Cartel behavior and efficient sanctioning by criminal sentences

Hardcore cartels that make agreements on quantities, prices, or areas, risk receiving both administrative fines from the cartel authority and civil law claims for damages. In addition to these risks, there is a recurring legal policy discussion that cartelist should also face criminal law consequences, such as fines and imprisonment with or without probation. In Germany, for example, companies may be found guilty of an administrative offence or have to answer for damages they cause. The cartel authority may fine employees who contribute significantly to the establishment and enforcement of the cartel within a company. As well, such as in the case of a tendering cartel, individuals may face prosecution. According to Becker's theory of crime, penalties must be at least as high as expected benefits to deter crimes. For example, we start by multiplying cartel infringement by the reciprocal of the probability of detection and punishment. When we factor in expected reductions due to leniency and settlements, it’s easy to see there must be an increase in penalties for them be effective. From the company perspective, there is a substitutive relationship between administrative penalties and compensation payments under private law. Criminal penalties such as fines or imprisonment have a negative impact on an employees’ concept of personal benefits. In theory, deterrence to participate in cartel activities must be based both on the incentives of firms as a whole, and on the individual participants’ perspectives. Sanctions by the Bundeskartellamt in the last decade provide information on the profits made from cartel offences despite current restrictions, and take into account cartel surcharges discussed in the literature. By applying the empirically determined probabilities of punishment, we can calculate the minimum level of fines required to deter cartel infringement ex-post for each case, and compare the figures to the actual penalties. In many cases, the calculated minimum penalties would result in a considerable increase in fines, which would have to be covered either by compensation payments, or criminal sanctions. If custodial sentences were based on the probability of zero compensation payments, and the monetary loss of benefit, the result would sometimes equal an impractically long criminal sentence. Sensitivity analyzes that use alternative values for the probability of punishment usually still result in long prison sentences. In light of these estimates, the practicality of achieving a sufficient degree of deterrence through criminal sanctions is highly questionable. From a legal policy perspective, it would be more effective to raise administrative sanctions to a sufficient level, especially against individuals, if compensation payments cannot be increased substitutionally.