LAW & ECONOMICS : CARTELS - PRICE EFFECTS - FINES SETTING - ILLICIT GAINS - CASE-BY-CASE APPROACH - EMPIRICAL STUDIES - ECONOMIC EFFICIENCY

Science, myth and fines: Do cartels typically raise prices by 25%?

The assessment and quantification of the (price) effects of cartels plays an increasingly important role not only in the setting of fines in actual cases but also in policy discussions, both on the European and on the national level. Competition policy aimed at achieving optimal cartel deterrence needs to set fines based on the illicit gains realised by the cartel members, which need to be calculated on a case-by-case basis. Instead, the competition authorities appear to justify their fining policy by reference to unreliable empirical studies which lack a sound scientific basis. As a result, there is a risk that fines are set at an excessively high level, reducing economic efficiency.

1. On a number of recent occasions, senior officials of the European Commission and of national competition authorities have sought to justify the recent sharp increase of cartel fines by referring to the existence of scientific evidence allegedly showing that cartels typically cause very substantial price increases. [1] A recent speech by Commissioner Kroes, for example, stated that “most economic literature on the subject suggests that the average [cartel] overcharge in prices is [...] likely [to be] 20% to 25%”. [2] These officials also suggested that European competition authorities might aim to increase cartel fines even further in order to deliver optimal deterrence in the face of what they believe to be the expected commercial gains from successful cartel conspiracies. 2.

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Francesco Rosati, Christian Ehmer, Science, myth and fines: Do cartels typically raise prices by 25%?, December 2009, Concurrences Review N° 4-2009, Art. N° 28832, www.concurrences.com

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