Price-fixing Conspiracies Research Articles

Bridging the Coasean Divide: The Need for a Shared Economic Lexicon for Antitrust & Worker Protection Law

Uber, the most prolific of a new breed of transportation network companies, has been the target of two distinct strands of litigation in recent years that get at a question at the heart of the company’s business model. On the one hand, drivers have sued Uber for intentionally misclassifying them as contractors to dodge employer obligations. On the other, consumers have taken Uber to court for fixing the prices of millions of independent competitors, in clear violation of antitrust law. Uber’s situation seems legally untenable; either drivers are independent businesspeople and Uber is running a massive price-fixing conspiracy, or drivers are employees and the company owes millions in worker benefits and payroll taxes. However, antitrust and labor law have both evolved over the last half-century to be far more permissive of innovative (some would say exploitative) business models. This leaves a regulatory void in which companies like Uber get all the benefits of a coordinated, top-down command structure without incurring either antitrust liability or employer obligations. This void poses a competition problem and a labor problem. Workers that have no real power to negotiate their rates or make market-based decisions are left without the protections of labor and employment law. This note argues for a common set of definitions across antitrust and labor law to close the regulatory gap. These definitions should be nuanced, and might include intermediate categories like “dependent contractors.” These definitions should be guided by evidence of genuine ability or inability to make market decisions, particularly whether workers can set their own prices. But most importantly, they should be uniformly recognized by labor and antitrust courts. This will allow for innovative companies like Uber to choose. They can relinquish economic decision-making to their workers and maintain their low-commitment technology company status, or have greater coordination rights vis-a-vis their workforce and accept the employer obligations that come with them.

LENIENCY, COLLUSION, CORRUPTION, AND WHISTLEBLOWING

Leniency policies offering immunity to the first cartel member that blows the whistle and self-reports to the antitrust authority have become the main instrument in the fight against price-fixing conspiracies around the world. In public procurement markets, however, bid-rigging schemes are often accompanied by corruption of public officials. In the absence of coordinated forms of leniency (or rewards) for unveiling corruption, a policy offering immunity from antitrust sanctions may not be sufficient to encourage wrongdoers to blow the whistle, as the leniency recipient will then be exposed to the risk of conviction for corruption. This article assesses the extent of this problem by describing and discussing the antitrust and anti-corruption provisions present in a few selected countries, under both common law and civil law regimes. For each of these countries, we try to evaluate whether the legal system presents any solution to limiting the risk that legal provisions against corruption undermine the effectiveness of leniency programs against bid rigging in public procurement. Legal harmonization, coordination, and co-operation on procedural and substantive issues, and inter- and intra-jurisdictions, seem essential to solve this problem. Given the size of public procurement markets and their propensity for cartelization, specific improvements in legislation appear necessary in all the countries considered. Explicitly introducing leniency policies for corruption, as has been done recently in Brazil and Mexico and is being experimented in the United States, is only a first step. The antitrust experience has taught us that to achieve their goals of inducing whistleblowing, these policies must be carefully designed and sufficiently generous with (only) the first reporting party, they should not be discretional, they must be backed by robust sanctions, and they must be consistently implemented. Hence, the road ahead appears a long one. To increase the effectiveness of leniency in multiple offense cases, we suggest, besides extending automatic leniency to individual criminal sanctions, the creation of a “one-stop point” enabling firms and individuals to report different crimes simultaneously and receive leniency for all of them at once if they are entitled to it. As long as individual criminal charges are not covered by a coordinated and nondiscretional leniency program, there is little hope that these provisions will induce any improvement in the fight against corrupting cartels. A more effective way to fight such cartels may then be offering Qui Tam rewards to nonaccomplice whistleblowers, as is already done with apparent success by several law enforcement agencies in the United States.

