Private Cartels Research Articles

Free Press, Regulated Competition

This paper examines newspaper cartels, a largely unoccupied field in media history, from the perspective of longevity. We analyse Finnish newspaper industry from the 1910s to 1970s and show that newspapers sought to regulate various aspects of competition, such as subscription prices, advertisement tariffs, and newsprint prices. Data indicates that political rivalry shaped the newspaper cartel collaboration until late 1950s: the cartel was set up by right-wing and centrist papers and, unlike in other Nordic countries, the Social Democratic press remained outside of the association until 1958. Political shocks of the Finnish Civil War in 1918 and the Second World War also changed the composition of the cartel. The era of private cartels in the newspaper industry gradually started to fade away as a result of anti-cartel laws in the 1960s and governmental anti-inflation measures in the 1970s. We conclude that the economics of newspaper industry and the cartelisation of the wider business environment, newsprint suppliers in particular, encouraged newspapers to co-operate with each other. The results of this article increase the understanding on the collaborative and competitive environment of newspaper companies, but also contributes to broader questions on cartels and their inner dynamics.

The interplay between leniency programmes and private enforcement: the economist perspective on recent policy proposals

Leniency policies grant substantial fine reductions to firms that disclose their former participation in a cartel. Such policies may, thereby, destabilize existing cartels and disincentivize the formation of new ones. Alternatively, some argue that they might have the opposite effect of incentivizing collusion by reducing the punishment for former cartel participants, thereby raising the collusive payoff. The overall decline in leniency applications in the European Union since 2014 calls for an analysis of the interplay between the 2006 Leniency Policy and other competition policies, most notably the 2014 Damages Directive. This article discusses the interaction between these two competition policy tools, arguing that the liability of immunity recipients in follow-on damage claims tends to stabilize cartels, and assesses several proposals that aim to ensure that public and private cartel enforcement tools are more in sync.

Mediating Between Public and Private Enforcement in Multi-Jurisdiction Settings

Private enforcement was built into many competition statutes from the start, or uncovered by the courts early in the life of the regime. Many aspects of private cartel enforcement impact on public enforcement, and vice versa. The relationship between public and private enforcement is complex and multifaceted. However, most examinations of the relationship tend to take public enforcement as given and examine the additional role that private enforcement can and should play. The answer is usually greater deterrence of cartel conduct or compensation for harms suffered by the victims of cartel conduct.

The Impact of EU Cartel Policy Reforms on the Timing of Settlements in Private Follow-On Damages Disputes: An Empirical Assessment of Cases from 2001 to 2015

Private cartel damages litigation is on the rise in Europe since early 2000. This development has been initiated by the European courts and was supported by various policy initiatives of the European Commission, which found its culmination in the implementation of the EU Directive on Antitrust Damages end of 2016. This paper explores the impact of this reform process on effective compensation of damaged parties of cartel infringements. For that purpose we analyse all European cartel cases with a decision date between 2001 and 2015, for which we analyse litigation activity and speed. Overall, we find a substantial reduction of the time until first settlement (increase in litigation speed) together with a persisting high share of cases being litigated (high litigation activity). This supports the view that the reform not only increased the claimant’s expectation about the amount of damages being awarded, but also resulted in an alignment in the expectations of claimants and defendants in the final damages amount, i.e. the European Commission succeeded in reaching its objective to clarify and harmonize legal concepts across Europe.

Measuring Antitrust Damages in the Presence of Foreign Government Regulation

The U.S. Supreme Court on June 14, 2018, reversed the Second Circuit’s 2016 decision to vacate a $147 million judgment against two Chinese companies, who allegedly fixed vitamin C prices. The high court held that courts should give foreign governments’ statements “respectful consideration” but are not bound by another country’s description of its own laws. Going forward, courts will need to evaluate a foreign government’s statements when defendants claim a contradiction between U.S. law and foreign regulations as a defense. When government regulation and private cartelization overlap, complications arise because the foreign companies may be liable for their anticompetitive conduct that was beyond the requirement of and might even have influenced foreign government policies. Using two illustrative cases ( In Re Vitamin C Antitrust Litigation and Resco Products v. Bosai Minerals), we analyze the impact of the price floor and export quotas and propose a new, workable methodology for measuring antitrust damages attributable to the private cartel in the presence of foreign regulation.

