfare and should require plaintiffs to demonstrate rather than assume adverse effects from tying. Supreme Court should take the next opportunity to heed the advice Justice O'Connor and three other Justices offered more than twenty years ago regarding tying doctrine: The time has therefore come to abandon the per se label and refocus the inquiry on the adverse economic effects, and the potential economic benefits, that the tie may have. enforcement agencies should support the effort to overrule Jefferson Parish and subject tying to the rule of reason. This would give the Supreme Court additional confidence in ending the treatment of tying which it has supported, despite profound reservations, because of longstanding judicial and legislative hostility towards tying. This paper explains the basis in modern economics and antitrust analysis for overruling Jefferson Parish.

How to Fight Hard Core Cartels? Comments on Collusion in Industrial Economics

Industrial economics has successfully clarified the mechanism of collusive conduct and its facilitating factors. But policy implications for remedial actions are less straightforward. This paper provides some supplementary comments from the viewpoint of enforcement issues against price-fixing agreements. There are some disagreements among practitioners concerning the probative value of circumstantial (or economic) evidence. Information exchange may be a possible clue to elucidate the evidentiary standard. On the other hand, there seems to be a unanimous agreement, if appropriately designed, on the desirability of leniency programs. Necessity of leniency programs must be a reflection of stricter standard of proof in court decisions, resource constraints of antitrust enforcer, or increasingly defensive acts of conspirators.

Cartels and Collusion: Failing Competition Policy in Hong Kong

Hard core cartels have received increased international attention since the 1990s from many developed nations and from international organisations, especially the OECD. Cartel-busting has become a priority for many competition authorities. Penalties have been substantially increased, with many jurisdictions introducing criminal sanctions including the possibility of imprisonment for individual executives who organise cartel activities. The general opprobrium visited upon cartels is not, however, universally accepted. The Hong Kong authorities have an ambivalent attitude to cartel activity that is driven by an ostensible ideological commitment to ``free markets’’ at all costs. The Hong Kong government has a politico-economic agenda that refuses to acknowledge the pernicious effects of cartel activity and, in any event, denies that cartels are a significant problem in the territory. This article seeks to briefly examine the recent trend towards tougher cartel enforcement internationally. Hong Kong’s cartel policy is then contrasted with international developments and critically analysed. Cartel activity in Hong Kong is described and explained. The future development of competition policy in Hong Kong is considered.

Price-Fixing Overcharges: Legal and Economic Evidence

This paper surveys hundreds of published social-science studies of private, hard-core cartels that contain 699 observations of long-run overcharges. The primary finding is that the median cartel overcharge for all types of cartels over all time periods is 25%: 19% for domestic cartels, 32% for international cartels, and 31% for all successful cartels. Thus, international cartels have historically been about 68% more effective in raising prices than domestic cartels. Cartel overcharges are skewed to the high side, pushing the mean overcharge for all types of cartels over all time periods to 42%. Peak cartel overcharges are typically double those of the long-run averages. These results are generally consistent with the few, more limited, previously published works that survey cartel overcharges. There is no evidence that convicted cartels are markedly less effective than unpunished ones. The results of a second survey of final verdicts in decided U.S. horizontal collusion cases, only three of which were international cartels, show an average median overcharge of 21% and an average mean overcharge of 30%. Outside the United States, 62 decisions of competition commissions cited median average overcharges of 25% and a mean of 47%. There are three significant policy implications. First, there is a view among some antitrust writers that there is little evidence that cartels raise prices significantly for a period long enough to justify the height of current U.S. cartel penalties. This survey's results, which are based upon an extraordinarily large amount of data spanning a broad swath of history of all types of private cartels, sharply contradict these views. In fact, the data suggest that U.S. penalties ought to be increased. Mean overcharges are three times as high as the level presumed by the U.S. Sentencing Commission. Surprisingly, bid rigging was no more injurious than other forms of collusion, which suggests that the USSC should amend its Guidelines that currently treat bid rigging more harshly than other forms of collusion. Second, the principal antitrust authorities abroad often base their typical or maximum fines on a 10% harm presumption. Average fines imposed since 1995 by Canada and the EU on identical cartels have been lower than U.S. government fines, yet overcharges generated by cartels discovered outside the United States are higher than North America-centered cartels. Consequently, anticartel laws and fine-setting practices abroad are in even greater need of strengthening. Third, cartels with multi-continental price effects are the most harmful type. Despite the evident increases in cartel detection rates and the size of monetary fines and penalties in the past decade, a good case can be made that current global anticartel regimes are under-deterring. While the recent worldwide trend towards the intensification of cartel penalties has been desirable, global cartels are more difficult to detect, have less fear from entry of rivals, achieve higher levels of sales and profitability, and systematically receive weaker corporate sanctions than comparable domestic cartels. Antitrust sanctions worldwide should be higher for global cartels than for other types.

