Overt Collusion Research Articles

The Moral Pathologies of National Sporting Representation at the Olympics

Nationality, citizenship and eligibility have become increasingly relevant in sport, especially under current conditions where there is an increasing number of players who change their ‘allegiances’ for international sporting purposes. While it is reasonable to link such trends to wider processes of globalisation and accelerated migratory flows, it is also evident that national sporting representation is subject to the venal power of commercialism. The concern is that national representation has developed into a more strategic, planned and economically driven activity that involves the overt collusion of national governing bodies and individual athletes. This paper evaluates the moral status of current international sporting representation (ISR) rules and practices as they relate to the Olympics. By drawing on de Coubertin's notion of ‘sincere internationalism’ and Walsh and Guilianotti's (2007) work on hyper-commercialisation in sport, we will attempt to demonstrate how some of the current practices and regulations of ISR are ethically problematic. We conclude that current ISR regulations are drawn too loosely and need to be amended in order to limit the moral pathologies identified. Our critique is informed by empirical data collected from members of the Welsh sports practice community.

Collusion and the Choice of Auction: An Experimental Study

We experimentally examine the collusive properties of two commonly used auctions: the English auction (EN) and the first-price sealed-bid auction (FPSB). In theory, both tacit and overt collusion are always incentive compatible in EN while both can be incentive compatible in FPSB if the auction is repeated and bidders are patient enough. We find that the auctions do not differ in subjects’ propensity to collude overtly and in the likelihood that subjects defect from a collusive agreement. Moreover, the average winning bid does not differ between the auctions unless subjects can collude overtly. Under overt collusion, stable cartels buy at a lower price in EN than in FPSB resulting in a lower average winning bid in EN.

Using Abuse of Collective Dominance in Article 102 TFEU to Fight Tacit Collusion: The Problem of Proof and Inferential Error

Recent events suggest that Article 102 TFEU may prohibit the abusive conduct of tacitly colluding firms. Yet can the Commission enforce this law? In this article, I argue that it cannot. I show that proof of ongoing tacit collusion requires the Commission to overcome a difficult problem of identification, notably how to distinguish tacit collusion from other very subtle conducts like unconscious parallelism and undetected overt collusion. I claim that the Commission cannot resolve this problem by establishing the typical conditions drawn from case law, such as the lack of effective competition, the Airtours criteria and a focal point, as proof of these conditions cannot mitigate error sufficiently. Abusive and tacitly collusive conduct may not even be at all plausible in real world. I conclude that a problem of detection and costly error restricts dramatically the ability of the Commission to combat tacit collusion by using Article 102. Such a policy, if carried out, would be misguided.

Tacit versus Overt Collusion Firm Asymmetries and Numbers: What's the Evidence?

It is conventional wisdom that collusion is more likely the fewer firms there are in a market and the more symmetric they are. This is often theoretically justified in terms of a repeated non-cooperative game. Although that model fits more easily with tacit than overt collusion, the impression sometimes given is that 'one model fits all'. Moreover, the empirical literature offers few stylised facts on the most simple of questions - how few are few and how symmetric is symmetric? This paper attempts to fill this gap while also exploring the interface of tacit and overt collusion, albeit in an indirect way. First, it identifies the empirical model of tacit collusion that the European Commission appears to have employed in coordinated effects merger cases - apparently only fairly symmetric duopolies fit the bill. Second, it shows that, intriguingly, the same story emerges from the quite different experimental literature on tacit collusion. This offers a stark contrast with the findings for a sample of prosecuted cartels; on average, these involve six members (often more) and size asymmetries among members are often considerable. The indirect nature of this 'evidence' cautions against definitive conclusions; nevertheless, the contrast offers little comfort for those who believe that the same model does, more or less, fit all.

From Overt to Tacit Collusion: Experimental Evidence on the Adverse Effects of Corporate Leniency Programs

Recent laboratory experiments support the popular view that the introduction of corporate leniency programs has significantly decreased cartel activity. The design of these repeated game experiments however is such that engaging in illegal price discussions is the only way for subjects to avoid the one-shot competitive equilibrium. Subjects in the experiment of this paper have multiple feasible Nash equilibrium strategies to avoid the competitive equilibrium. These strategies differ in the difficulty of the coordination problem they have to solve. The experimental results show that if the efforts of the antitrust authority and the leniency program are directed exclusively to the most straightforward collusive scheme, subjects manage to switch to a more intricate form of coordination. This shift from overt collusion to tacit collusion questions the acclaimed success of corporate leniency programs.

The Great Global Vitamins Conspiracies, 1985-1999

This paper is a comprehensive examination of the global bulk vitamins cartels of the 1990s. In terms of its precision and breadth of coverage, the quantitative information now available on vitamins surpasses that of almost any other modern cartel. For example, the internal records of the major defendants have yielded monthly transaction prices for 53 bulk vitamin products over periods of up to 22 years.Evidence is presented that these 16 interrelated cartels were the largest discovered international price-fixing schemes of the late 20th century in terms of affected commerce and direct overcharges. On the other hand, the percentage increases in bulk vitamin prices wrought by the cartels were merely average. The formation of the cartels by and large occurred in markets that were in terms of their structures and historical modes of behavior ideally suited for overt collusion. Although organizationally similar in many respects, the cartels also displayed a wondrous variety of collusive conducts. Only four to six of the cartels died natural deaths.There is little question that the convicted members of the vitamins cartels were in absolute monetary terms the most heavily sanctioned defendants in the history of antitrust law. Yet, it is equally non-controvertible that the impressive corporate monetary sanctions imposed worldwide were inadequate to deter recidivism.