Collusion/Competition

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

Leniency, Collusion, Corruption, and Whistleblowing

Leniency policies offering immunity to the first cartel member that blows the whistle and self-reports to the antitrust authority have become the main instrument in the fight against price-fixing conspiracies around the world. In public procurement markets, however, bid-rigging schemes are often accompanied by corruption of public officials. In the absence of coordinated forms of leniency (or rewards) for unveiling corruption, a policy offering immunity from antitrust sanctions may not be sufficient to encourage wrongdoers to blow the whistle, as the leniency recipient will then be exposed to the risk of conviction for corruption. This paper assesses the extent of this problem by describing and discussing the antitrust and anti-corruption provisions present in a few selected countries, from both common law and civil law regimes. For each of these countries, we try to evaluate whether the legal system presents any solution to limiting the risk that legal provisions against corruption undermine the effectiveness of leniency programs against bid rigging in public procurement.Legal harmonization, coordination and co-operation on procedural and substantive issues, and inter and intra jurisdictions, seem essential to solve this problem. Given the size of public procurement markets and their propensity for cartelization, specific improvements in legislation appear necessary in all the countries considered.Explicitly introducing leniency policies for corruption, as has been recently done in Brazil and Mexico, is only a first step. The antitrust experience has taught us these policies must be carefully designed and sufficiently generous, they should not be discretional, and they must be consistently implemented to achieve their goals of inducing whistleblowing. Hence, the road ahead appears a long one. To increase the effectiveness of leniency in multiple offense cases, we suggest, besides extending automatic leniency to individual criminal sanctions, the creation of a ‘one-stop-point’ enabling firms and individuals to report different crimes simultaneously and receive leniency for all of them at once if they are entitled to it.As long as individual criminal charges are not covered by a coordinated and non-discretional leniency program, there is little hope that these provision will induce any improvement in the fight against corrupting cartels. A more effective way to fight such cartels may then be offering Qui Tam rewards to non-accomplice whistleblowers, as is already done with apparent success by several law enforcement agencies in the US.

Price-Fixing Hits Home: An Empirical Study of U.S. Price Fixing Conspiracies

Price-Fixing Hits Home: An Empirical Study of U.S. Price Fixing Conspiracies

Global Cartels Redux: The Lysine Antitrust Litigation

The amino-acid lysine cartel was a watershed even in antitrust enforcement. It was the first global price-fixing conspiracy to be convicted by U.S. or EU antitrust authorities in 40 years. This paper presents an updated narrative of the history of the global lysine cartel and the legal consequences for its members in the United States. The story focuses especially upon the role of economists in calculating the size of overcharges and how the estimates can affect the decisions of plaintiffs and defendants in private treble-damages litigation. It concludes with ruminations about the rationality of participating in price-fixing conspiracies and the difficulty of achieving optimal deterrence of international cartels.

Damage at the Pump: Does Punishment Fit the Crime?

We use time-series analysis to estimate the economic damage caused by the uncovered retail gasoline cartel in the city of Sherbrooke. We calculate both the total overcharge and the deadweight loss using a Marshallian demand curve. We find that total damages for the period spanning from January 2000 to May 2006 can be as high as $16.2 million expressed in 2002 Canadian dollars. We compare the total damages from this price fixing conspiracy in the city of Sherbrooke to the meted punishment for all of the investigated markets and find the latter to be a small fraction of the former. We argue that the current enforcement of the Competition Act’s conspiracy provision is unlikely to deter cartel formation.

Class Actions in the U.S. Experience: An Economist's Perception

This paper, presented at a University of the Piedmont (Italy) conference in January 2007, analyzes several features of the U.S. experience with class action litigation, emphasizing suits alleging antitrust law violations. It observes that despite the trebling of damages under U.S. antitrust law, deterrence has been less than completely successful, as shown by the large number of important price-fixing conspiracies proven in recent years. It argues too that many class action suits are brought with insubstantial evidence of violation. An important motivator is the significant share of settlement damages realized by entreprenurial law firms organizing the class actions. The retention by judges of neutral economic experts can help sort out the evidentiary complexities of class action suits, but the approach is far from a panacea.