Persaingan Usaha di Forum WTO dan Perlunya Ketentuan Mengenai M&A

Two issues leading to the collapse of the 5th WTO ministerial meeting in Cancun, Mexico, are agricultural issue and Singapore Issues. There are four sub-issues on Singapore Issues, which are Trade and Competition Policy, Trade and Investment, Transparency on Government Procurement and Trace Facilitation. The issues on competition policy are some ambiguities such as the coverage of hardcore cartel provisions and the differences on the articles or business practices which can be considered as rule of reason. The most crucial on handling competition case is analyzing relevant market consisting product market and geographical market. Related to the Indonesian competition law, unfortunately the definition on the relevant market is not clear enough. Besides that, Indonesian Competition Institution to enact some guidelines issued by OECD, UNCTAD, or countries which having wide experience in handling competition cases. Up to now, the Indonesian competition law has not been completed with the government regulation on merger and acquisition. To invite the government people in the ministry of industry and trade who are responsible to prepare the said government regulation, this paper is ended with the case of merger between Boeing and MDC suffering injury for Airbus company and the practice of exclusive dealing done by Boeing-MDC.

Forging the European Cartel Offence: The Supranational Regulation of Business Conspiracy

AbstractThe discussion in this paper examines the emergence of what may now be fairly described as the ‘European cartel offence’: that species of infringement of Article 81 of the EC Treaty, increasingly referred to as ‘hard core cartel’ activity, connoting real delinquency which justifies the imposition of severe penal sanctions. This development is significant not just as a matter of more explicit regulation within the field of competition law, but also as part of a wider context of vilification and criminalisation of certain well-established forms of cartel behaviour. As national systems (such as that in Britain) have introduced new criminal offences in relation to cartels, it is illuminating to consider and compare the evolution of the supranational ‘European cartel offence’. Having its basis in the infringement of Article 81 of the EC Treaty, the offence is necessarily one of collusion, being an agreement or concertation for anti-competitive purposes. As such, the more specific nature of the ‘offence’ has been established incrementally, very much as the product of argument presented in appeals relating to issues of evidence and penalties. It has been necessary to consider whether the offence resides in the planning or the implementation of anti-competitive activity, or both, and whether it comprises specific acts or a continuing pattern of behaviour. The mature version of the ‘offence’, worked out in the jurisprudence of the European Commission and the Community Courts, is based on the organising concept of ‘the cartel as a whole’. This process of forging a ‘European cartel offence’ provides an instructive lesson in the legal construction of criminality and the resort to a form of organisational responsibility. It also points to the emergence of a bifurcated system of both individual and corporate liability in this context.

La nécessité d'un droit mondial de la concurrence

THE NECESSITY OF A GLOBAL COMPETITION LAW The intensification of international trade, the increasing number of national (or regional) competition laws and the tendency to their extraterritorial application have increased the risk of contradictory decisions by national competition authorities. Besides, the accumulation of uncoordinated requirements imposed by coexisting national competition codes causes considerable costs at the expense of enterprises which are internationally active, not only but especially in the field of merger control. The problems arising can be tackled on a unilateral, bilateral or multilateral level. The article shows that the unilateral and bilateral approaches have their merits, but are not sufficient to resolve the fundamental questions. The same is true for the efforts made so far on the multinational level, e.g. within OECD, UNCTAD or the International Competition Network (ICN). Their activities are certainly useful to strengthen the co-operation between national cartel authorities and to create a global competition culture. However, these institutions did not reach a breakthrough in eliminating conflicts due to the diverging national competition law codes in the world. Only the WTO seems to have the capacity for adopting world competition rules of a universal and binding character. Certainly, the obstacles to a « TRAMs »-Agreement (Trade-Related Aspects of Antitrust Measures) seem to have grown after the failure of the Cancun Ministerial Conference in September 2003 : Now, not only national concerns of sovereignty have to be overcome. But the « Singapore Issues » have definitely become part of a negotiation package which will be untied only if a solution will be found for all components, including more appropriate rules for agricultural products. Nevertheless, this new connection is not only negative : As the history of trade rounds shows (with the TRIPs-Agreement being the most prominent example), solutions for particularly controversial subjects can be achieved if opponents are compensated for their consent by concessions in other trade matters. Therefore, the reluctance which can be observed in the field of transnational competition rules, should not discourage, and – above all – not inspire a too modest approach. A future multilateral WTO-competition agreement should contain not only the Doha elements (core principles like transparency, non-discri-mination and procedural fairness, provisions on hardcore cartels, appeal for technical assistance and capacity building), but in addition rules on the abuse of dominant positions and on vertical restraints which segregate national markets. There is no convincing reason why the WTO dispute settlement should not be applied to a competition law agreement. Regarding merger control (and private litigation), an agreement on specific rules seems out of reach. Works in other fora on the harmonisation of notification forms and procedures should be continued. At the same time, a restricted number of WTO-members could – in a plurilateral agreement – pave the way for the inclusion of merger control rules into the WTO system. As regards developing countries, their own interest militates for strong competition rules : Very often, these countries are the victim of international cartels or of bid rigging connected to public procurement. Concerns, that the non-respect of a WTO competition agreement could trigger cross retaliation in other areas, can be dispelled by the adoption of appropriate clarifications (no mandatory prosecution of cartel offences, flexibility in cartel exemptions, legitimacy of a national industrial policy, etc.). The problem of scarcity of resources can be met by delegating competition law enforcement to the regional level. If no valid reasons speak against world competition rules, there are strong arguments in favour of it. The widespread estimation has to be mentioned that the process of globalisation necessitates better rules on the international level. The economic system of market economy yields the best results only if certain conditions are met. An effective competition policy is one of these. The adoption of such rules within the WTO system would be an important response to the critique of globalisation by underlining that the expansion of international trade is subject to a framework striving to maximise not only private, but also public welfare.

