Prioritizing Cartel Enforcement

1
Prioritizing Cartel Enforcement

• Professor D. Daniel Sokol
• University of Florida Levin College of Law

2
Big Picture Issues

• Three types of cartels
• International cartels
• Domestic cartels
• Bid rigging
• Two large problems particularly for competition
  regimes
• The fixed cost for bringing cases is large
  regardless of the size of the jurisdiction
• Competition culture seems to be weaker in Latin
  America

3
International Cartels

• Globally greater economic damage
• Overcharges have been higher in Latin America
  than US and Europe
• BUT
• Problems with evidence and relevant information
• Implied threat of exit
• May lead to greater protectionist backlash
• Particular problem of export cartels
• Remedies

4
Domestic Cartels

• Social ties limit detection
• Low level of fines
• Powerful families own the cartel member firms
• Enforcement can be seen as political retribution
• Other parts of government might be creating
  conditions for cartels
• Penalties (civil and criminal) seen as too high

5
Bid rigging

• Framed as stealing from the government
• Can create good will for the agency with some
  parts of government
• Procurement agency needs to be supportive
• Chilean experience While most procurement
  officers were aware that bid rigging might be
  going on, they were unaware that such behavior
  was illegal and that such activity could result
  in significant penalties

6
Creation of Competition Culture

• Difficult even in countries with longer
  competition histories
• Need an element to moral shaming for cartel
  activity
• Cartel crimes different from other economic
  crimes such as accounting fraud

7
Difficulty of Creating Awareness

• Studies of Australia, Netherlands, UK Large
  firms are more aware than small firms, general
  population is not well aware
• Good cases may not increase the visibility of
  competition law in the country if the cartels do
  not involve basic consumer goods.
• Effective domestic cartel program requires case
  selection that takes newsworthiness into account
  (e.g., pharmacies in Chile)
• Other examples supermarkets (Bulgaria), bread
  (South Africa, Panama), cooking oil (Indonesia)
  or toilet paper (Brazil) have a chance of
  significant media coverage

8
Cartels and Culture Is the Public Aware?
9
Ineffective Media Coverage of Cartels in the US
Year Cartel news stories (815 different newspapers) Cartel cases filed Stories per cases filed NY Times stories only (narrow search on accounting /2 fraud)
1994 84 57 1.47 6
1995 69 60 1.15 3
1996 45 42 1.07 5
1997 43 38 1.13 6
1998 20 62 3.23 14
1999 41 57 0.72 21
2000 54 63 0.86 10
2001 61 44 1.39 20
2002 50 33 1.52 137
2003 82 41 2 158
2004 85 42 2.23 121
2005 119 32 3.72 203
2006 123 34 3.62 107
2007 128 40 3.2 48
2008 148 54 2.74 27
10
Corporate Laws Impact on Cartel Compliance

• Oversight Duties
• High threshold for liability
• Poor incentives for serious compliance programs
  (especially given antitrust strict liability
  regime)

11
Competition Law has Ignored Insights into the Firm

• Agency costs
• Organizational structure
• Cultural embeddeness
• Structures and methods to promote compliance

12
Other possibilities

• Cartel bounties
• Theory
• South Korean experience