International Price-Fixing Cartels and Developing Countries: A Discussion of Effects and Policy Remedies

The U.S. Department of Justice, the European Commission, and the Organization for Economic Cooperation and Development have all recently voiced concern about international price- fixing cartels. The U.S. and European Union have increased prosecution of international cartels in the past decade, but very few developing countries have made similar enforcement efforts. If these cartels have significant effects on developing country consumers and producers, the lack of antitrust prosecutions by developing countries against these cartels is an important problem. Geographically limited prosecut ions may not provide sufficient disincentives to deter collusion that has worldwide benefits for colluding firms. Ongoing prosecutions of international cartels by industrialized countries may open up markets for entry by developing country producers, but these efforts may be undermined if cartels create durable barriers to entry. Western governments are also susceptible to manipulation by domestic producers using tariff barriers and anti- dumping duties to protect the home market, both during and after the price- fixing conspiracy. Thus, developing countries may need to develop their own antitrust laws and enforcement capabilities to help deter international cartel activity. A recent ruling of the Second Circuit Court of Appeals also opens up the possibility that developing country consumers may be able to exact remedies in U.S. courts. In this paper we examine the possible effects of private international cartels on developing countries by looking in detail at three recent cartel cases, as well as at a broader cross- section of forty- two recently prosecuted international cartels. We discuss the indirect effects on developing country producers, either as competitors or co- conspirators, as well the direct effects of cartels on developing country consumers. By combining trade data with a sample of US and European prosecutions of international cartels in the 1990s, we are able to make a first attempt at quantifying the order of magnitude of the consequences of these cartels on developing countries as consumers. In 1997, the latest year for which we have trade data, developing countries imported $54.7 billion of goods from a sub - sample of 19 industries that had seen a price- fixing conspiracy during the 1990s. These imports represented 5.2% of total imports and 1.2% of GDP in developing countries.http://deepblue.lib.umich.edu/bitstream/2027.42/39923/2/wp538.pd

International Price-Fixing Cartels and Developing Countries: A Discussion of Effects and Policy Remedies

The U.S. Department of Justice, the European Commission, and the Organization for Economic Cooperation and Development have all recently voiced concern about international price-fixing cartels. The U.S. and European Union have increased prosecution of international cartels in the past decade, but very few developing countries have made similar enforcement efforts. If these cartels have significant effects on developing country consumers and producers, the lack of antitrust prosecutions by developing countries against these cartels is an important problem. Geographically limited prosecutions may not provide sufficient disincentives to deter collusion that has worldwide benefits for colluding firms. Ongoing prosecutions of international cartels by industrialized countries may open up markets for entry by developing country producers, but these efforts may be undermined if cartels create durable barriers to entry. Western governments are also susceptible to manipulation by domestic producers using tariff barriers and anti-dumping duties to protect the home market, both during and after the price-fixing conspiracy. Thus, developing countries may need to develop their own antitrust laws and enforcement capabilities to help deter international cartel activity. A recent ruling of the Second Circuit Court of Appeals also opens up the possibility that developing country consumers may be able to exact remedies in U.S. courts. In this paper we examine the possible effects of private international cartels on developing countries by looking in detail at three recent cartel cases, as well as at a broader cross-section of forty-two recently prosecuted international cartels. We discuss the indirect effects on developing country producers, either as competitors or co-conspirators, as well the direct effects of cartels on developing country consumers. By combining trade data with a sample of US and European prosecutions of international cartels in the 1990s, we are able to make a first attempt at quantifying the order of magnitude of the consequences of these cartels on developing countries as consumers. In 1997, the latest year for which we have trade data, developing countries imported $54.7 billion of goods from a sub-sample of 19 industries that had seen a price-fixing conspiracy during the 1990s. These imports represented 5.2% of total imports and 1.2% of GDP in developing countries.

Evaluating Leniency with Missing Information on Undetected Cartels: Exploring Time-Varying Policy Impacts on Cartel Duration

This paper examines the effects of European Commission’s (EC) new leniency program on the EC’s capabilities in detecting and deterring cartels. As a supplementary analysis, the US leniency is studied. I discuss a dynamic model of cartel formation and dissolution to illustrate how changes in antitrust policies and economic conditions might affect cartel duration. Comparative statics results are then corroborated with empirical estimates of hazard functions adjusted to account for both the heterogeneity of cartels and the time-varying policy impacts suggested by theory. Contrary to earlier studies, my statistical tests are consistent with the theoretic predictions that following an efficacious leniency program, the average duration of discovered cartels rises in the short run and falls in the long run. The results shed light on the design of enforcement programs against cartels and other forms of conspiracy

International Cartel Enforcement: Lessons from the 1990s

The enforcement record of the 1990s has demonstrated that private international 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 such cartels prosecuted by the United States and European Union in the 1990s, twenty-four lasted at least four years. And for the twenty cartels in this sample where sales data are available, the annual worldwide turnover in the affected products exceeded US$30billion. 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 series of reforms to national policies and steps to enhance international cooperation that will strengthen the deterrents against international cartelization. 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 cartelization by merging or by taking other measures that lessen competitive pressures.

