The Deterrent Effect of Antitrust Sanctions: Evidence from Switzerland

• Date: 01 June 2011
• Author: Kai Hüschelrath,Nina Leheyda,Patrick Beschorner
• Published date: 01 June 2011
• DOI: 10.1177/0003603X1105600208
• Subject Matter: Article

The deterrent effect of antitrust

sanctions: Evidence from Switzerland

BY KAI HÜSCHELRATH,*NINA LEHEYDA,**

AND PATRICK BESCHORNER***

With the effectiveness of the revision of the Swiss Cartel Act on April

1, 2004, the Competition Commission (the COMCO) gained consider-

able new powers, especially the power to sanction anticompetitive

behavior by imposing substantial fines. Additionally, the revision

THE ANTITRUST BULLETIN:Vol. 56, No. 2/Summer 2011 :427

*Senior Researcher, ZEW Centre for European Economic Research,

Department for Industrial Economics and International Management,

Mannheim, Germany, and Assistant Professor for Industrial Organization and

Competitive Strategy, WHU Otto Beisheim School of Management, Vallendar,

Germany.

** Researcher, ZEW Centre for European Economic Research, Department

for Industrial Economics and International Management, Mannheim, Germany.

*** Senior Researcher, ZEW Centre for European Economic Research,

Department for Industrial Economics and International Management, Mann-

heim, Germany.

AUTHORS’ NOTE: The survey was conducted as part of a study on the evaluation of

the Swiss Cartel Act for the Swiss State Secretariat for Economic Affairs. The complete

study (in German) can be downloaded at http://www.weko.admin.ch/dokumentation

/00216/index.html?lang=de. We are indebted to Barry Rodger (University of

Strathclyde) for providing us with questionnaires he composed for a comparable study

in the United Kingdom. Furthermore, we would like to thank Sven Michal, Samuel

Rutz, Frank Stüssi, Spyros Arvanitis and Martin Wörter for helpful comments on

drafts of the study, and Dace Lauberte for excellent research assistance. Last but not

least, we would like to express our gratitude to our interview partners for their help—

not only during the interviews themselves but also for invaluable comments on drafts of

the study, which significantly improved the final output. The usual disclaimer applies.

© 2011 by Federal Legal Publications, Inc.

provided the COMCO with enhanced means of gathering evidence

of competition law infringements by conducting dawn raids, thereby

increasing the probability of detection and punishment for competi-

tion law infringements. Both steps together aimed at strengthening

the deterrent effect of antitrust sanctions. Against this background,

the article investigates to what extent the revision has reached its

goal by conducting a survey among Swiss antitrust lawyers and

firms. The results show that the revision certainly has strengthened

the deterrent effect of antitrust sanctions in Switzerland. However,

in some areas, greater specificity of the legal provisions is advisable

in order to increase legal certainty and to avoid negative effects on

social welfare by deterring procompetitive behavior.

I. INTRODUCTION

In December 2004, the Swiss Competition Commission (the COMCO)

started an investigation of an alleged hard core cartel in the road sur-

facing market in the canton of Ticino. In the course of the investiga-

tion, it became apparent that virtually all road surfacing companies

active in the region colluded on tenders to the respective state bodies

and therefore caused price increases of at least thirty percent between

1999 and 2005. Interestingly, even after the investigation by the

COMCO had begun, the respective companies did not terminate their

competition law infringement. However, on March 31, 2005, they

“suddenly” decided to do so and therefore opened the way for com-

petition in the market for road surfacing in Ticino.1

The date chosen for the termination of the cartel agreement was

anything but accidental. With the effectivenessof the revision of the

Swiss Cartel Act2(the Kartellgesetz or KG) on April 1, 2004, the

COMCO gained considerable new powers, especially the power to

sanction anticompetitive behavior by imposing substantial fines.

While the prior KG allowed only the sanctioning of repeated infringe-

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

1See Walter Stoffel, Gartenscheren und Hausdurchsuchungen. Was die Wet-

tbewerbskommission in ihrer Praxis Prioritär Durchzusetzen Sucht, in NEUE

ZÜRCHER ZEITUNG 25 (2009).

2Federal Act on Cartels and other Restraints of Competition (Cartel

Act), Oct. 6, 1995, SR 251 (Switz.), available at http://www.admin.ch/ch/e/rs

/251/index.html.

ments, the new legislation now permits the imposition of significant

sanctions for first offenders. As the revision of the KG included a one-

year transition period, the new rules went into force on April 1,

2005—a good explanation for the “sudden” termination of the road

surfacing cartel in Ticino at the very end of March 2005.

From an economic perspective, the road surfacing case is a prime

example of the power and importance of imminent sanctions in com-

petition policy—and its helplessness in their absence. Without a credi-

ble and significant threat of punishment, firms are unlikely to refrain

from anticompetitive tactics as long as they are an essential part of

their profit-maximizing business strategy. As a consequence, competi-

tion policy has to alter the underlying cost-benefit calculation suffi-

ciently in order to avoid their implementation in the first place and

thereby to ameliorate the functioning of markets.

Although the importance and value of the deterrent effect of

antitrust sanctions is undisputed among antitrust experts, it is equally

undisputed that the scope of the effect is very hard to measure in

practice. As a consequence, an evaluation of the success of the revi-

sion of a cartel law is certainly a difficult undertaking. If the goal of

competition policy is the prevention of competition law infringements

(and therewith competition cases), it immediately follows that a direct

output-oriented evaluation focusing on, e.g., the number and effects

of decisions made by a competition authority in a specific period

must be regarded as insufficient or even pointless. Consequently,

alternative indicators must be used to analyze the success of the revi-

sion of the KG. For example, with a significant and credible increase

in sanction possibilities, firms will have elevated incentives to invest

in the avoidance of competition policy infringements, such as by

increasing their use of competition law compliance programs. Given

the significant change in the fining possibilities for the COMCO—

from no fines for first offenders to fines of up to ten percent of the rev-

enue in the relevant market in the preceding business year—a

test-bed is created that promises to allow the identification of some

key changes due to the revision.

Against this background, it is the aim of this article to assess

changes in the deterrent effect of antitrust sanctions in Switzerland

since the revision of the KG. Section II gives a brief overview of sur-

EVIDENCE FROM SWITZERLAND :429