Information Feudalism: Who Owns the Knowledge Economy?

1 Introduction: Why Information Feudalism'? * The Risks * Health-Hell in Africa * Why Sign TRIPS? * Efficiency * Freedom, Democracy and Intellectual Property * Overview. 2 Piracy: Cultural Trespassers * 'A pyrate and a rover on the sea' * Intellectual Property Piracy * A Little Intellectual Property History. 3 The Knowledge Game: Knowledge Profits * Laboratories of Knowledge * Patent Locks on Public Goods * Patent Locksmiths - the Patent Profession * Global Knowledge Cartels * The Knowledge Game * The Changing Knowledge Game. 4 Stealing from the Mind: Messages * Last Rites * The Problems * Pfizer's World of Ideas * Getting on Committees. 5 The Illusion of Sovereignty: Sovereign Poverty * Most wanted * The Caribbean. 6 The Bilaterals: The Trade Defence Initiative * The US Generalized System of Preferences * Section 301 * Designers, Lobbyists and Petitioners * Pinocchio's Nose * The Wolf at the Door. 7 Agendas and Agenda-setters - The Multilateral Game: The GATT * The WIPO Talkshop * Getting Intellectual property on the Trade Agenda: the Quad and the IPC * Punta del Este * 8 Persuasion and Principles Becoming a Community Standing on Principle: the 'Basic Framework' The Coalitionist Sweeping House. 9 At the Negotiating Table: Kick-off and Final Siren * Circles of Consensus * The Joy of Text * The Great Hero * 'DDT' * When the Chips are Down. 10 Biogopolies: Patent Privatization * Patent Addiction * Mother Nature's Software * Patent Engineering * The University-Industrial Knowledge Complex * Hard Core Cartels. 11 Infogopolies: Private Copyright * Software Blues * Hollywood Trade Ballyhoo * 'Mary had a little lamb'. 12 Democratic Property Rights: Good and Bad Property * Democratizing Intellectual Property * The puzzle of TRIPS. 13 Resisting the New Inequality The New Inequality Rethinking Piracy Reforming Patent Office Regultion Deliberation on the Council for TRIPS. 14 On the Importance of the Publicness of Knowledge: Propertyless Creativity * Protecting Private Property, Protecting Public Universities * Global Publics, Public Goods and Knowledge.

WIELDING A BIG STICK

A FEW YEARS AGO, THE U.S. TOOK a leadership role in rooting out international price-fixing cartels. But last year, it seemed as if the Europeans had taken the lead. The European Commission—the executive arm of the European Union—undertook investigations into alleged anticompetitive behavior among makers of six chemicals just in the last six months of 2002. It investigated and levied fines in three additional instances. For all of 2002, the European Commission assessed fines of about $1 billion against cartel operators in a wide variety of businesses, from flavor enhancers to concrete reinforcing bars. By contrast, U.S. officials were not nearly as active. And some of the investigative activity the U.S. Department of Justice did undertake seemed to be at the behest of European competition officials led by the EC commissioner responsible for competition, Mario Monti. In the recent past, the U.S. has been no slouch when it came to revealing hard-core cartel activity ...

Business Co-operation on Electronic Marketplaces: Competition Law Concerns

Does traditional antitrust law tally with the special sphere of the New Economy , and especially with phenomena connected with the Internet? This issue is a disputed one. Whereas the predominant opinion among the antitrust authorities and experts in antitrust law is that antitrust law provisions and principles of application are generally sufficient in order to assess the new phenomena adequately, there are also those who refer to the specific nature of the Internet economy and call for restraint when applying antitrust law provisions in this sphere. In order to resolve this disputed issue it is important to keep in mind the numerous problems in the border zone between antitrust law and the Internet. For example, one argument occasionally submitted is that the Internet medium facilitates inadmissible concerted action. In these cases it is considered very difficult to bring the offenders to justice. These fears are open to doubt. The Microsoft proceedings have shown that statements made on the Internet or within an intranet are stored in numerous places and are easier to trace than would be the case if an informal meeting were held. However, practical experience is still lacking with Internet-based hard-core cartels. At the conference of the US Federal Trade Commission in May 2001, one of the focal themes was price fixing on the Internet.