The Interaction of Public and Private Cartel Enforcement

The prohibition of cartels is enforced by both public and private legislation, which may interact in a way that reduces their effectiveness. This article investigates these interaction effects specifically for the leniency programme and civil damages claims, by means of a conjoint analysis. Dutch companies and competition lawyers were faced with different enforcement situations containing a mix of public and private enforcement elements and were asked in which case they were most likely to apply for leniency. Their answers are analysed with a nested logit model, allowing for the possibility that respondents would continue the cartel in either of the presented enforcement situation. For firms, the corporate and personal fine and the fine reduction mattered in deciding to apply for leniency. Competition lawyers took the fine reduction, disclosure of leniency and burden of proof into account when advising on self-reporting the agreement. Both groups of respondents answered that in 16–19% of the situations they would continue the agreement and not apply for leniency/advice to so do (The authors thank the participating economists of the Dutch Competition Authority for their input and suggestions. Special thanks to Dr Ron Kemp, the competition lawyers who were willing to discuss the research results with the authors, prof. Dr Barbara Baarsma and prof. Dr Bas ter Weel.).

Public Goods Provision by a Private Cartel

Public Goods Provision by a Private Cartel

NC Dental Antitrust Professors Amicus Brief

Petitioner advocates a radical change in this Court’s precedent on antitrust state action immunity, which has consistently held that financially-interested market participants must be treated as private actors, regardless of whether the state makes them a state agency. Under Petitioner's logic, a state instead can, by the simple expedient of calling market actors a state agency and giving them authority to enforce their cartel, immunize that private cartel and effectively repeal the operation of federal antitrust law. This sort of inverse preemption of federal antitrust law by states has never been permitted by this Court. Petitioner mischaracterizes the cases it claims support its position, which in fact have never given state action immunity to financially-interested market participants unless they are actively supervised by disinterested government actors, and ignores or mischaracterizes other cases that plainly hold the contrary.In recent decades, the states have created a host of new licensing boards made up of market participants with strong incentives to restrain trade. See Aaron Edlin & Rebecca Haw, Cartels By Another Name: Should Licensed Occupations Face Antitrust Scrutiny? 162 U. Penn. L. Rev. 1093 (2014). Occupational licensing, once limited to a few licensed professions, is widespread and growing -- from 5% of the U.S. workforce in the 1950s, to 15% in the 1970s, to 30% today. Occupational licensing has been abused by incumbent market participants to exclude rivals, often in unreasonable ways, and to raise prices. This disturbing trend already costs consumers billions of dollars every year and impedes job growth, and the trend would get much worse if the Court were to accept Petitioner’s argument and hold that financially-interested market participants enjoy antitrust immunity whenever the state empowers them as a state agency.Even if the North Carolina board members were not themselves financially-interested market participants, the fact that they were all elected to their positions by financially-interested market participants should suffice to treat the board as private. After all, if a private cartel paid an employee a flat salary to fix prices for it, the fixed prices would predictably reflect the cartel’s financial interests even though the employee was not a market participant and had no direct financial interest in the prices set. Thus, election by financially-interested market participants should always be treated as sufficient to treat a board as private, although such election is not necessary for such treatment when (as here) the board members are themselves financially-interested market participants. Sufficiency, should not, however be confused with necessity. Because state boards dominated by financially-interested market participants are almost always appointed, if the Court changed current law to make election by market participants necessary to lose immunity, it would leave the foxes to guard the henhouse for a large fraction of the workforce.

The New (Commercial) Open Source: Does it Really Improve Social Welfare?

The number of open source (“OS”) software projects has grown exponentially for at least a decade. Unlike early open source projects, much of this growth has been funded by commercial firms that expect to earn a profit on their investment. Typically, firms do this by selling bundles that contain both OS software and proprietary goods (e.g. cell phones, applications programs) and services (custom software). We present a general two-stage Cournot model in which arbitrary numbers of competing OS and closed source (“CS”) firms decide how much software to create in Stage 1 and how many bundles to supply in Stage 2. We find that the amount of OS software delivered depends on (a) the degree of substitutability between proprietary products, (b) the number of OS and CS firms competing in the market, and (c) the savings available to OS firms from cost-sharing. However, code-sharing also guarantees that no OS firm can offer better software than any other OS firm. This suppresses quality competition between OS firms and restricts their output much as an agreement to suppress competition on quality would. Competition from CS firms weakens this quality-cartel effect, thus mixed industries often offer higher welfare. We find that Pure-OS (Pure-CS) markets are sometimes stable against CS (OS) entry so that the required OS/CS state never occurs. Even where mixed OS/CS industries do exist, moreover, the proportion of OS firms needed to stabilize the market against entry is almost always much larger than the target ratio required to optimize welfare. We examine various policy options for addressing this imbalance with tax policy, funding of OS development, and procurement preferences. We find that the first-best solution in our model is to tax OS firms and grant tax breaks to CS firms. Conversely, government policies that fund OS development or establish procurement preferences for OS software actually increase the gap between desired and actual OS/CS ratios still further. Despite this, funding OS development can still improve welfare by boosting total (private government) OS investment above the levels that a private cartel would deliver.