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.

The Great Global Vitamins Cartels

This paper is an excerpt of a comprehensive examination of the global bulk vitamins cartels of the 1990s. In terms of its precision and breadth of coverage, the quantitative information now available on vitamins surpasses that of almost any other modern cartel. For example, the internal records of the major defendants have yielded monthly transaction prices for 53 bulk vitamin products over periods of up to 22 years. Evidence is presented that these 16 interrelated cartels were the largest discovered international price-fixing schemes of the late 20th century in terms of affected commerce and direct overcharges. On the other hand, the percentage increases in bulk vitamin prices wrought by the cartels were merely average. The formation of the cartels by and large occurred in markets that were in terms of their structures and historical modes of behavior ideally suited for overt collusion. Although organizationally similar in many respects, the cartels also displayed a wondrous variety of collusive conducts. Only six of the cartels died natural deaths. There is little question that the convicted members of the vitamins cartels were in absolute monetary terms the most heavily sanctioned defendants in the history of antitrust law. Yet, it is equally non-controvertible that the impressive corporate monetary sanctions imposed worldwide were inadequate to deter recidivism.

Collusion and Price Dispersion

While there are suggestions in applied cartel studies that price dispersion changes when cartelization of a market occurs, there are few theoretical or empirical analyses of this effect. This paper surveys the thin economic literature on the link between overt collusion and price dispersion. Formal theories and observation of cartel behavior suggest that during successfully collusive periods prices become less variable and more negatively skewed compared to relatively competitive periods. Four empirical studies of cartels verify these predictions.

Collusion and price dispersion

While there are suggestions in applied cartel studies that price dispersion changes when cartelization of a market occurs, there are few theoretical or empirical analyses of this effect. This article surveys the thin economic literature on the link between overt collusion and price dispersion. Formal theories and observation of cartel behaviour suggest that during successfully collusive periods prices become less variable and more negatively skewed compared to relatively competitive periods. Four empirical studies of cartels verify these predictions.

Great School Milk Conspiracies Revisited

This paper revisits a particular case involvingtwo dairy processing companies accused ofrigging bids in northern Kentucky schooldistricts during the 1980s. Evidence andarguments presented to support a conclusion ofovert collusion are reassessed. Analyses ofincumbency rates, market shares, bid levels, biddispersions, bid distance relationships, exactbidding differentials, and “bids from hell”indicate that the two dairies may have beenengaged in tacit collusion instead of overt collusion.

Great School Milk Conspiracies Revisited: Rejoinder

A re-examination and analysis ofdata in court records covering sealed-biddingpractices, market shares, incumbency rates, andprofit margins of two dairies charged with bid-riggingdisclose that Scott's analysis is flawed in severalimportant respects: reliance on selective bid data,omission of relevant bid data, and errors in reportedbids. Accordingly, Scott's hypothesis (that twodairies may have been engaged in tacit collusioninstead of overt collusion) was found to be basedlargely on conjectures, not hard data, and thus shouldbe rejected.

Protectionist policies as the regulation of international industry

The political feasibility of protectionist policies that regulate international industry derives from the absence of overt collusion among domestic import-competing producers. The regulation of international industry cannot be explicit since governments would thereby be perceived to be approving (or instigating) international collusion. Hence, voluntary export restraints have been popularly presented with a focus on the difficulties confronted by domestic import-competing producers and a de-emphasis on the mutual gains to domestic and foreign producers from monitoring by a foreign government of a restrictive export cartel arrangement. Similarly, trigger-price mechanisms have popularly been explained in terms of the need for anti-dumping measures to preserve ‘fair’ competition. Likewise, the involuntary export tax derived in the first instance from an administratively validated (but, as demonstrated by Kalt's econometric analysis, contentious) complaint of ‘unfair’ foreign competition. Voluntary export restraints, trigger-price mechanisms, and involuntary export taxes are however protectionist devices, the beneficiaries of which can transcend national jurisdictions, and which have in common the characteristic that the gains to domestic industry interests derive from the regulation of foreign competitors.

Collusive Price Leadership

The authors study the pattern of pricing in which price changes are first announced by one firm and then matched by its rivals. In their model, this price leadership facilitates collusion under asymmetric information. In equilibrium, the leader earns higher profits than the follower. Nonetheless, if information is sufficiently asymmetric, the less informed firm prefers to follow the better-informed firm, so the leader can emerge endogenously. The authors show that the follower can benefit from price rigidity so that prices may be changed infrequently. They also show that overall welfare may be lower under collusive price leadership than under overt collusion. Copyright 1990 by Blackwell Publishing Ltd.

Social network intervention with antisocial adolescents

The author reports two experimental uses of full scale network assemblies to intervene with antisocial adolescents. He suggests the importance of covert and overt collusion by adult-subsystems. He proposes that a network assembly exposes the collusive roles of the adults and provides group pressure to undo the collusion.