Cartel deterrence through cartel enforcement – a discussion of recent research

With the buzz surrounding the EU Commission’s recent Android decision (read about our take on it here) still very much ongoing, we will turn our focus to something a little different this week. This post discusses a recently published articleDoes enforcement deter cartels? A tale of two tails’ by Iwan Bos, Stephen Davies, Joseph E. Harrington Jr, and Peter L. Ormosi. The article, published in the International Journal of Industrial Organization, presents evidence that cartel enforcement is in fact deterring illegal cartels from either charging notably higher prices than the firms would have without the cartel or from forming an illegal cartel in the first place.
This is an article worth pointing out and worth reading. The theory and evidence in the article can be considered as further justification of the competition authorities’ enforcement policies; furthermore, this post argues that the authors’ approach could lead, in subsequent steps, to notable improvements in the efficiency of international cooperation between competition authorities. The paper is mainly an economics and not law-focussed one, which is suitable and necessary for the question the authors ask. However, this post will not try to comprehensively summarize the authors’ propositions and tests. Instead, this post will highlight the main ideas and focus on the possible further implications of this research, leaving the article itself for the readers of this blog to explore.

The paper’s approach and main findings

While there is plenty of evidence that cartel enforcement is effective in finding and terminating illegal cartels, the authors’ main question is whether the existence of (presumably effective) cartel enforcement has any effect on preventing cartels from forming in the first place or on the level of prices members of an illegal cartel can overcharge because of their collusion.
The hypothesis the authors seek to test in their paper is, indeed, that cartel enforcement has this effect both on deterrence as well as on the overcharged prices.

The authors approach this question by comparing historical data on (detected) illegal cartels and legal cartels, such as cartels which were exempted from competition law or which happened at a time or in a jurisdiction without any competition law system in place. Their idea is that there should be no difference in the amount and level that legal and illegal cartels overcharge customers, if enforcement against illegal cartels does actually have no impact.
They ultimately find that there is in fact a difference between prices charged by legal and by illegal cartels – both low level and high-level price increases are more likely in cartels which are legal than in illegal ones. Charging only marginally higher prices in an illegal cartel may not be ‘worth’ the risk of fines for illegal cartels and charging markedly higher prices may be unattractive to illegal cartels, as it increases the risk of detection.

The authors are aware of a number of potential biases which might skew the results they found, such as, for instance, the fact that undetected illegal cartels can of course not be included in their data sample and may show rather different result, or that competition authorities may be tempted to focus on prosecuting cases in which particularly high price increases were charged by an illegal cartel, rather than ‘low overcharge cases’ (which is an interesting thought for a different time). The paper’s last substantive section is devoted to these potential biases and shortcomings and manages to either disarm them or at least show the advantage of the test developed in their paper, namely the fact that it integrates and explains both high and low overcharges.

Comment and further implications

Deterrence is one of the most important arguments competition authorities use in their policy. It is the reason for setting high level of fines (see eg here, p. 6) and it is (arguably) a reason for embracing individual sanctions (regarding criminal sanctions see eg here, point D), or leniency programmes, to some degree (see eg here). The reason is clear: even a cartel which is detected and terminated at some point, irrelevant by which mechanism, will have led to unnecessary costs for consumers. Deterrence is the only way competition policy can prevent any harm from occurring in the first place.
The test the paper by Bos et al. develops is an important contribution to the competition authorities’ efforts and helps prove what has long been claimed by the authorities. It gives further justification to those policies that focus on deterrence, rather than detection.

The authors are humble in the last lines of their paper, calling their findings ‘preliminary, rather than conclusive’ and with regard to other factors which may have an impact on the price levels other than deterrence, they may be right and certainly most aware of the shortcomings of their own research.
However, the foundation their research builds is an important one, which should not be sold too short. Using their test to prove that cartel enforcement can contribute to deterrence of illegal cartels forming in the first place or deterrence from charging markedly higher prices as starting point could, in subsequent steps, encourage a closer look at the different measures used by competition authorities of different jurisdictions to deter cartels from forming, such as fines of different turnover %-levels, the possibility of criminal sanctions, or the impact of how easy private damages can be recovered. As the authors point out, there is little quantitative work on the effect of enforcement on deterrence as such to begin with. At some point, research into developing further prove on the deterrence effect of different measures could significantly influence the measures different competition authorities choose or introduce in order to more effectively deter cartels within their jurisdiction. Further, and this features to a small degree in the article discussed here, the test developed as well as possible subsequent tests offer a means of better comparing between jurisdictions and how effective their enforcement efforts are. On a grander scale, these tests could help shape the collaboration in international competition organizations, such as the ECN or ICN, as well as influence the shaping of new or young competition law systems in developing countries. One can only hope that the authors’ call for ‘further empirical work’ is answered and further research is built on their findings.




