Private International Cartels
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In their research, Simon J. Evenett, Margaret C. Levenstein and Valerie Y. Suslow delved into the complex world of private international cartels, tracing their economic history, examining national competition policies and assessing the effect of current policies on cartel trends. The authors also presented options for reforming national policies, promoting international cooperation to deter cartels and ensuring the continuance of appropriate competition in the marketplace.
Growing trade liberalization has increased the incentive for companies to participate in cartels, which can drive up consumer prices and limit competition to certain markets. For example, in a recent sample of 20 international cartels, the volume of affected sales worldwide exceeded $30 billion. National competition policies are targeted at controlling cartel operations in domestic markets, but often do not address the growing international impact of cartels.
The authors defined three types of international cartels. “Hard core” cartels are composed of private producers from at least two countries who cooperate to control prices or to allocate shares in world markets. In "private export" cartels, independent, non-state-related producers from one country take steps to fix prices or to engage in market allocation in export markets, but not in their own domestic market. In “state-run export” cartels, government entities work together to fix prices and production.
The authors focused primarily on hard core cartels, and to some extent on private export cartels, examining the basics of cartel performance and implications for antitrust policy. They traced the prevalence, formation and duration of hard core cartels, based on a sample of 40 cartels involved in recent U.S. and European Union prosecutions. The firms participating in these cartels represented more than 30 countries. The authors analyzed the strategies used to prolong the life of the cartel, including building barriers to entry in the market. In looking at export cartels, they discussed the legal status, prevalence, activities and anti-competitive effects.
Turning to policy, the authors reviewed legal control issues and suggested opportunities for reform. Laying aside the idea of creating a global enforcement authority, which nations are reluctant to adopt, they suggested extending various bilateral cooperation agreements on antitrust to all industrial countries, forming one “plurilateral” agreement. Further, they recommended taking a pro-efficiency approach to drive all competition policy enforcement, so that competitive pressures are maintained and price fixers are deterred from seeking other avenues to limit competition.
You can read the working paper at http://eres.bus.umich.edu/docs/workpap/wp01-011.pdf or contact Valerie Suslow at suslow@umich.edu.