International Price-Fixing Cartels and Developing Countries: A Discussion of Effects and Policy Remedies

We examine the possible effects of private international cartels on developing countries by looking in detail at three recent cartel cases, as well as at a broader cross-section of 42 recently prosecuted international cartels. We discuss the indirect effects on developing country producers, either as competitors or co-conspirators, as well the direct effects of cartels on developing country consumers. By combining trade data with a sample of US and European prosecutions of international cartels in the 1990s, we are able to estimate the order of magnitude of the consequences of these cartels on developing countries as consumers. In 1997, the latest year for which we have trade data, developing countries imported $54.7 billion of goods from a sub-sample of 19 industries that contained a price-fixing conspiracy during the 1990s. These imports represented 5.2% of total imports and 1.2% of GDP in developing countries.

Evaluating Leniency with Missing Information on Undetected Cartels: Exploring Time-Varying Policy Impacts on Cartel Duration

This paper examines the effects of European Commission’s (EC) new leniency program on the EC’s capabilities in detecting and deterring cartels. As a supplementary analysis, the US leniency is studied. I discuss a dynamic model of cartel formation and dissolution to illustrate how changes in antitrust policies and economic conditions might affect cartel duration. Comparative statics results are then corroborated with empirical estimates of hazard functions adjusted to account for both the heterogeneity of cartels and the time-varying policy impacts suggested by theory. Contrary to earlier studies, my statistical tests are consistent with the theoretic predictions that following an efficacious leniency program, the average duration of discovered cartels rises in the short run and falls in the long run. The results shed light on the design of enforcement programs against cartels and other forms of conspiracy.

Voting in Cartels: Theory and Evidence from the Shipping Industry

We examine the choice of voting rules by legal cartels with enforcement capabilities in the presence of uncertainty about demand and costs. We show that cartels face a trade-off between the commitment advantages of more stringent majority requirements and the loss of flexibility resulting from them. Expected heterogeneity in costs or demand conditions leads away from simple majority toward more stringent rules, while larger membership to the cartel leads away from unanimity toward less restrictive rules. Evidence from the shipping conferences of the late 1950s largely supports our model. With few firms, the rule favored by heterogeneous conferences is unanimity. In larger cartels, the favored rule is either 2/3 or 3/4-majority rule.

International cartel enforcement : lessons from the 1990s

The enforcement record of the 1990s shows that private international cartels are not defunct--nor do they always fall quickly under the weight of their own incentive problems. Of a sample of 40 such cartels prosecuted by the United States and the European Union in the 1990s, 24 lasted at least four years. And for the 20 cartels in this sample where sales data are available, the annual worldwide turnover in affected products exceeded $30 billion. National competition policies address harm in domestic markets, and in some cases prohibit cartels without taking strong enforcement measures. The authors propose a series of reforms to national policies and steps to enhance international cooperation that will strengthen the deterrents against international cartelization. Furthermore, the authors argue that 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 cartelization by merging or by taking other measures that lessen competitive pressures.Legal Products,Environmental Economics&Policies,Microfinance,Economic Theory&Research,Small Scale Enterprise,Environmental Economics&Policies,Economic Theory&Research,Legal Products,Microfinance,Private Participation in Infrastructure

Cartel Duration and Endogenous Private Monitoring and Communication: An Instrumental Variables Approach

Colluding firms often exchange private information and make transfers within the cartels based on the information. Estimating the impact of such collusive practices— known as the “lysine strategy profile (LSP)”— on cartel duration is difficult because of endogeneity and omitted variable bias. I use firms’ linguistic differences as an instrumental variable for the LSP in 135 cartels discovered by the European Commission since 1980. The incidence of the LSP is not significantly related to cartel duration. After correction for selectivity in the decision to use the LSP, statistical tests are consistent with a theoretic prediction that the LSP increases cartel duration

Collusion and Durability

We develop a model to show that cartels that produce goods with lower durability are easier to sustain implicitly. This observation gen- erates the following results: 1) implicit cartels have an incentive to pro- duce goods with an inefficiently low level of durability; 2) a monopoly or explicit cartel is welfare superior to an implicit cartel; 3) welfare is non-monotonic in the number of firms; 4) a regulator may demand inefficiently high levels of durability to prevent collusion