Anja Naumann

Blog Editor

Graduate Teaching Associate, Queen Mary University, London

>> Anja’s CoRe Blog posts >>

Hinterlasse eine Antwort

Ähnliche Beiträge

06. Apr 2020
Features von Rita Paukste

EURIBOR Cartel: Features of Collusion and Detection of Cartel

A colleague of mine (kudos for you know who you are) once told me that in his competition law class he has a part called “how to make a good cartel?” A thought-provoking academic exercise in many aspects, indeed. When analyzing cartels in the financial sector this popped in mind to raise other questions – how participants in cartels in […]
16. Mrz 2020
Features von Friso Bostoen

Corona and EU economic law: Antitrust (Articles 101 and 102 TFEU)

By Friso Bostoen and Liesbet Van Acker As the corona pandemic instils more and more fear in the population, some of its economic effects are immediately noticeable. Two items—hand sanitizer and facemasks—have been in particularly high demand (and short supply). This has driven prices up to a level where one may wonder whether they are abusive in the sense of […]
17. Okt 2019
Features von Rita Paukste

Competition law and public procurement – an easy catch for competition enforcers?

If you ask what the common recent trends are among EU Member States in competition law enforcement, the answer surprisingly (or not) would be related not to digital economies but to public procurement. Lately national competition authorities had quite a fruitful harvest investigating competition law infringements in public procurement markets. Among them are, for example, the French, Italian, Dutch, Hellenic, […]
19. Jun 2019
Case Digests von Kiran Desai

2018:773 Infineon Technologies AG v European Commission

  Court Court of Justice Date of ruling 26 September 2018 Case name (short version) Infineon Technologies AG v European Commission Case Citation C-99/ 17 P ECLI:EU:C:2018:773 Key words Appeal — Agreements, decisions and concerted practices — European market for smart card chips — Network of bilateral contacts — Exchanges of commercially sensitive information — Challenge of the authenticity of […]
05. Jun 2019
Features von Rita Paukste

Collusive conduct in financial instruments trading: a look at the issues of dealing via chatrooms

Following the benchmark currency rate manipulation scandal, the banking sector has had no chance to restore their reputation. Lately, major EU banks have been having competition law issues because of their traders’ collusive behaviour in the bond and global foreign exchange (FX) markets. Two Statements of Objections concerning bond cartels and collusive conduct by certain traders have been issued recently […]
11. Apr 2019
Features von Damiela Cardoso

The principle of personal liability in the context of private enforcement: is there anything new under the sun?

On March 14th, the Court of Justice of the European Union (CJEU) issued a ruling on a private enforcement case and lifted the veil of some of the unsettled and non-harmonised issues the Damages Directive failed to tackle. They can be shortly summarised in the following questions: who should be liable for antitrust damages and how can such liability be effectively enforced? On February […]
11. Feb 2019
Case Digests von Lexxion Publisher

2017:1008 Trioplast Industrier v Commission

  Court Court of Justice Date of ruling 20 December 2017 Case name (short version) Trioplast Industrier v Commission Case Citation ECLI:EU:C:2017:1008 C-364/16 P Key words Appeal — Agreements, decisions and concerted practices — Market in industrial plastic bags — Formal notice from the European Commission to the appellant for the payment of default interest on the amount of the […]
18. Okt 2018
Features von Michiel Verhulst

The BritNed v ABB Case: private enforcement pur sang

Private enforcement of competition law, particularly with regard to cartel damages claims, has been a highly debated topic since the seminal ECJ decision Courage v Crehan in 2001 (e.g. here and here). Together with the Netherlands and Germany, the UK is traditionally put forward as one of the main fora to introduce a damages action based on a competition law infringement. However, it was only […]
29. Jun 2018
Features von Anja Naumann

The German cement cartel – a landmark decision for private damages actions

The German cement cartel has been occupying German courts of all levels for some time. From the feasibility of the assignment of claims to a third party (see here), or a reduction of fines by nearly 50% by the Higher Regional Court Düsseldorf (OLG Düsseldorf; in German see here) to the recent decision of the Federal Court of Justice (Bundesgerichtshof […]
07. Jun 2018
Features von Daniel Mandrescu

When Algorithmic Pricing meets Concerted Practices- the case of Partneo

Algorithmic collusion, algorithmic cartels, AI price fixing cartels and many other pseudo computer science themes have become a source of great interest for competition law authorities, practitioners and academics. The allure of these topics is understandable; the idea that cartels can come into existence without human intervention is a fascinating matter despite the fact that fully automated (not to mention […]

Nutzen Sie unseren Newsletter, um sich regelmäßig über Konferenzen, Workshops, Trainings und die  neuesten Ausgaben unserer Fachzeitschriften u.a. aus den Bereichen des europäischen Wettbewerbs- und Vergaberechte, Datenschutzrechte, Abfallrecht, Umwelt- und Planungsrecht sowie Chemikalien- und Pharmarecht zu informieren.

Verpassen Sie keine Events und Publikationen. Neuigkeiten abonnieren