Controlling cartels – Implications of the EU policy reforms
Section snippets
Background
Cartels are generally regarded as the most socially harmful anticompetitive practice. They are typically illegal and operate in secret. Recent high profile cartel cases, often at international level, have demonstrated both the significance of cartels as a feature of the corporate landscape in areas as diverse as vitamins, synthetic rubber, fine art and industrial threads, and their adverse effects on the public interest. This is particularly the case for ‘hard core’ cartels, usually defined as
The new regulatory structure under Modernization
Before ‘Modernization’, the Commission was the primary authority dealing with cartels affecting trade between Member States in the EU. The Commission reserved the right to take on cases with a particular Community interest and the Commission alone had the right to exempt agreements under Article 81(3). This meant that only clear infringements of Article 81, such as hard core cartels, could be dealt with by the NCAs when the effects of the infringement were mainly in their country. Relatively
The detection of cartels
Cartelists often go to considerable lengths to hide the traces of illegal collusive behaviour. It is difficult for cartelists to assess the likelihood that a cartel will be able to operate undetected by the competition authorities but the longevity of some of the cartels discovered by the Commission provides an indication of the extent to which they have avoided detection previously. Organic Peroxides, the longest established cartel dealt with in the EU to date was set up in January 1971 and
The investigation of cartels
Whereas in the past, the Commission was the main authority dealing with cartels affecting trade between Member States, it now shares its investigatory powers with the 25 Member States which can also apply Article 81 in full, as outlined earlier. According to the Notice on case allocation, cases are to be handled by a single authority whenever possible but the guidance recognises:
‘the possibility of parallel action by a maximum of two or three NCAs, each acting for its respective territory.
Fines
Cartelization is a civil rather than a criminal offence under EU competition policy and fines on firms are the only Commission sanction. This is in contrast to other jurisdictions, such as the US and some NCAs, where firms and the management responsible risk a variety of possible penalties, including imprisonment.
Under a simple economic calculus, firms would be deterred from cartelization by the prospect of fines alone if the potential fine was equal to the gain from the offence divided by the
Discussion and conclusions
The design and strength of public policy towards restrictive practices will naturally influence the extent and organizational structure of collusive activity among firms. If public policy is permissive (or even encourages cartel formation, as occasionally in the past),20 firms may recognise mutual interests in cartelization. The resulting cartel organization may act if it were a single profit maximising firm, setting prices and allocating output efficiently
ELEANOR J. MORGAN is Senior Lecturer in Business Economics at the University of Bath where she is Director of Studies for the Bath MBA Programme. Among her recent publications, Eleanor has published numerous articles on different aspects of EU competition policy and also a book (edited with Roger Clarke) on the development of competition policy in the UK and EU. She is the Editor of the International Journal of the Economics of Business.
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ELEANOR J. MORGAN is Senior Lecturer in Business Economics at the University of Bath where she is Director of Studies for the Bath MBA Programme. Among her recent publications, Eleanor has published numerous articles on different aspects of EU competition policy and also a book (edited with Roger Clarke) on the development of competition policy in the UK and EU. She is the Editor of the International Journal of the Economics of Business.