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.

FACTORS INFLUENCING THE MAGNITUDE OF CARTEL OVERCHARGES: AN EMPIRICAL ANALYSIS OF THE U.S. MARKET

Using the overcharge estimates for 333 cartel episodes, we evaluate the effect of cartel characteristics and changes in the market and legal environment on the magnitude of overcharges imposed by private cartels in the United States and other geographic markets as early as the eighteenth century. The median overcharge attained by cartels represented in our sample is 18 percent of selling price. International cartels imposed higher overcharges than domestic cartels. Longer cartel episodes generated higher overcharges. Overcharges achieved in the United States and European markets were lower than overcharges imposed in the Asian markets and in the rest of the world. Overcharges tended to decline as antitrust enforcement became stricter. Higher overcharges were associated with markets where cartels had high market shares and with markets characterized by high levels of fixed costs.

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.

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.

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.

International Cartel Enforcement: Lessons from the 1990s

The enforcement record of the 1990s has demonstrated that international private cartels are neither relics of the past nor do they always fall quickly under the weight of their own incentive problems. Of a sample of forty cartels prosecuted by the United States and European Inion in the 1990s, twenty‐four cartels lasted at least four years. And for the twenty of the cartels in this sample where sales data are available, the annual worldwide sales in the affected products exceeded US$30 billion. Prevailing national competition policies are oriented towards addressing harm done in domestic markets, and in some cases merely prohibit cartels without taking strong enforcement measures. In this paper we propose a sequence of reforms to national policies and to international cooperation that will strengthen the deterrents against international cartels. Furthermore, aggressive prosecution of cartels must be complemented by vigilance in other areas of competition policy. If not, firms will respond to the enhanced deterrents to cartelisation by merging or by taking other measures that lessen competitive pressures.

THE FAILURE OF GOVERNMENT‐SPONSORED CARTELS AND DEVELOPMENT OF FEDERAL FARM POLICY

While economists recognize that private cartels are difficult to sustain, they are too sanguine about the prospects for government‐assisted cartels. Although the state's coercive power would seem to make it an effective enforcer of cartel agreements, the political costs of enforcement can be high of segments of the industry resist. The government's solution lies in alternative strategies for raising prices. Examining government efforts to organize an orange cartel in the 1930s, we find that farmers' opposition to output cuts and quota assignments because of their distributional effects forced a policy she to purchases of “excess stocks.”

Anti‐antitrust: Ideology or economics? Reply to Scherer

F.M. Scherer has not effectively rebutted my subjectivist criticism of the standard microeconomic welfare model; Scherer's historical reference to what Congress (allegedly) believed is irrelevant to the theoretical concerns raised by subjectivism. Nor does my “principal” criticism of antitrust policy rests on “philosophical foundations”; my principal criticism rests on conventional economic analysis and a detailed economic history of the classic antitrust cases. My conclusion that the electrical equipment conspiracy of the late 1950s had no significant effect on market prices is supported by Ralph Sultan's findings; indeed, it is Scherer who brutally ignores the context and misrepresents the general thrust of Sultan's research. Scherer's comments on OPEC confuse the distinction that I made between private and governmental cartels. Finally, the economic welfare model that Scherer embraces so enthusiastically at the start of his review cannot be so suddenly discarded when I show something inconvenient: name...

Document A brief Review of Department of Justice Policy regarding the Criminal Prosecution of Price Fixing, Bid Rigging and other Private Cartel Activity

<i>Document</i> A brief Review of Department of Justice Policy regarding the Criminal Prosecution of Price Fixing, Bid Rigging and other Private Cartel Activity

Issues in shipping’s future

This paper examines the need for liner conferences, or cartels, in international shipping, and compares investment in shipping to investment in housing, an industry which is not usually organized into private cartels. Then the paper discusses how the quantity of goods being shipped is likely to grow in the future, and how that growth can be expected to affect shipping conferences.

The Lighthouse in Economics

The Lighthouse in Economics