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'Economists are almost unanimous in the condemnation of cartels, especially those engaged in price fixing, because no expert has satisfactorily established that consumers will benefit from price fixing. On the contrary, economic analysis can show that cartels are inefficient and lessen consumer welfare. It is therefore, not surprising that antitrusters have the closest meeting of minds on the baleful influence of cartels.' Breit, W., and Elzinga, K., (1989); The Antitrust Casebook: Milestones in Economic Regulation, p.12.
Cartels - 'the most pernicious agreements among competitors'. EU Competition Commissioner, Mario Monti
'Let me start with the obvious: cartel behaviour (price-fixing, market allocation, and bid-rigging) is bad for consumers, bad for business, and bad for efficient markets generally. And let me be very clear: these cartels are the equivalent of theft by well-dressed thieves, and they deserve unequivocal public condemnation. Remarkably, even today, a few lonely ideologues argue that cartels really do no harm, that they are inherently short-lived and ineffectual. As I understand their position, these misguided souls believe that the savvy cartel conspirators who spend so much time and effort creating, maintaining, and concealing their fraudulent agreements are simply deluding themselves in thinking that they understand their own businesses or that they could possibly have any collective effect on prices or output.' Klein, J., (1999): Address to US Department of Justice, International Cartel Conference, Washington D.C.
- It is always in the interests of cartel participants to renege if they can do so secretly.
- Lots of ways to cheat.
- Common complaint voiced by cartel participants.
- 'No one has yet invented a way to advertise price reductions which brings them to the attention of numerous customers but not to that of any rivals.'
- Literature full of examples of conspiracies which collapsed because of secret price cutting.
- 'This literature is biased: conspiracies that are successful in avoiding an amount of price-cutting which leads to collapse of the agreement are less likely to be reported or detected.'
- Stigler (1964), A Theory of Oligopoly, Journal of Political Economy, 72: 44-61.
- Evidence that cartels can overcome problem of cheating.
- Big US cases in 1990s unearthed several cartels that had operated for up to 20 years.
- Must be able to detect cheating and punish cheaters.
Firms maintain high prices as long as all the other firms do so but retaliate with a price war targeting a 'cheater'.
Parties hand over undated cheques, which can be cashed if firm breaks ranks.
Carlton and Perloff (1999) Former member of the Genovese family, who ran a cartel in the concrete and construction industries in New York City, told senators that it was 'a very disciplined organisation' with strict rules and capital punishment 'for serious violations'.
- ADM new entrant.
- Agreement on price
- Volume allocation.
- 'Our competitors are our friends; our customers are the enemy'. (Senior ADM executive outlining the company's philosophy at a cartel meeting)
- US DoJ Antitrust Division Website Case filings United States v. Michael Andreas and Terence Wilson.
- Eichenwald, K., (2000): The Informant [A True Story], New York, Broadway Books. (Not an economics text at all - more like a crime thriller. It is the true story of the FBI investigation into the worldwide Lysine cartel).
- 'Working together in a coalition they brazenly called ‘Vitamins Inc.,' they carved up world markets and carefully orchestrated price increases, in the process defrauding some of the world's biggest food companies, including Kellogg, Coca-Cola and Nestle.' Tearing Down the Facade of ‘Vitamins Inc.', New York Times, 10 October 1999.
- Involved vitamins that are included in all sorts of everyday processed foods including items such as breakfast cereals and fruit juices - affected consumers throughout the world.
- One firm engaged in vitamin conspiracy even as it was pleading guilty and paying a fine for involvement in citric acid conspiracy.
- Carlton and Perloff (1999) Example 5.1 An Electrifying Conspiracy.
- The 'Moonglow' conspiracy.
- The price manual.
- Christie's/Sotheby's
Irish Veterinary Union newsletter 29.3.1996 included list of 'recommended minimum fees' and stated that it was:
'vital that these minimum charges are strictly adhered to subject to your normal credit policies. There should be much greater contact with and co-operation between neighbouring practices in this regard. The IVU branch will facilitate this.'
Newsletter of 24.3.1997, referred to recommended minimum fees for other clinical services, and it was stated that:
'It is stressed that these recommended fee guidelines are minimum standards only. However, it is the Union's view that no practice should be charging below these levels. Branches will be asked to do what they can to reproduce the co-operation seen in relation to TB fees in bringing fees up to these and improved levels. Obviously where your current fees are above this level you should continue charging as before.'
(Competition Authority, Annual Report 1998, p.10).
- The FA Premier League.
- See Competition Letter Newsletter No.5 on www.compecon.ie
- Collective Selling of Broadcasting Rights
- Indications of collusion by traditional channels
- Concept of sports leagues being different
- Premier League Cleared by UK Restrictive Practices Court
'…if a club were to withdraw from the FA PL for whatever reason it could not produce the derived product it helped to produce as a member of the PL cartel. A widget producer continues to be a producer of the same widget when he quits the cartel.'
- EU Commission challenge but to Sky dominance rather than cartel.
- Contrast with NCAA v. Board of Regents of the University of Oklahoma, 468 US 85 (1984)
- Note effects of NCAA judgement.
'Hard-core price fixers are intentional conspiracies to steal from consumers, and the negligible probability that the outcome is efficient can safely be ignored. We also believe that erroneous findings of guilt in criminal antitrust cases are negligible.'
Werden, G.J. and Simon, M, (1987): Why Price-Fixers Should Go To Jail, Antitrust Bulletin, 24(4): 917-37 at p.932.
- US Cartels per se illegal.
- UK Enterprise Act – specific cartel offence.
- Unwieldy approach in Competition Act, 2002 -yet to be tested.
- Problems posed by Article 81(3)
See A. Hammond and R. Penrose, (2001): Proposed Criminalisation of Cartels in the UK, London: Office of Fair Trading available on OFT website www.oft.gov.uk
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