Newsletter
Suscríbete a nuestro Newsletter y entérate de las últimas novedades.
https://centrocompetencia.com/wp-content/themes/Ceco
In April of this year, the platform specialized in competition law and economics, Concurrences, granted the “Antitrust Writing Awards” to the best academic articles on competition law published during 2024. These awards cover various categories of competition law, such as general economics, collusive practices, unilateral conduct, mergers, intellectual property, private enforcement, digital, and cross-border issues.
At CeCo, with the aim of disseminating the discussions and analyses offered by these articles among practitioners and academics in our region, we took on the task of reviewing and summarizing most of the awarded papers that have —or could have— an impact in Latin America.
This note refers to the article “Polycentric governance in collusive agreements”, authored by Wolfgang Benedikt Schmal, Postdoctoral Researcher of the Department for Economic Sciences and Media in Ilmenau University of Technology, Germany. This paper won the Readers’ Choice in the “concerted practices” category.
Collusive agreements between firms, commonly known as cartels, are typically understood through the lens of price-fixing and market allocation schemes. However, this perspective often overlooks the internal governance structures that sustain such illegal collaborations. In fact, cartel case studies typically describe enforcement mechanisms but rarely detail how decisions are made.
Large cartels often operate across multiple countries, economic sectors, and organizational levels. This creates a polycentric structure where different agents—top executives, regional managers, legal advisors—exercise varying degrees of autonomy.
In that context, polycentric governance, a concept rooted in public administration and Ostromian institutional theory, refers to systems with multiple, overlapping decision-making centers. When applied to corporate cartels, it helps explain how firms coordinate without formal contracts and manage internal complexity despite the illegality of their agreements.
Schmal identifies three key dimensions in polycentricity: (i) multiplicity of decision centers; (ii) overlapping rule systems; (iii) and spontaneous order through decentralized communication and ad hoc norm enforcement. Those dimensions, that can also be labeled as the ‘structure’, ‘process’ and ‘outcome’ of a governance system, are reviewed by the author, in order to determine how corporate cartels relate to the concept of a polycentric governance. The author also argues that a failure in any of these three dimensions of a polycentric system can lead to a collapse in the cartel’s structure.
Polycentric governance requires active participation of diverse opinions and autonomous decision-making layers. Applied to cartels, it means, by one hand, that firms communicate their needs and strategies to maximize joint profits, including sales and profit targets, which allows an equilibrium behavior.
By other hand, regarding autonomous decision-making, evidence shows that cartel agreements are formed by top-level boards but monitored and reviewed by agents at lower levels, revealing multiple decision centers with some autonomy. Despite a hierarchy, firms individually decide whether to comply or deviate from agreements, highlighting autonomy within firms as decision units. The cartel’s stability depends on its weakest member, giving small firms significant influence. Therefore, the the power distribution in cartels can be understood as ‘primus inter pares’ (‘first among equals’), creating a mutually assured destruction dynamic and polycentric power due to the cartel’s illegal status.
In a polycentric structure, there is an overlapping system of rules, both concerning the jurisdictions applicable to the business activities carried out by cartel members and the internal rules governing the behavior of firms within the agreement. This implies that the firms define (by majority decision) the internal rules that govern the cartel, such as its goals and objectives, or the sanctions for deviation from the agreement.
Polycentric governance involves spontaneous order and evolutionary competition, focusing on entry, exit, and information. Entry includes how firms initially form cartels and how they handle new or excluded competitors. Exit refers to firms leaving cartels, either by deviating or reporting to authorities; while leniency programs reduce legal risks, private damage claims remain a deterrent, making silent exits appealing and potentially stabilizing cartels. Lastly, information sharing—whether public or private—is essential, involving data on sales, production, and future expectations among cartel members.
To empirically test author’s institutional hypotheses, Schmal constructs and analyzes a unique dataset comprising 191 cartel decisions across OECD jurisdictions between 2012 and 2018. This empirical foundation allows him to investigate how internal governance patterns—particularly in terms of scale, sanction distribution, and external facilitation—affect the durability and visibility of collusive practices. The findings shed light on three critical aspects of cartel behavior: the relationship between size and duration, the distribution of sanctions across cartel structures, and the role of third-party involvement.
– Contrary to standard models that suggest large cartels are more unstable due to high defection risks, the data reveals a positive correlation between size and duration. For each additional member in a cartel, the expected duration increases by approximately 0.12 years. This suggests that polycentric structures, which disperse decision-making, may foster trust and discipline via localized monitoring;
– The study identifies a concave relationship between the number of firms in a cartel and the financial sanctions imposed. While total fines increase with more members, the average fine per firm decreases significantly. Specifically, cartels composed of only 2 to 5 firms received average per-firm fines of €7.1 million. As the number of participants increases, this amount steadily declines: cartels with 6 to 10 firms were fined approximately €5.4 million per firm, those with 11 to 20 firms about €3.2 million, and cartels with more than 20 members received the lowest per-firm fines, averaging just €2.1 million. These figures suggest that enforcement agencies encounter increasing difficulty attributing culpability in larger, more decentralized cartel structures.
– The study also explores the ambivalent role of external actors such as trade associations and consultants. While they can enhance coordination by standardizing communication, they often centralize governance, transitioning a cartel from polycentric to monocentric. This increases legal vulnerability but may temporarily stabilize internal dynamics.
This approach challenges the notion that cartel dynamics are purely a function of economic trade-offs. Instead, it emphasizes how internal governance structures shape cartel formation, maintenance, and collapse. By importing insights from public choice and organizational theory into industrial economics, the article invites a broader research agenda on illegal coordination and firm behavior beyond price mechanisms.
Ultimately, understanding the governance layer of cartels—especially how decision-making is distributed, coordinated, and obscured—opens new avenues for enforcement policy. Competition authorities may benefit from identifying governance patterns, such as centralized communication nodes or hierarchical structures, that signal vulnerability or durability. This institutional perspective complements traditional deterrence tools and enriches the analytical arsenal of antitrust enforcement.
* Teo Kvirikashvili is an SJD candidate and Fellow Associate at George Washington University Law School, where she collaborates with Professor William Kovacic on competition law. She also serves as a National Consultant for the OECD on Product Market Regulation in Georgia.
