Cartels and Economic Collusion

Cartels and Economic Collusion

The Persistence of Corporate Conspiracies

Michael A. Utton

Adam Smith warned of the prevalence of corporate conspiracies more than two hundred years ago. Since then, interest in cartels has sometimes intensified (during the Great Depression, for example) and sometimes diminished, but the need for control has always remained on the antitrust agenda. This well-documented book reviews the economic case against corporate collusion, as well as the arguments made for a more permissive attitude.

Chapter 7: Carrots rather than sticks: leniency programmes in the US and the EU

Michael A. Utton

Subjects: economics and finance, competition policy, industrial economics


I. INTRODUCTION As we saw in the last chapter, punishing conspirators for infringing the antitrust laws depends on the skills of the authorities in detecting cartels and then assembling enough evidence to convict them and, if necessary, withstand the close scrutiny of an appeal. The most successful cartels are those that develop an efficient policing system to try to ensure that all members remain committed to the strategy of restricting output in order to keep prices high. Policing mechanisms may be not only expensive but also cumbersome to administer. Records of sales and realised prices will have to be monitored by the designated authority. All of this takes place against a background of uncertainty and a degree of distrust among independent firms operating in the same market. In order to increase their detection rates, antitrust authorities seek to exploit the potential instability of cartels by offering generous leniency terms to those firms prepared to break ranks and expose their own conspiracy. In Section II we discuss the development of these leniency programmes in the US and the EU and assess their impact. The following section then takes up some unresolved issues exposed by the policy. II. LENIENCY PROGRAMMES IN THE US AND THE EU When discussing the economics of cartels in Chapter 1 we noted the tendency for prices to decline to the competitive level in markets for homogeneous products if firms act independently in defence of their selfinterest. It is not their intention for prices to fall but the...

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