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Price-Fixing Overcharges: Legal And Economic Evidence

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  • Connor, John M.

Abstract

This paper surveys hundreds of published social-science studies of private, hard-core cartels that contain 699 observations of long-run overcharges. The primary finding is that the median cartel overcharge for all types of cartels over all time periods is 25%: 19% for domestic cartels, 32% for international cartels, and 31% for all successful cartels. Thus, international cartels have historically been about 68% more effective in raising prices than domestic cartels. Cartel overcharges are skewed to the high side, pushing the mean overcharge for all types of cartels over all time periods to 42%. "Peak" cartel overcharges are typically double those of the long-run averages. These results are generally consistent with the few, more limited, previously published works that survey cartel overcharges. There is no evidence that convicted cartels are markedly less effective than unpunished ones. The results of a second survey of final verdicts in decided U.S. horizontal collusion cases, only three of which were international cartels, show an average median overcharge of 21% and an average mean overcharge of 30%. Outside the United States, 62 decisions of competition commissions cited median average overcharges of 25% and a mean of 47%. There are three significant policy implications. First, there is a view among some antitrust writers that there is little evidence that cartels raise prices significantly for a period long enough to justify the height of current U.S. cartel penalties. This survey's results, which are based upon an extraordinarily large amount of data spanning a broad swath of history of all types of private cartels, sharply contradict these views. In fact, the data suggest that U.S. penalties ought to be increased. Mean overcharges are three times as high as the level presumed by the U.S. Sentencing Commission. Surprisingly, bid rigging was no more injurious than other forms of collusion, which suggests that the USSC should amend its Guidelines that currently treat bid rigging more harshly than other forms of collusion. Second, the principal antitrust authorities abroad often base their typical or maximum fines on a 10% harm presumption. Average fines imposed since 1995 by Canada and the EU on identical cartels have been lower than U.S. government fines, yet overcharges generated by cartels discovered outside the United States are higher than North America-centered cartels. Consequently, anticartel laws and fine-setting practices abroad are in even greater need of strengthening. Third, cartels with multi-continental price effects are the most harmful type. Despite the evident increases in cartel detection rates and the size of monetary fines and penalties in the past decade, a good case can be made that current global anticartel regimes are under-deterring. While the recent worldwide trend towards the intensification of cartel penalties has been desirable, global cartels are more difficult to detect, have less fear from entry of rivals, achieve higher levels of sales and profitability, and systematically receive weaker corporate sanctions than comparable domestic cartels. Antitrust sanctions worldwide should be higher for global cartels than for other types.

Suggested Citation

  • Connor, John M., 2005. "Price-Fixing Overcharges: Legal And Economic Evidence," 2005 Annual meeting, July 24-27, Providence, RI 19254, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea05:19254
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    Cited by:

    1. Kaplow, Louis & Shapiro, Carl, 2007. "Antitrust," Handbook of Law and Economics, Elsevier.
    2. John M. Connor, 2004. "Global Antitrust Prosecutions of Modern International Cartels," Journal of Industry, Competition and Trade, Springer, vol. 4(3), pages 239-267, September.
    3. Zeuli, Kimberly A. & Deller, Steven C., 2007. "Measuring the Local Economic Impact of Cooperatives," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 35(1).
    4. Gregory Werden, 2008. "Assessing the Effects of Antitrust Enforcement in the United States," De Economist, Springer, vol. 156(4), pages 433-451, December.
    5. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics 16179, University of Munich, Department of Economics.
    6. Louis Kaplow, 2011. "Market Definition and the Merger Guidelines," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(1), pages 107-125, August.
    7. John M. Connor, 2004. "Extraterritoriality Of The Sherman Act And Deterrence Of Private International Cartels," Working Papers 04-08, Purdue University, College of Agriculture, Department of Agricultural Economics.
    8. Mats Bergman, 2008. "Quis Custodiet Ipsos Custodes? or Measuring and Evaluating the Effectiveness of Competition Enforcement," De Economist, Springer, vol. 156(4), pages 387-409, December.
    9. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2008. "The impact of collusion on price behavior: Empirical results from two recent cases," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1290-1307, November.
    10. Buccirossi, Paolo & Spagnolo, Giancarlo, 2006. "Optimal Fines in the Era of Whistleblowers," CEPR Discussion Papers 5465, C.E.P.R. Discussion Papers.
    11. In Lee, 1999. "Non-cooperative Tacit Collusion, Complementary Bidding and Incumbency Premium," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(2), pages 115-134, September.
    12. Frank Verboven & Theon Van Dijk, 2007. "Cartel damages claims and the passing-on defense," Working Papers Department of Economics ces0715, KU Leuven, Faculty of Economics and Business, Department of Economics.
    13. Marie-Laure Allain & Marcel Boyer & Rachidi Kotchoni & Jean-Pierre Ponssard, 2011. "The Determination of Optimal Fines in Cartel Cases - The Myth of Underdeterrence," CIRANO Working Papers 2011s-34, CIRANO.
    14. Günster, Andrea & van Dijk, Mathijs, 2016. "The impact of European antitrust policy: Evidence from the stock market," International Review of Law and Economics, Elsevier, vol. 46(C), pages 20-33.
    15. Shastitko, Andrey & Golovanova, Svetlana, 2015. "'Comparable Markets' as a Tool of Antitrust Policy: Design, Application Experience, Development Directions," Published Papers mn31, Russian Presidential Academy of National Economy and Public Administration.
    16. John Connor, 2006. "Effectiveness of Antitrust Sanctions on Modern International Cartels," Journal of Industry, Competition and Trade, Springer, vol. 6(3), pages 195-223, December.
    17. Barbara Annicchiarico & Federica Orioli & Federico Trionfetti, 2012. "National oligopolies and economic geography," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(1), pages 71-99, February.
    18. John Connor & C. Gustav Helmers, 2006. "Statistics On Modern Private International Cartels, 1990-2005," Working Papers 06-11, Purdue University, College of Agriculture, Department of Agricultural Economics.
    19. John A. List, 2009. "The Economics of Open Air Markets," NBER Working Papers 15420, National Bureau of Economic Research, Inc.
    20. Aubert, Cecile & Rey, Patrick & Kovacic, William E., 2006. "The impact of leniency and whistle-blowing programs on cartels," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1241-1266, November.
    21. Bolotova, Yuliya V., 2009. "Cartel overcharges: An empirical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 321-341, May.
    22. Golovanova, Svetlana, 2014. "Legal structure of comparable markets in the Russian antimonopoly legislation," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 99-115, October.
    23. Russian Presidential Academy of National Economy and Public Administration authors collective, 2012. "The Consequences of Weak Competition: Quantitative Evaluation and Policy Implications (Think Tank Report)," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 1-49.

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    International Relations/Trade;

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