Fifteen Eighty Four

Cartels Diagnosed contains twelve gripping and insightful case studies of collusion from key business sectors – such as airlines, gasoline industry, and big pharma – which span from North America to Europe to beyond. They are written by expert and experienced scholars and practitioners with intimate knowledge of the case. The cases advance our understanding of why and how cartels form, how they operate, and how effective they are in restraining competition. They feature reproductions of key pieces of evidence such napkin drawings, location maps and timeline plots, and lay out market characteristic that were conducive to the collusion. The cartel mechanisms revealed are novel and sophisticated, and can support developing new collusive theories and antitrust practice. This book assists in understanding cartel formation and structure, the effects of collusion, detecting cartels, distinguishing collusion from competition, and developing new policies to deter and destabilize cartels.

Collusion remains a strong undercurrent of business practice, despite anti-cartel enforcement being a top priority of competition authorities. Alongside active prosecution of cartels, the study of cartels is a vibrant area of research for economics and legal scholars. A challenge for both practice and scholarship is that cartels evolve, as colluding firms continuously devise new methods to circumvent competition. The authors draw on their careful examination of a particular cartel episode in association with a legal case or academic research. This knowledge is typically not widely disseminated because it is presented in an expert witness report for an agency (which is the basis for four of the volume’s case studies), plaintiff (one case study), or defendant (three case studies) or, when part of an academic study (four case studies), does not fit into the format of a formal theoretical or empirical analysis required for economics journals. This volume was created to provide a venue for the insightful economic stories behind these episodes. Any involvement of the authors in the case is clearly acknowledged  and every effort was made to provide a balanced account of the case.

This volume should be inspirational for research and teaching, support public and private enforcers in detecting and prosecuting cartels, and advise the business community. It is interesting for anyone interested in economics with a focus on industrial organization, law with a focus on antitrust and competition matters, and sociology with a focus on corporate crime. The concise and accessible case studies in Cartels Diagnosed deliver novel insights into cartel formation, facilitating practices, cartels’ modus operandi, and the efficacy of cartels. Assisting in  understanding new cartel mechanisms and their effects, developing new policies to deter and destabilize cartels, and measuring harm, this volume is an invaluable reference for supporting public and private enforcers in detecting and prosecuting cartels. In research, the case studies can support developing new collusive theories. In the classroom, they can illustrate properties of cartels. In the realm of practice, they can assist in compliance and enforcement.

The twelve cases covered in the book range widely in their shapes and forms of collusion. Some are outright bold cartels, others subtle collaborations, even some allegations with an alternative, more benign explanation. The US Generic Drugs Cartel shows the importance of interpersonal relationships in cartel formation: the orchestrating sales director had rated her tight network of key salespeople at rivals on their receptiveness to collusion in a spreadsheet. In the Norwegian Private Alarm Systems Cartel high-level executives agreed not to poach each other’s customers when a private home was marked with the rival company’s home security badge, until one day a sales representative of one of the cartel members knocked on the door of the home of the other’s CEO with an offer to switch providers. The Worldwide Air Cargo Cartel makes clear how collusion need not span all the dimensions on which firms compete to be effective: raising only the fuel surcharge sufficed to increase the full freight invoice, despite the existence of other base price components that were not colluded on.

Israeli Bread is a case of how business can become personal in ways that may call for coordination to make peace, when in response to entry into his Haifa home market, a dominant bakery owner started offering aggressive low-price deals of “3 loaves for 10 shekels”. The Australian Retail Gasoline Cartel is about the potential of third-party data provision, Informed Sources, as a facilitating device for collusion, which gave retail gasoline companies in the wider Melbourne area high-frequency price information. The Norwegian Retail Gasoline Cartel alerts to the fact that subtle and seemingly innocent communication by publicly posted coded messages, in this case signalling with a new “valid from date” when to raise a new price cycle, can sustain collusion.

The Canadian Retail Gasoline Cartel illustrates the difficulties a cartel, this one in Quebec City, may face in getting out of a price war when demand is elastic and some firms give a low-price guarantee. In the Swedish Retail Gasoline Cartel producers colluded to reduce their rebates for professional customers, like transport and taxi companies, yet never gave back the benefits in the form of lower pump prices for everyone, which was their defence. The Italian Construction Cartel is a blatant case of bidding rings exploiting a specific flaw in the auction design used for public procurement, in which a work would be awarded to the most average bidder.

The Worldwide LCD Cartel had to deal with a wide product spectrum of liquid crystal displays in all sorts, shapes an uses, which made fixing high prices complex and led the cartel to focus only on the highest-selling products and low overcharges – but its members made up on volume. The Spanish Raw Tobacco Cartel is a rich story of double cartel formation for countervailing power, one by tobacco growers and another by processors, initiated by government regulation. Finaly, in the Greek Steel Case a suspicion of collusion by the Hellenic Competition Commission turned out unsubstantiated, as the price patterns thought to be markers of collusion could be explained as parallel pricing with a basis in common information about import prices. All the cases make for fascinating reading, story-telling, teaching, and inspiration for further research.

Critical acclaim

Cartels Diagnosed: New Insights on Collusion is unique in its focus on cartel cases and detailed yet pointed narratives. For teaching purposes, it offers supportive presentation materials online. The volume has received critical acclaim from top scholars in competition policy, including Massimo Motta, Luis Cabral, John Kwoka, and Patrick Rey, who call the cartel case studies “fascinating”, “superb”, “unique”, “excellent testimony”, and “must-reading for students of cartels and policy makers alike”.