Anticompetitive Social Norms as Antitrust Violations

The antitrust laws broadly forbid agreements in restraint of trade. These illegal agreements are typically imagined as products of smoke filled backroom discussions, where titans of industry set prices over cigars and whiskey.! Such clear examples form the inner core of what section 1 of the Sherman Act proscribes,2 but the outer boundaries of section 1 liability are unclear and are the subject of substantial disagreement among courts and academics. For instance, imagine an isolated town with two gas stations located across the street from each other, each charging $2.00 per gallon of gaso line. One morning, the owner of the first station increases her prices by $0.25, even though her cost of selling gasoline remains unchanged. This first owner knows that, assuming the second owner does not change his prices, customers will likely abandon her station and opt for the cheaper gasoline of her competitor. However, she also knows that, if the second owner likewise increases his prices by $0.25, each owner will sell the same amount of gasoline at the higher price, and they will therefore both enjoy higher profits. The second owner notices the increase in price and increases his price to match. Has a price-fixing conspiracy occurred in violation of section 1 of the Sherman Act?3 Theoretically, yes. Both have agreed to raise their price above the competitive level. But as a practical matter, both are likely to get away with it, insofar as there is no further evidence of an

Extraterritoriality of the Sherman Act and Deterrence of Private International Cartels

This paper presents two major economic arguments relevant to a decision facing the U.S. Supreme Court in early 2004. In Empagran v. F. Hoffmann-LaRoche the Court must decide whether companies like Empagran, an Ecuadorian animal-feed manufacturer, ought to be permitted to sue for treble damages under the 1890 Sherman Act, even though Empagran bought vitamins from a convicted global cartel wholly outside U.S. territory. Because of ineffective antitrust enforcement in its home country, Empagran and similarly situated buyers favor having this right, whereas Roche and 19 other members of the vitamins cartel oppose it. The first argument in favor of extraterritorial expansion concerns the effects on U.S. consumers and the competitiveness of U.S. markets. I argue that in the context of international price-fixing conspiracies, conduct relating to wholly foreign purchases necessarily affects domestic commerce. This is because international cartels must prevent international geographic arbitrage in order to succeed in controlling prices in any targeted national market. Second, this paper assembles empirical evidence that, should non-U.S. transactions be excluded from U.S. antitrust protection, the global aspirations of contemporary cartels offer an insuperable challenge to a core aim of the antitrust laws: Deterrence. The broad geographic harm generated by the scores of modern global price-fixing conspiracies has overwhelmed the ability of current laws about corporate antitrust sanctions to provide enough financial disincentives to discourage the formation of similar cartels in the future. Permitting foreign buyers who purchased the products of international cartels abroad to pursue civil antitrust damages actions in U.S. courts is necessary to yield the level of legal punishment needed to protect the U.S. economy and its consumers from future cartel injuries. Territorial expansion will also increase the probability of discovery of clandestine cartels by multiplying the number of jurisdictions in which private parties have an incentive to investigate collusive conduct.

Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's

The Sotheby’s–Christie’s price-fixing scandal that ended in the public trial of Alfred Taubman provides a unique window on a number of key economic and antitrust policy issues. The trial provided detailed evidence as to how the pricefixing worked, and the economic conditions under which it was started and began to fall apart. The role of the amnesty program was important to the case, and does not appear to have had a role in the cartel’s enforcement of pricefixing or the cartel’s demise. The outcome of the case also provides evidence on the auction process used to choose the lead counsel for the civil settlement. Finally, though buyers received the bulk of the damages, a straightforward application of the economic theory of auctions shows that it is unlikely that successful buyers as a group were injured.

Two Books About the ADM Price-Fixing Conspiracy

It has been at least 40 years since two books hankering after popular acclaim have been written about antitrust. James Lieber focuses on perhaps the greatest price fixing trial of the late 20th century - the government's conviction of three top executives of Archer Daniels Midland, Supermarket to the World. Kurt Eichenwald tells the tale of the FBI's twisted four-year probe of ADM aided by an insider dubbed Pinocchio with a Ph.D. Come and see what the high-income bracket in Decatur, Illinois is reading these days.

