Cartel Prosecution Research Articles

DETERRENCE, RECIDIVISM, AND EUROPEAN CARTEL FINES

Based on an analysis of cartel prosecutions since 2007, this article assesses the way the European Commission has built up its fines in practice. The fines are compared with those imposed by the European Commission over the period from 1999 to 2006. The main findings are that, while fines have increased significantly, this trend is due not to harsher fines but to less generous reductions under the Commission's leniency program. In some areas, the European Commission has not followed its own guidelines—fines are generally lower than set out, the way recidivism is penalized is incoherent, and many aspects of the fining process are unexplained or redacted. Estimated fine-to-sales ratios together with new research on overcharges and detection rates suggest that fines may be closer to those for optimal deterrence than previously thought.

Deterrence, Recidivism and European Cartel Fines

Based on an analysis of cartel prosecutions since 2007, this article assesses the way the European Commission has built up its fines in practice. The fines are compared with those imposed by the European Commission over the period from 1999 to 2006. The main findings are that, while fines have increased significantly, this trend is due not to harsher fines but to less generous reductions under the Commission's leniency program. In some areas, the European Commission has not followed its own guidelines - fines are generally lower than set out, the way recidivism is penalized is incoherent, and many aspects of the fining process are unexplained or redacted. Estimated fine-to-sales ratios together with new research on overcharges and detection rates suggest that fines may be closer to those for optimal deterrence than previously thought. A subtantially revsied verion of the paper is published in the Journal of Competition Law and Economics, November 2011.

‘Wanted: Antitrust Criminals’: Criminalisation of Cartel Law with a Special View to Hungary

Due to the gradually spreading modern trends of the development of white-collar crimes in the field of business crime and – closely related to it – the criminalisation of the most serious antitrust violations (hardcore cartels), EU and the Member States' cartel policies seem to have reached a significant turning-point: it is to be decided quite soon whether the criminal prosecution and sanctioning of cartels in a general and unified manner is the way of the future for effective antitrust enforcement, or the current situation with mixed systems combining both administrative and criminal elements should further prevail. This article discusses the most fundamental advantages and difficulties of developing a generally criminalised cartel enforcement system, and raises some possible legislative alternatives for future development, with a special view to the development of the Hungarian regime.

When is an antitrust authority not aggressive enough in fighting cartels?

If an antitrust authority chooses an enforcement policy to maximize the number of successfully prosecuted cartels, when does that policy minimize the number of cartels that form? When the detection and prosecution of cartels is inherently difficult, it is found that an antitrust authority’s policy minimizes the number of cartels, as is socially desirable. However, when the detection and prosecution of cartels is not too difficult, an antitrust authority is not aggressive enough in that it prosecutes too few cartel cases.

FIGHTING CARTELS: AN APPLICATION OF ECONOMIC THEORY AND THE EFFECTS OF LENIENCY POLICIES

The paper focuses on the theory and practice of antitrust action in detecting and deterring cartels and analyzing the development of the modern leniency policy. Drawing from game theory and following the examination of the main conditions and reasons for cartel formation and sustainability and a statistical analysis of cartel prosecutions, our attempt is to show that leniency programs, accompanied by strong enforcement powers and effective sanctions, increase the inherent instability of cartels and therefore have proven to represent a functional and successful tool for detecting and punishing, as well as preventing the formation of anticompetitive agreements.

European Cartel Fines Under the 2006 Penalty Guidelines - A Statistical Analysis

This paper undertakes a statistical analysis of the fines imposed on 168 firms in 22 cartels prosecuted by European Commission under the 2006 Penalty Guidelines, leniency notice, settlement process, and the courts on appeals over the period 2007 to 2010. It looks closely at how the Commission built-up its fines based on the 2006 Penalty Guidelines. Among the main findings are - that fines are considerably less than provided for under the guidelines, that the average fine per firm has declined significantly since 2007, that repeat offenders are let off lightly, and that the Commission's published decision often redacted key information on the fining procedure.This is a companion paper to the updated assessment of cartel prosecutions and fines under the European Commission’s 1998 Penalty Guidelines for the earlier period 1998 to 2006 (http://ssrn.com/abstract=1016014).

MICROSOFT AND THE LIMITS OF ANTITRUST

Frank Easterbrook's 1984 article, The Limits of Antitrust, did not focus on public antitrust enforcement. Nevertheless, it expressed the kind of antitrust thinking that led the Antitrust Division of the U.S. Department of Justice, around the same time, to shift its resources to cartel prosecutions and away from big monopolization cases. The Microsoft case, filed in 1998, broke this pattern. I argue that the Division made this exception, and ultimately achieved a partial victory in the courts, because the relatively new economic theory of network effects seemed to make the filters Easterbrook proposed in 1984 less applicable in high technology markets like the ones in which Microsoft competed. In this article, I return to Easterbrook's filters and consider whether they offer a different perspective on the Division's decision to sue and the courts' eventual resolution of the case.

Multi-Market Collusion with Demand Linkages and Antitrust Enforcement

This paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand-related markets. We show that cartel prosecution can have a knock-on effect: desisting a cartel in one market reduces profits and cartel stability and leads to the break-up of the cartel in the adjacent market. Cartel prosecution can also have a waterbed effect: desisting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets. We also consider policy implications of our analysis regarding an antitrust authority's investment decision in cartel enforcement.

International Antitrust Enforcement and Multi-Market Contact

This paper analyzes international antitrust enforcement when multinational firms operate in several markets with antitrust authorities in each market. We are concerned with how the sustainability of collusion in one local market is affected by the existence of collusion in other markets when they are linked by demand relationships. The interdependence of collusion sustainability across markets leads to potential externalities in antitrust enforcement across jurisdictions. As a result, cartel prosecution can have a domino effect with the desistance of one cartel triggering the internal break-up of the cartel in the adjacent market. We further find that the equilibrium in antitrust authorities’ enforcement decisions may exhibit non-linearity due to a free-rider problem as the global economy is more integrated. We also analyze the equilibrium antitrust enforcement and compare it with the globally optimal antitrust enforcement policy.

