Should Crisis Cartels Exist amid Crises?

• Author: Ioannis Kokkoris
• DOI: 10.1177/0003603X1005500403
• Date: 01 December 2010
• Published date: 01 December 2010
• Subject Matter: Article

Should crisis cartels exist amid crises?

BYIOANNIS KOKKORIS*

Crisis cartels are likely to appear in industries where production

facilities are durable and specialized and consumer demand falls

due to adverse market conditions. A number of antitrust statutes

incorporate exemptions as a means of avoiding condemnation of

certain cartelistic conduct. Such statutes include provisions that

specifically exempt certain enterprises and conduct from the scope

of the antitrust legislation because of the overriding social objectives

behind antitrust statutes. In the European Union the problem of

structural overcapacity after the second oil shock was exacerbated

by increased competition at an international level that induced

further reductions in capacity utilization in some industries. Such

capacity reductions may not represent reductions of the least

efficient capacity. Thus, agreements among competitors to reduce

capacity are likely to lead to better long term prospects for the

economy. The EU and U.S. authorities have also accepted the

financial constraints argument in their assessment of cartels and

have thus been lenient on the imposed fines.

THE ANTITRUST BULLETIN:Vol. 55, No. 4/Winter 2010 :727

* * University of Reading (UK); Visiting Professor, Bocconi University; Inter-

national Consultant on Competition Policy, International Organisation for

Security and Cooperation.

AUTHOR’S NOTE: For an extensive review of crisis cartels, see IOANNIS KOKKORIS

& RODRIGO OLIVARES-CAMINAL, ANTITRUST POLICY IN THE WAKE OF FINANCIAL

CRISES (2010).

© 2010 by Federal Legal Publications, Inc.

I. INTRODUCTION

Cartels generally involve price fixing, market division, control of out-

put, mitigation of technological improvement, and limiting of pro-

duction. Most antitrust laws against cartels incorporate three

elements, the element of prohibition, the element of exemption, and

the element of penalty. A review of antitrust legislation in relation to

cartels across jurisdictions reveals that there are two principles that

govern the approach that countries take toward prohibiting the anti-

competitive conduct of cartels. Under a per se prohibition, cartelistic

behavior is per se illegal. Under a “control of abuse” approach,

cartelistic behavior may be permitted to some extent, but sufficient

regulation is exercised to prevent any harm induced by such activi-

ties. The reason for the two approaches is the overriding social objec-

tives behind some antitrust laws.

For example, the adoption of the per se approach in the United

States emanates from the nineteenth-century Populist movement that

resented the anticompetitive activities of various business trusts and,

therefore, sought free competition at any cost. In the EU and Ger-

many, however, the need for economic and technical development

and efficiency is reflected in the view of antitrust as supervisory

through the use of the control of abuse concept.1

A number of antitrust statutes incorporate exemptions as a means

of avoiding condemnation of certain cartelistic conducts. Such

statutes include provisions that specifically exempt certain enter-

prises and conduct from the scope of the antitrust legislation because

of the overriding social objectives behind it.

Fines operate as a penalizing instrument against the conduct of a

cartel as well as a disincentive against the creation of cartels. The

United States, UK, Ireland, and Germany, for example, have criminal

and civil penalties for corporate and individual violations of their

antitrust laws, while the EC has a civil penalty only against the

corporation. The key significance of the criminal regime from an

enforcement perspective lies in its deterrence value and, in

728 :THE ANTITRUST BULLETIN:Vol. 55, No. 4/Winter 2010

1Timothy J. Grendell, The Antitrust Legislation of the United States, the

European Economic Community, Germany and Japan, 29 INT’L& COMP. L.Q.

64 (1980).

particular, its separation of the interests of individuals from those of

the businesses that employ them. In a report prepared for the Office

of Fair Trading (OFT) by Deloitte,2competition lawyers and

companies were asked about the relative importance of various

factors in deterring competition law infringements. Both the lawyers

and companies surveyed regarded criminal penalties as being the

most important.3Where cartel prohibitions are enforced with

criminal sanctions on individuals (including imprisonment), the

standard of proof has to be particularly high (beyond a reasonable

doubt), and it is more difficult to discharge the burden of proof

without the active help of cartel members, i.e., without admissions

and without the agreement of the companies. These personal risks

also have the effect of further destabilizing cartels, making it more

likely that, once entered into, they will not be sustained. When

operating alongside an effective leniency policy that aligns the

interests of individuals with those of their employers, together with

other sources of intelligence, it also means that cartels are more likely

to be detected and punished, thus reinforcing deterrence. According

to Tierno Centella,4criminal sanctions would lead to under-

enforcement if they were applied in a place where cartelists are not

socially perceived as criminals. The majority of countries’ antitrust

laws provide for enforcement by administrative agencies, with

review by the courts.

Cartel justifications that have been proposed include that a cartel

will prevent cutthroat competition. In industries where fierce

competition would yield below-cost pricing, the cartel guarantees a

“reasonable” price. In addition it has been argued that a cartel

sustains needed capacity and prevents excess capacity. Furthermore,

a cartel reduces uncertainty as to the average price of a product. It

also assists in financing desirable activities, such as R&D, and in

CRISIS CARTELS :729

2Deloitte & Touche LLP, The Deterrent Effect of Competition

Enforcement by the OFT (Nov. 2007), available at http://www.oft.gov.uk

/shared_oft/reports/Evaluating-OFTs-work/oft962.pdf.

3Id. ¶¶ 5.55–59.

4M. Tierno Centella, An Optimal Enforcement System against Cartels, in

THE CHALLENGE OF AN OPTIMAL ENFORCEMENT SYSTEM (Ioannis Kokkoris &

Ioannis Lianos eds., 2009).