4 Cartel Detection

This chapter is concerned with cartel detection, through market monitoring, inspections, or well-designed leniency programs. It analyses three methods competition authorities regularly use to detect, and adduce evidence about, cartels. First, competition authorities can detect cartels by monitoring and screening markets. Second, competition authorities can conduct inspections at the business premises or private homes of cartel participants. Third, given the limitations of the first two methods, competition authorities can incentivize companies to report the cartels in which they may be involved by rewarding them for their cooperation. Pursuant to so-called leniency programmes, companies that choose to cooperate will, depending on the quality of the information provided and the time at which it is provided, benefit from full immunity from fines or significant fine reductions (partial immunity). Following in the footsteps of the US Department of Justice, the European Commission adopted a Leniency Notice in 1996, the application of which has allowed it to uncover a vast number of cartels.

3 The Regulatory and Institutional Framework of EU Cartel Law

This chapter deals with the institutional and regulatory framework that applies to cartels in the European Union (EU), going over both the substantive and procedural rules. The key legal basis for the prosecution of cartels resides under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), as interpreted by the case law of the EU courts. Article 101 TFEU is a three-pronged provision. First, the chapter shows how Article 101(1) TFEU establishes a prohibition rule providing that any agreement between undertakings which may affect trade between Member States and which restricts competition is to be deemed incompatible with the internal market. Next, the chapter takes a look at how Article 101(2) TFEU declares that agreements deemed incompatible pursuant to Article 101(1) TFEU are null and void. The ways in which Article 101(3) TFEU embodies an exception to the default prohibition rule, which defuses the application of Article 101(1) for agreements that bring a positive net contribution to consumer welfare, is also discussed.

1 Introduction

This introductory chapter is a brief overview on cartels. It first defines what a cartel is in the modern sense and differentiates it from other forms of cooperation that do not typically apply to the European Union's (EU) competition rules. The chapter then considers the advantages and disadvantages of cartels. It describes a history in which cartels are tolerated and even encouraged, contrasting these instances with the modern view that horizontal cartel arrangements are generally very harmful to consumers and to markets. From there, the prevalence of cartels in modern economies is explored. Here, the chapter provides some model estimates for the prevalence of cartels, before discussing the broader implications of this study.

7 The Value of Anti-Cartel Rules

This concluding chapter draws together major insights from the previous chapters and considers their broader implications in economics. It argues that economics can and should contribute to informing the design of many aspects of cartel law, since the decision to participate in a cartel is essentially an economic one. Competition lawyers should therefore be prepared to take the time to follow and understand the arguments that economic theory or evidence bring to the table. Equally, competition economists' work needs take account of the practical and administrative realities of running an enforcement regime. Economics also has an important role to play in evaluating the value and effectiveness of competition law more generally. The chapter concludes by calling for the continued multi-disciplinary research of cartels and other questions of competition policy.

6 Civil Damages

This chapter deals with private litigation. It begins with some discussion of the general issues surrounding private enforcement and an overview of the United States, where the level of private enforcement in cartel cases has historically far exceeded that of public cases. The chapter then provides a summary of the state of private enforcement in each of the EU's current twenty-eight Member States, before the EU Damages Directive was adopted. In this respect, it attempts to give a summary of national initiatives in the absence of an EU framework but excludes reforms made in response to, or in direct anticipation of, the EU Damages Directive. This background is important to understand the issues that shaped the Directive. Finally, the chapter discusses the thorny issue of damage estimation.

5 Cartel Prosecution

This chapter describes the various stages of cartel prosecution, from the first request of information by the European Commission to the final decision and judicial review. It shows that, after the Commission services have uncovered some cartel activity, they need to investigate the matter and build a legal case leading to a formal infringement decision. Until the coming into force of Regulation 1/2003, that was the only legal route available. Since, the defendants and the Commission may agree to settle the case. In both circumstances, however, sanctions take the exclusive form of corporate fines. Both the existence (and scope) of an infringement and the size of fines can be contested through judicial review. The chapter also discusses the way firms which are part of a cartel are, or should be, sanctioned.

2 A Primer on Cartels

This chapter describes why and how firms try to form and run a cartel, and how these decisions relate to the economic theory of collusion. It first shows how firms form cartels to suppress or weaken the rivalry between them. They privately benefit from doing so but harm buyers (whether final consumers or other businesses) by artificially distorting the allocation of resources in the economy. The chapter then focuses on each of the elements needed for a cartel arrangement to be formed and to succeed, from the initial contact to the credible punishment mechanisms needed to prevent cheating. It looks at how cartels are set up and the challenges a cartel must overcome to maintain stability.