European Commision Cartel Prosecutions and Fines, 1998-2006 - An Updated Statistical Analysis of Fines Under the 1998 Penalty Guidelines

This paper brings up to date an on-going statistical analysis of the fines imposed in cartel prosecutions commenced between 1998 and 2006 by the European Commission and courts on appeal under the 1998 Penalty Guidelines and completed to the end of October 2010. Based on an analysis of all 46 fully reported cartel decisions (which represent all the cartels prosecuted under the 1998 Penalty Guidelines) involving 63 cartels and 355 firms, the report examines how fines were calculated in practice under the guidelines, leniency notices, and adjusted by the European courts on appeal. This update includes additional analysis of the structure of fines, recidivism, appeals, and the duration of the European Commission's investigations.

Cartel Prosecution and Leniency Programs: Corporate versus Individual Leniency

The paper explores the interdependencies between corporate and individual leniency programs. In a duopoly model where corporations are separated into representing owners and operating managers, conflicts between the two types of agents arise if the relative benefits of participating in the corresponding leniency programs differ. As an example of what might cause differing relative benefits, the paper considers the inclusion of damage payments for owners which are not covered by the corporate leniency program. The main findings are: (1) Individual leniency applications are never observed. (2) Threats by managers to apply for individual leniency may, however, increase the owners' incentive to carry out corporate self-reports. (3) In other cases, the individual leniency program increases the owners' tolerance for cartel activity for two reasons: Either the corporate leniency program is sufficiently unattractive to the owners, or the owners rely on the option to apply for corporate leniency after the Antitrust Authority has opened a case. (4) Finally, the more distortion decreases, the more ineffective the individual leniency program becomes.

Leniency programs and cartel prosecution

We study the enforcement of competition policy against collusion under leniency programs, which give reduced fines to firms that reveal information to the Antitrust Authority. Leniency programs make enforcement more effective but they may also induce collusion, since they decrease the expected cost of misbehaviour. We show that in the optimal policy the former effect dominates, calling for leniency programs when the Antitrust Authority has limited resources. We also show that these programs should apply to firms that reveal information even after an investigation is started.

International Implications of US Antitrust in the George W. Bush Era

US antitrust policy under George W. Bush had a measure of continuity with that of earlier administrations. Prosecution of international cartels remained vigorous. The pattern of obtaining cooperation from other jurisdictions and emulation of US leniency strategies was expanded. As cartel prosecution continued, significant new issues arose concerning the scope of US extraterritoriality. A US circuit court diverged from other US courts by holding that even foreign purchasers may prosecute damage claims in US courts. A split in the circuits also developed concerning whether the Alcoa requirement of proof of substantial effect of foreign conduct applies only to the conduct of firms which do not sell their products directly in US commerce, or, as one court of appeal has recently held, applies to all foreign-owned firms who hold their price fixing meetings abroad. As the European Union and other jurisdictions have developed competition enforcement systems comparable to that of the United States, harmonisation has become a major American priority in regard both to procedural and substantive approaches. On the procedural front, the newly formed International Competition Network will be developing “best practices” in regard to merger control and competition advocacy. In regard to substantive policy, many US priorities, such as searching out cartels and major horizontal mergers while relegating distribution practice to lesser status, are being followed in the European Union and elsewhere. But the new US administration has reacted strongly to the European Union’s use of a leverage theory to condemn a proposed GE–Honeywell merger which the Americans found unobjectionable. It is not clear whether the two great powers will simply agree to disagree or the European Union will back away from some of the implications of its ruling. In regard to the issue of victims’ rights, US and EU policy is not coalescing, but US antitrust officials have not pressed the issue. US damage remedies against price fixers grow ever more varied, while DG IV has no plans at all to help cartel victims obtain recompense. In regard to the simmering issue of a WTO competition code, the United States has gained at least a postponement for a year or two, and the European Union has been stripping down its proposals to a relatively unobjectionable few.

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.

Leniency Programs and Cartel Prosecution

We study the enforcement of competition policy against collusion under Leniency Programs, which give reduced fines to firms revealing information to the Antitrust Authority. Such programs give firms an incentive to break collusion, but may also have a pro-collusive effect, since they decrease the expected cost of misbehaviour. We analyze the optimal policy under alternative rules and with homogeneous and heterogeneous cartels, obtaining a ranking of the different schemes and showing when the use of reduced fines may improve antitrust enforcement.

Identifying Cartel Policing under Uncertainty: The U. S. Steel Industry, 1933-1939

Identifying Cartel Policing under Uncertainty: The U. S. Steel Industry, 1933-1939

Why Should Manufacturers Want Fair Trade?

A LONG-STANDING puzzle to economists is that some manufacturers prefer that their products are sold at not less than "fair trade" retail prices.' Before the courts upset the legal status of resale price maintenance, some of these manufacturers spent millions to prevent distributors from selling their products below the list price. The manufacturers' interests seem to be best served when distributors resell their products under such competitive conditions as may exist at the level of distribution and at the lowest prices resulting from that competition. If manufacturers set a floor to the resale price then they also set a ceiling to their sales and thus apparently support a policy that runs counter to their own self-interest. Let the manufacturers fix a price at the factory gate at which all distributors may buy the product. Would not the manufacturers' sales and profits be greater the lower is the price at which distributors resell their products to consumers? If so, then what explains the strong desire of some manufacturers to prevent distributors from