Effectiveness of Antitrust Sanctions on Modern International Cartels

• DOI: https://doi.org/10.1016/S0573-8555(06)82007-9
• Date: 01 April 2007
• Pages: 177-215
• Published date: 01 April 2007
• Author: John M. Connor

CHAPTER 7

Effectiveness of Antitrust Sanctions

on Modern International Cartels

John M. Connor

Purdue University,West Lafayette, IN

E-mail address: jconnor@purdue.edu

Abstract

This chapter assesses the antitrust fines and private penalties imposed on the par-

ticipants of 260 international cartels discovered during 1990–2003, using four

indicators of enforcement effectiveness: investigatory speed and confidential-

ity and two indexes of the harshness of monetary sanctions. First, the United

States is almost always the first to investigate and sanction international cartels,

and its investigations are about seven times faster than EU probes. Second, U.S.

investigations were more likely to be kept confidential than those in Europe,

but the gap nearly disappeared since 2000. Third, median government antitrust

fines average less than 10% of affected commerce, but the median ratio rises

to about 35% in the case of multi-continental conspiracies. Civil settlements in

jurisdictions where they are permitted are typically 6 to 12%. Fourth, fines on

cartels that operated in Europe averaged a bit more than half of their estimated

overcharges; those prosecuted only in North America paid civil and criminal

sanctions of roughly single damages; and global cartels prosecuted in both ju-

risdictions typically paid less than single damages.

JEL classifications: K21, K14, K33

7.1. Introduction

Twenty years ago the Sentencing Reform Act of 1984 created the U.S. Sentenc-

ing Commission, which was charged with devising guidelines for sentencing

for the federal judiciary (USSG Advisory Group, 2003). The Commission was

established because of Congressional concerns that sentencing was too vari-

able across Circuits and individual judges and that average sentences were

too low for certain crimes. Other jurisdictions outside the United States have

since adopted similar anticartel sanctions. However, in January 2005, the U.S.

Supreme Court declared the Guidelines unconstitutional, virtually guaranteeing

that the Congress would pass overriding legislation (Cohen and Fields, 2005).

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DOI: 10.1016/S0573-8555(06)82007-9

178 J.M. Connor

The Antitrust Modernization Commission is also poised to make recommenda-

tions to amend U.S. price-fixing sanctions (AMC, 2004).

The past decade has witnessed an upsurge in prosecutions of international

cartels (Connor, 2004). Data collected on these prosecutions offer an opportu-

nity to gain information on the size, duration, and harmfulness of cartel conduct.

These data in turn permit the development of indicators of the effectiveness of

cross-jurisdictional cartel enforcement policies and sanctions. In this chapter,

four quantitative measures of anticartel actions are calculated for a large sample

of international cartels punished by several antitrust authorities.

7.1.1. Objective

The purpose of this chapter is to assess the magnitude and pattern of global

antitrust sanctions imposed on modern international cartels. Although there is

a small literature that examines prosecutions of a few individual cartels, it is

believed that this chapter is the first to examine and measure quantitatively all

such legal actions. By doing so, this chapter can contribute critical information

for the on-going debate about the effectiveness of global antitrust sanctions to

deter international price-fixing conduct.

7.1.2. Scope

The focus of this chapter is on all types of monetary and penal antitrust sanctions

that have been imposed on participants in privateinternational cartels discovered

between January 1990 and August 2005. Monetary sanctions include fines im-

posed by antitrust authorities on both corporations and individuals. Monetary

sanctions also include payments made by defendants in private suits to both di-

rect and indirect buyers of cartelized products; most often these payments are

made as a result of settlements made out of court prior to trial, but in a few

cases are litigated judgments of a trial judge or jury. Sanction amounts do not

include the legal fees and costs of defendants, which may be substantial but are

almost never revealed.1However, payments made by defendants to settle pri-

vate class-action suits do include the legal fees and costs incurred by plaintiffs

in prosecuting their cases.2

This chapter analyses only what Evenett et al. (2001) call “Type I” and the

OECD calls “hard-core” cartels. A cartel is a group of two or more indepen-

dent sellers who agree to fix or control prices or output in a given market (Dick,

1998). International cartels are those that have participants from two or more

1Other possible sanctions are not measured. These include the money value of prison sentences,

stockholders’ suits for mismanagement, and reputational losses.

