Fines against Hard Core Cartels in Europe: The Myth of Overenforcement

• Author: Constance Monnier,Emmanuel Combe
• Published date: 01 June 2011
• Date: 01 June 2011
• DOI: 10.1177/0003603X1105600203
• Subject Matter: Article

Fines against hard core cartels in

Europe: The myth of overenforcement

BYEMMANUEL COMBE*AND CONSTANCE MONNIER**

This article compares the level of fines actually imposed on cartel

participants to the illicit gains captured by the firms and estimates a

range of optimal restitution and dissuasive fines in each case. The

results show that the fines imposed against cartels by the European

Commission are, overall, moderate, regardless of the probability of

detection. The article is based on a sample of sixty-four cartel decisions

by the European Commission from 1975 to 2009 and a methodology

that estimates optimal fines imposed on cartels on a case-by-case basis.

THE ANTITRUST BULLETIN:Vol. 56, No. 2/Summer 2011 :235

*Professor, University of Paris I Panthéon-Sorbonne, Associate Profes-

sor, ESCP Europe Business School, and member of the Board of the French

Competition Authority.

** Assistant Professor, University of Paris I Panthéon-Sorbonne, PRISM

Sorbonne.

AUTHORS’ NOTE: We thank all the participants of the 2009 Centre for Competition

Policy conferences and workshop and the 2010 European Association for Research in

Industrial Economics and European Association of Law and Economics conference

participants for their comments and suggestions (particularly Professor S. Davies,

Professor P. M. Schinkel, Dr. A. Stephan, and Dr. A.L. Sibony), as well as Professor

John Connor. All remaining omissions and opinions expressed in this article are

solely the authors’ and do not reflect the views of their institutions.

© 2011 by Federal Legal Publications, Inc.

I. INTRODUCTION

In recent years, the European Commission (the Commission) has

stressed its determination to crack down on cartels. To help its fight

against cartels, the Commission has increased the level of fines

imposed on price fixers. In 2008, the Commission imposed the high-

est fine on record, more than 1.3 billion euros, upon the Car Glass

Cartel.1For the third consecutive year, total fines imposed on cartels

by the Commission amounted to more than 2 billion euros. One won-

ders whether this sharp increase in the level of fines imposed by the

Commission on cartelists is supported by economic analysis, which

has questioned the ability of antitrust enforcement to prevent cartel

formation and has noted the inadequate level of fines compared to

the harm to the economy that is inflicted by such anticompetitive

practices.2This article assesses whether the fines imposed by the

Commission are economically efficient.

Despite the abundant theoretical literature on cartel dissuasion

and optimal fines,3few empirical studies address the topic. Although

most of these studies discuss the insufficient level of pecuniary sanc-

tions inflicted by collusive agreements,4they seldom undertake a

236 :THE ANTITRUST BULLETIN:Vol. 56, No. 2/Summer 2011

1See Press Release, European Comm’n, Antitrust: Commission Fines

Car Glass Producers Over €1.3 Billion for Market Sharing Cartel (Nov. 12,

2008), available at http://europa.eu/rapid/pressReleasesAction.do?

reference=IP/08/1685&format=HTML&aged=0&language=EN

&guiLanguage=en. See also infra appendix A.

2See, e.g., John Connor, The Size of Cartel Overcharges: Implications for

U.S. and EU Fining Policies, 51 ANTITRUST BULL. 983 (2006). Connor concludes

his study with the following assertion: “We therefore urge the EU to increase

its cartel penalties dramatically: by an order of magnitude.” Id. at 1022.

3For a synthesis, see Frédéric Jenny, Emmanuel Combe, John M. Con-

nor, Paolo Buccirossi & Giancarlo Spagnolo, Cartels: Economic Efficiency of

Sanctions, CONCURRENCES No. 4/2006, http://www.concurrences.com/toc

_revue.php3?id_rubrique=171&lang=fr (last visited Nov. 21, 2010).

4See, e.g., John Connor, Optimal Deterrence and Private International Car-

tels (Purdue Univ. Working Paper, 2006), available at http://www.agecon.pur-

due.edu/staff/connor/papers/Optimal_Deterrence.pdf. Connor concludes

that on average, fines imposed upon international cartels range from 3.9% to

31.2% of the illegal profit realized by the undertakings. Other studies use

case-by-case microeconomic analysis. Recent empirical studies of

fines against cartels in Europe examine how fines are fixed in practice

under European competition law, particularly under the 1998 Penalty

Guidelines,5but not how they should have been determined so as to

prevent the formation of cartels.6

Our article presents an empirical methodology based on easily

computable microeconomic parameters, which allows us to estimate

a range of optimal fines. More precisely, by analyzing sixty-four car-

tels condemned by the European Union over the period 1975–2009,

we compare the sanction actually imposed to the illicit gain captured

by the firms and estimate a range of restitution fines (amounting to

the illegal profit, which corresponds to optimal fines given a 100%

probability of detection) and dissuasive fines (which correspond to an

optimal fine given that some cartels remain undetected). This com-

parative analysis allows us to assess over time the efficiency of the

Commission’s antitrust enforcement in preventing explicit collusion.

We do not discuss comprehensively how fines are actually fixed in

practice, as this article focuses on the ability of fines to deter the for-

mation of cartels in Europe.

MYTH OF OVERENFORCEMENT :237

mean values and refer to a “representative international cartel,” as defined

in Maarten Pieter Schinkel, Effective Cartel Enforcement in Europe, 30 WORLD

COMPETITION 539 (2007), and also conclude that fines are too low.

5EUROPEAN COMM’N, GUIDELINES ON THE METHOD OF SETTING FINES

IMPOSED PURSUANT TO ARTICLE 15(2) OF REGULATION NO. 17 ANDARTICLE 65(5) OF

THE ESC TREATY, 1998 O.J. (C9) 3 [hereinafter 1998 PENALTY GUIDELINES], avail-

able at http://ec.europa.eu/competition/antitrust/legislation/fines.html.

6See, e.g., Cento Veljanovski, Cartel Fines in Europe: Law Practice and Deter-

rence, 29 WORLD COMPETITION 65 (2007); Damien Geradin, The EC Fining Policy

for Violations of Competition Law: An Empirical Review of the Commission Decisional

Practice and the Community Courts’ Judgments (Global Competition Law Ctr.,

Working Paper No. 03/05, 2005); Patrick V. Van Cayseele & P.D.N. Camesasca,

The EC Commission’s 2006 Fine Guidelines Reviewed from an Economic Perspective:

Risking Over-Deterrence (Amsterdam Ctr. for Law and Econ., Working Paper

No. 2007-3, 2007). See also John Connor & Douglas Miller, Determinants of EC

Antitrust Fines for Members of Global Cartels, Presentation at the 3rd LEAR Confer-

ence on The Economics of Competition Law, Rome (June 25–26, 2009), available at

http://www.learlab.com/learconference/documents/Predicting%20EC%20Fines

%20for%20 Members%20of%20Global%20Cartels%209-11-09.pdf.