About cartel overcharges : Kroes is correct

An article by MM. Ehmer and Rosati in Concurences N° 4-2009 expressed dissatisfaction with a view expressed in a March 2009 speech in Brussels by Commissioner Neelie Kroes (“Science, myth and fines : Do cartels typically raise prices by 25% ?”). As a justification for the high cartel fines imposed on cartels during her administration, she contends that most economic research indicates that the average cartel overcharge is likely to be 20% to 25%. This article defends Kroes’ assertion about the typicality of such overcharges. This article argues in some detail that MM. Ehmer and Rosati have it wrong. The overwhelming empirical evidence on cartel overcharges is reliable, scientific, and biased downward.*

* On this issue, see also the article from E. Combe & C. Monnier “Les amendes contre les cartels : La Commission européenne en fait-elle trop ?”, in the same N° 4-2009, p. 41

1. In the 4-2009 issue of Concurrences, MM. Ehmer and Rosati [1] launched an attack on a major speech given by Competition Commissioner Neelie Kroes. [2] In her address, Kroes endorsed a finding from the “economic literature” that price-fixing cartels attain average overcharges [3] in the 20% to 25% range. MM. Ehmer and Rosati (p. 1, 5) fear that, if senior officials of European antitrust authorities act on this belief, cartel fines will rise even higher than they have been in recent years. 2. MM. Ehmer and Rosati sprinkle their paper with a few well known theoretical reasons that can limit the formation, stability, duration, and effectiveness of cartels. [4] However, MM. Ehmer and Rosati (p. 2-5) reserve most of their energy trying to discredit the empirical content of Price-Fixing

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John M. Connor, About cartel overcharges : Kroes is correct, février 2010, Concurrences N° 1-2010, Art. N° 30040,

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