The Deterrent Effects of National Anti-Cartel Laws: Evidence from the International Vitamins Cartel

Abstract

This paper estimates the effect on international trade flows during the 1990s of the formation of the vitamins cartel. After this cartel began operating, exports from countries where the cartel conspirators' headquarters were located to those nations in Asia, Western Europe, and Latin America that did not have active cartel enforcement regimes tended to rise in value more than in those nations that had such regimes. As industry studies suggest that the demand for vitamins is price inelastic, this finding is supportive of the hypothesis that the vitamins cartel raised prices further in nations without active cartel enforcement regimes. These findings also have implications for the cost-benefit analyses of anti-cartel laws. In nine economies in Western Europe and Latin America, where recent estimates of government outlays on competition policy enforcement were found, these expenditures were compared to the additional overcharges on vitamins imports that would have resulted if each of these nations did not have an active cartel enforcement regime. In seven of the nine economies, the reduction in overcharges on this one international cartel alone exceeded a quarter of their government's spending on the entire competition policy enforcement regime. These findings have a direct bearing on the debate, currently taking place at the World Trade Organization, on the merits of multilateral disciplines that would require all WTO members to enact and enforce provisions against hard core cartels.