Review of “Cartel Issues in Plain Sight’’

29.08.2023

CeCo EE.UU

The authors William E. Kovacic, Robert C. Marshall, and Michael J. Meurer published an article named ‘’Cartel Issues in Plain Sight’’ for Oxford University, given in the Journal of Antitrust Enforcement, 2023.

The authors discuss market linkage, multi-market cartels, and propose changes to enforcement procedures that take linkage into consideration. The article’s first chapter reviews findings from earlier studies (Kovacic et al, 2018) in which the authors provided evidence of “serial collusion” by large multi-product corporations operating across industries. The second chapter proposes three main forms of leveraged collusion, wherein colluding businesses can advantageously influence a very large number of other market transactions by manipulating a benchmark price that results from a small number of transactions. The third chapter shows the frequency of the number of companies taking part in a cartel, which is displayed in the histogram. The fourth and final chapter offers policy suggestions for public policy changes that would enhance the ability of competition agencies to identify collusion, particularly among serial colluders.

Review of Previous Findings

In their previous work, the authors cited the banking, chemical, electronics, and auto parts -among other industries- as having a lot of evidence of serial collusion. The academics conducted their research in fields where there are significant multi-product enterprises that have participated in cartel behavior in a number of products, and over different time periods (the are the “serial colluders”). The researchers came to the point that since each of these companies produces a big number of different products, it is probable that they are managing a number of cartels and have years of expertise on how to do so successfully.

Additionally, the authors have shown that during cartel conduct periods in the chemical sector, the patenting activities conducted by the “serial colluders” increased (compared to the time before the cartel). One explanation for this is that serial collusion was made easier by the creation of “patent thickets” in numerous ways, including by discouraging entrance.

The research also demonstrates that patenting increased for certain non-cartel companies who regularly collaborate with the patent thicket created by the cartel companies. The rise in patents filed by non-producers who are regular cartel firms’ “allies” reveals a startling degree of collaboration among these businesses in the management of their cartel portfolios and the maintenance of earnings in one another’s cartels.

The analysis of the erroneous claim that cartels by serial colluders are all just isolated infractions by rogue division managers is the last highlight of the previous findings.

Leveraged Collusion

Cartel conduct often involves direct elevation of the price for the product of the cartel, achieved through pricing, allocation, and enforcement structures to avert secret deviations. However, some product markets have characteristics that allow cartel members to exert their market power to stretch it to a related market. Specifically, by manipulating a benchmark price that comes from a small number of transactions, or even a survey, the colluding firms can favorably impact -to their advantage- a very large number of other transactions in the market.

The authors signify three broad categories of such leveraged collusion:

• First, a significant portion of the market that uses a public or stated market price or benchmark price for several concurrent transactions may consider it as accurate and dependable.
• Secondly, forward contracts that are connected to cash (or spot) market price realizations may result in collusive profit.
• Thirdly, cash (or spot) market prices are directly correlated with futures market prices.

Firm Participation in Apprehended Cartels

The authors went over the complete body of the European Commission’s (EC) rulings regarding the banning of cartels. They didn’t include cases involving parallel imports, an unusually high number of cartel players, or collaboration between manufacturers and distributors as the main issue in cartel proceedings. As a result of this, there were 157 cartels left from the EC decisions.

The histogram provided in the article shows the frequency of the number of firms participating in a cartel. According to the data of this histogram, the authors pointed out four factual points:

• Over 80% of the sample is made up of cartels of eight or fewer enterprises (132 out of 157).
• The coordinated consequences of mergers between 11 and 10 companies become problematic, especially when there is overt cooperation. In this sense, mergers from 6 to 5 appear to be fairly problematic.
• According to Journal of Antitrust Enforcement (JAE) 2018 report, over 40% of cartels (68 out of 157) had serial collusion charges. Additionally, serial colluders are involved in slightly under 50% of cartels with a size of seven or fewer.
• Surprisingly, there is no clear pattern in cartel duration by the number of players, even if it is not shown in the histogram above. In particular, it appears that the durations for cartels formed by2 or 3 members do not significantly differ from those for cartels of 4 to 8 members.

Policy Recommendations

The policy recommendations suggested by the authors stress how important it is for enforcers to put more effort into researching how cartel strategies are created and carried out.

Cartel reconstructions

The scholars suggest that Antitrust agencies should subject cartels to a higher scrutiny and devote more attention to the causes of detected misconduct. The identification of company officials involved in approving the illegal scheme is perhaps the most crucial step that enforcement authorities should take in order to reconstruct all aspects of cartel initiation and implementation for each colluder, including the assertion and licensing of patents, the use of consultants, and the use of contracts in non-cartelized markets to facilitate collusion. Also, it is not proper to halt the investigative process and the examination of apparent misbehavior after the bare minimum of evidence is amassed to achieve a settlement or a conviction from the standpoint of future antitrust action against repeat colluders.

Continuing programme of data collection and research

The number of members and length of each cartel should be included in datasets that are put together by competition authorities using their enforcement experience to identify identified cartels. According to the authors’ consideration, the agencies’ ability to spot trends over time and make policy choices about collusion and other aspects of antitrust enforcement, such as merger control, will be strengthened by these data sets. Additionally, data should be gathered and analyzed both inside and between jurisdictions. Compiling aggregate data sets that include data collected by individual countries in the way just mentioned is a crucial focus for international enforcement cooperation. These aggregate data sets can offer a useful insight on general patterns in cartel activities and formation, as well as trends within particular industries.

The above-mentioned data gathering initiatives laid the groundwork for fruitful cartel-related research projects by individual competition authorities, competition agency teams, collaborations between public agencies and university research centers, and international organizations.

Stronger detection mechanisms: bounties and monitoring

Current amnesty and leniency programs aim to persuade cartel insiders to tell the authorities of wrongdoing. Typically, these programs offer incentives in the form of reduced penalty or exemption from punishment. The authors offer to increase these reporting incentives by offering financial rewards to any company that is not a serial colluder for disclosing its involvement in a cartel. Peeling smaller businesses away from cartels would be one of the main goals of the reward program.

The group of authors also suggests that serial colluders must be monitored more closely by enforcement agencies. Serial colluders would be required to inform the competition agency when they engage in behavior that has previously been used as a cartel-facilitating mechanism as part of an intensified monitoring framework. Patent licensing agreements have performed this function for serial colluders in a startling number of situations. For this reason, the authors asked Congress to grant the Federal Trade Commission (FTC) the power to enact regulations requiring specific businesses to inform the FTC when they sign patent licensing agreements.

Additional considerations from the authors

Cartel facilitation enterprises

Due to the intricacy of cartel administration, members occasionally hire outside parties to help with crucial organizational, administrative, and monitoring functions. Therefore, the recommendation of the scholars in this matter is that the firms that facilitate cartels should face harsh sanctions and be obligated to disclose information about cartel activity.

Judicial analysis of agreements

When some of the defendants have a history of serial collusion, it is recommended that courts should be more inclined to determine that an agreement to construct a cartel exists based on circumstantial evidence. This may be accomplished by identifying certain facts as «super plus factors«, or by allowing plaintiffs to demonstrate agreement in a legitimate manner by acknowledging the interdependence of serial collusion and other plus elements.

Merger policy

Lastly, the authors recommend about policy merger. It is mentioned that the regularity with which prior cartels formed and effectively operated with eight or more members should be taken into consideration while revising the merger guidelines. As per the suggestion, serial colluders should undergo significantly more rigorous scrutiny during the process of merger reviews compared to other companies.

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