2In the United States, among the 23 largest class-action awards for price fixing in 1972–1999,

legal fees ranged from 7% to 36% of the net recovery to the plaintiffs (Connor, 2001, 471). This

ratio has trended downward over time and by size of the case.

Effectiveness of Antitrust Sanctions 179

countries3; the qualifier does not necessarily refer to the geographic scope of the

cartel’s agreement, but the two tend to be related. Hard-core cartels are those

that overtly control prices, limit output, or allocate production among partici-

pants.4Private cartels are those that operate without the protection of national

sovereignty; they can be indicted for antitrust violations. Thus, legally regis-

tered export cartels are considered private, but not mandatory cartels nor those

established by parliamentary statutes or by treaties among nations. Private car-

tels may contain state-owned or controlled corporations, but if such cartels can

be prosecuted under the antitrust laws of any jurisdiction, they are considered

private schemes.5

Finally, this chapter examines only those international cartels that were “dis-

covered” between January 1990 and August 2005. By discovered is meant in-

formation that an antitrust authority had opened a formal investigation6or had

indicted a member of an alleged cartel; was forced to pay a fine by a recognized

antitrust authority, was found liable for damages in a private suit pleaded guilty

to a criminal indictment, agreed to pay damages in an out-of-court settlement,

or agreed to a consent decree.7The choice of 1990 is somewhat arbitrary, but

is meant to capture the beginning of the current level antitrust sanctions in the

United States,8the EU,9and Canada.10

3The DOJ definition refers to either corporate (ultimate parent) members (nationality determined

by location of the headquarters or country of incorporation) or managers’ nationalities. In practice,

in this paper corporate composition is the key indicator.

4Other cartels collude on vertical conduct or such “softer” horizontal practices as patent pooling,

R&D, or advertising. The DOJ typically prosecutes non-hard-core collusion as a civil matter.

5International comity is a principal ingrained in government antitrust decisions (Waller,2000).

6In the United States this means that a grand jury is empaneled; in most other jurisdictions formal

probes are signaled by news of a “raid” by police on a place of business to search for documents or

interview managers.

7By “prosecuted” I mean to include payments of civil penalties for violations of competition regu-

lations as in the EU, criminal indictments, and announced formal investigations. The latter typically

result in fines or guilty pleas.

8In 1990, the final increase in the U.S. statutory cap on antitrust fines ($10 million per company)

became law. In 1993, the DOJ announced a policy ofa utomatic leniencyfor the first cartel member

to confess that met certain predictable conditions, a policy shift that proved widely-effective.

9In Europe, Harding and Joshua (2003) conclude that “... European law has over [1890–1990]

caught up with American law” (p. 270) in the sense that cartels are now subject to “categorical

censure”. Since the 1970s in Europe, “...the classic price-fixing, market-sharing cartel has... been

driven underground and become strongly prohibited...” (p. 229). In 1998 the EC issued guidelines

for the calculation of price-fixing fines that explained practices being followed during the 1990s

(ibid, p. 242). Moreover, in 1996 the EC issued its first leniency notice, which was revisedin 2002

in a way that closely mimicked the U.S. policy. Therefore, by the late 1990s, the EU had also

developed a set of government Anticartel sanctions for corporations that were similar to those in the

United States and Canada (ibid, pp. 216–222).

10 In 1992, Ontario, Canada passed a major piece of legislation that promulgated rules for private

class actions, and other provinces followed soon after (Goldman et al., 2003,4).Acivilremedywas

made law in 1976 and affirmed by the Supreme Court of Canada in 1989, but was little used until

the 1992 rules change was promulgated (ibid). Passage precipitated a large number of suits against