The global citric acid conspiracy: Legal-economic lessons

ADM was at the center of two large global price-fixing conspiracies. Buyers were overcharged $116 to $378 million in the United States. Market structure and corporate management style facilitated these cartels. The criminal prosecutions and defendants' legal strategies were both laudatory, but civil plaintiffs were short-changed. ADM has undergone severe management restructuring, but the effectiveness of apprehending global cartels with national legal enforcement is questionable. © 1998 John Wiley & Sons, Inc.

The global citric acid conspiracy: Legal-economic lessons

ADM was at the center of two large global price-fixing conspiracies. Buyers were overcharged $116 to $378 million in the United States. Market structure and corporate management style facilitated these cartels. The criminal prosecutions and defendants' legal strategies were both laudatory, but civil plaintiffs were short-changed. ADM has undergone severe management restructuring, but the effectiveness of apprehending global cartels with national legal enforcement is questionable. © 1998 John Wiley & Sons, Inc.

Conspiracies and Secret Discounts in Laboratory Markets

This paper uses laboratory methods to evaluate whether price-fixing conspiracies break down in the presence of opportunities to offer secret discounts. The primary treatment difference is whether or not buyer-specific discounts from the posted list price are permitted. In standard posted-offer markets, conspiring sellers are able to find and maintain near-monopoly prices. But when the possibility of offering secret discounts is introduced, sellers are unable to sustain collusive agreements, and transactions prices fall to near-competitive levels. Secret discounts, however, do not yield consistent competitive outcomes when sellers are provided ex post information about sales quantities.

Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined

If there is a cartel agreement among a subset of firms in an industry, it should be predicted that all firms in that industry will increase prices. Nevertheless, industry prices alone should not indicate that a particular firm is guilty of that conspiracy. According to the output test and its market share variant if the output or the market share of the firm that claims to be innocent in the collusive activity rises in response to the price increase, that firm's claim should be accepted as true. Using a collusive variant of the dominant firm model, this paper shows that these are not robust tests to reveal innocence or guilt, and characterizes cases where they may pardon a guilty firm (Type I error) or indict an innocent firm (Type II error). This paper also shows that a market share test can not be used to prove a dominant firm's intent for predatory pricing.

Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined – Reply

Identifying Participants in a Price-fixing Conspiracy: Output & Market Share Tests Reexamined – Reply

The Global Lysine Price-Fixing Conspiracy of 1992-1995

Market structure and the corporate decision-making practices of several multinational corn refiners fostered implementation of the largest price-fixing conspiracies in modern times. These events have renewed the attention of U.S. antitrust authorities in prosecuting international cartels. Archer Daniels Midland (ADM) and its co-conspirators' direct overcharges to lysine buyers during 1992 through 1995 amounted to at least $70 million, and the total public penalties, private damages, and legal costs exceed $200 million. Price-fixing perpetrators now face monetary exposures five times the amount of the harm imposed on buyers.

The Social Organization of Conspiracy: Illegal Networks in the Heavy Electrical Equipment Industry

We analyze the social organization of three well-known price-fixing conspiracies in the heavy electrical equipment industry. Although aspects of collusion have been studied by industrial organization economists and organizational criminologists, the organization of conspiracies has remained virtually unexplored. Using archival data, we reconstruct the actual communication networks involved in conspiracies in switchgear transformers, and turbines. We find that the structure of illegal networks is driven primarily by the need to maximize concealment, rather than the need to maximize efficiency. However, network structure is also contingent on information-processing requirements imposed by product and market characteristics. Our individual-level model predicts verdict (guilt or innocence), sentence, and fine as functions of personal centrality in the illegal network, network structure, management level, and company size. People of the same trade seldom meet together but the conversation ends in a conspiracy against the public, or in some diversion to raise prices.

What is the effect of bid-rigging on prices?

This paper develops and applies a method for estimating the price effects of bid rigging and price fixing conspiracies. A fairly typical bid-rigging scheme is found to have raised prices by over 20% for over 4 years.