A Proposal for a Structural Remedy for Illegal Collusion

• Author: Joseph E. Harrington, Jr.
• Position: Patrick T. Harker Professor, Department of Business Economics & Public Policy, The Wharton School, University of Pennsylvania
• Pages: 335-359

A PROPOSAL FOR A STRUCTURAL REMEDY

FOR ILLEGAL COLLUSION

J

OSEPH

E. H

ARRINGTON

, J

R

.*

The good news is that competition authorities are regularly detecting and

convicting cartels. The bad news is that competition authorities are regularly

detecting and convicting cartels. That cartels continue to form is striking in

light of the impressive list of advancements in enforcement in the last three

decades.

Corporate (and individual) leniency programs have greatly improved the

discovery, prosecution, and conviction of cartels. Beginning with the revision

of the U.S. Department of Justice’s program in 1993, corporate leniency pro-

grams can now be found in more than 60 countries and unions. The next

phase of detection programs is in progress with whistleblower rewards and

screening. Whistleblower rewards provide bounties to individuals who report

suspected cartels and are not themselves part of the illegal activity. Initiated

by South Korea and the United Kingdom, Hungary and Taiwan have recently

been added to the list of countries offering whistleblower rewards. Screening

is the use of market data to identify markets that might have cartels and war-

rant closer inspection. It is being used to various degrees by many competition

authorities,

1

and has uncovered cartels in generic drugs (Mexico), road con-

struction (Switzerland), retail gasoline (Brazil), shrimp (The Netherlands), ce-

*Patrick T. Harker Professor, Department of Business Economics & Public Policy, The

Wharton School, University of Pennsylvania. I would like to thank George Hay, Herb

Hovenkamp, Keith Hylton, Louis Kaplow, Massimo Motta, Bill Page, Maarten Pieter Schinkel,

and Greg Werden for their comments, and Vin´ıcius Marques de Carvalho for his assistance and

his actions as President of CADE, which partially motivated this article. They are not responsible

for its content. The assistance of Uli Laitenberger, Ben Rosa, and Takeaki Sunada is gratefully

acknowledged.

1

At an ICN meeting of chief and senior economists in September 2016, 18 out of 28 compe-

tition authorities reported that they were engaging in some form of screening. Program, ICN

Chief/Senior Economists Workshop, University of British Columbia (Sept. 12–13, 2016), www.

sauder.ubc.ca/Faculty/Research_Centres/Phelps_Centre_for_the_Study_of_Government_and_

Business/Events/~/media/Files/Events/ICN%20Workshop/ICN%202016%20Agenda.ashx (con-

fidential presentation on file with author).

335

82 Antitrust Law Journal No. 1 (2018). Copyright 2018 American Bar Association. Reproduced

by permission. All rights reserved. This information or any por tion thereof may not be copied

or disseminated in any form or by any means or downloaded or stored in an electronic

database or retrieval system without the express written consent of the American Bar

Association.

336

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NTITRUST

L

AW

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OURNAL

[Vol. 82

ment (South Africa), ampoules (Chile), and subway construction (South

Korea).

Turning to corporate penalties, government fines have vastly increased in

the last 25 years in the United States and the European Union, and are on the

rise in other jurisdictions. Customer damages have long been a substantial

financial penalty in the United States, and are becoming increasingly common

in other countries. Though these penalties are large in some absolute sense,

apparently they are insufficient to dissuade some firms from forming a cartel.

While increasing the level of fines is an option, they can only be raised so far

before they jeopardize the financial stability of a firm.

Finally, there are individual penalties. An impressive 35 countries have

criminalized participation in a cartel (or, in some cases, just bidding rings). In

addition, the Antitrust Division of the U.S. Department of Justice has been

increasingly aggressive in using this stick. Over the last 25 years, the percent-

age of defendants who have gone to prison has risen from 37 percent (during

1990–99) to 70 percent (2010–13),

2

and the average prison sentence has al-

most tripled from eight months (1990–99) to 22 months (2010–16).

3

How-

ever, the United States is an outlier in routinely putting cartelists in jail; only a

few other jurisdictions have ever used incarceration. There are also individual

fines and debarment, which keep convicted cartelists out of managerial posi-

tions, but their usage is not yet common.

4

Even if all of these developments have resulted in substantial progress in

the fight against cartels, the evidence is that current enforcement falls well

short of being an effective deterrent. Many cartels continue to form and oper-

ate, which is true even in the United States where enforcement is very aggres-

sive, corporate penalties are the highest (when government fines are combined

with customer damages), and incarceration is routine and substantial. Further-

more, many of these cartels are not the product of rogue employees but rather

are the result of calculated decisions by upper-level management. It would

seem that collusion remains a viable business strategy in the eyes of many

high-level executives.

If this experience tells us anything, it is that a competition authority needs

more weapons in its arsenal. Towards that end, this article proposes a corpo-

rate penalty that would increase financial penalties (while posing less of a risk

for a firm’s financial stability than fines), would be compensatory for consum-

ers (in some instances, more so than customer damages), and, most impor-

2

U.S. D

EP

’

TOF

J

USTICE

, A

NTITRUST

D

IV

., C

RIMINAL

P

ROGRAM

U

PDATE

2014 (2014).

3

U.S. D

EP

’

TOF

J

USTICE

, A

NTITRUST

D

IV

., C

RIMINAL

E

NFORCEMENT

T

RENDS

C

HARTS

(2017).

4

For a discussion of debarment, see Douglas H. Ginsburg & Joshua D. Wright, Antitrust

Sanctions, 6 C

OMPETITION

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OL

’

Y

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’

L

3 (2010); and Joseph Harrington, Comment on Antitrust

Sanctions, 6 C

OMPETITION

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OL

’

Y

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L

41 (2010).