Transcript Price Effects of International Cartels in Markets for

Price Effects of International Cartels
in Markets for Primary Products
John M. Connor,
Purdue University
West Lafayette, Indiana, USA
[email protected]
CUTS Symposium on Trade in Primary
Products and Competition Policy,
World Trade Organization, Geneva,
Switzerland, September 22, 2011
MOTIVATION
• An old debate about trade and FDI policies:
Did they change the terms of trade between
the rich and poor nations, 18th-20th centuries?
• New debate about whether private market
power of MNCs has transferred incomes from
and hindered economic development of LDCs.
• Are primary product cartels different?
• Have private cartels exploited LDCs to a
greater extent than their “home” nations?
• Have weak antitrust authorities contributed?
OBJECTIVE
• To analyze the extent of price changes
induced by privately organized international
cartels in markets for primary products
• To examine price effects of primary vs. secondary
cartels across industries, geography, and time
• Link the economic harm generated by these cartels to
the monetary penalties historically imposed on them
by competition authorities
• Calculate the degree of deterrence of cartel violations
presently achieved
DEFINITIONS
• Cartel = voluntary associations of large MNCs
that explicitly collude on market prices or
output to increase joint profits
• Cartel = illegal, secret joint-venture/merger
• Explicit collusion = “conspiracy” = direct
communication and overt agreement
• Private = not protected by sovereignty/treaty
• International = Members from 2+ nations
• Primary = raw materials & minimal processing
METHOD OF ANALYSIS
• Cartel Overcharge CO = Pm – Pc during collusion.
• Expressed as a percentage price change:
CO = ((Pm – Pc)/Pc) ∙ 100%.
• Primary vs. Secondary industries comparisons
• Time periods reflect changes in antitrust
regimes and empirical economic analysis
• Optimal deterrence is a legal-econ concept:
point where E(benefits)=E(penalties) =>
Penalties* = E(Benefits)/prob(detection)
DATA SOURCES
• Price-Fixing Overcharges (PFO) data set: basic
information on more than two thousand
published, quantitative estimates of the price
changes (if any) caused by private cartels that
began to operate as early as 1700
• Private International Cartels (PIC) data: a more
richly detailed legal-economic compilation on
about 600 contemporary international cartels
punished by antitrust authorities worldwide
during 21 years: January 1990 to December 2010
Primary Product Cartels
INDUSTRY DISTRIBUTION: PFO
Number of Known International Cartel Episodes, by Industry, 1700-2010
Year Episode Ended
Industry
1702-1919
1920-1945
1946-1989
1990-2010
Total
Primary:
Agriculture & Forestry
Mining
Food & Tobacco
Textiles
Wood, lumber
Chemical Fertilizers
Primary Metals
33
0
8
0
2
0
10
13
130
5
41
8
0
0
23
53
42
0
17
1
0
0
8
16
60
0
0
13
0
0
42
5
265
5
63
22
2
0
83
87
Other Industries:
Other Manufacturing
Construction
Transport & Communication
40
37
0
2
49
48
0
1
22
22
0
0
312
238
13
19
423
345
13
22
Distribution
Other Services
0
1
0
0
0
0
11
31
11
32
All Industries
73
179
64
372
688
Source: John M. Connor. Price-Fixing Overcharges data spreadsheet dated May 4, 2011.
Contemporary Primary Product Cartels
Number of Contemporary Primary
Product Cartels, by Industry
INDUSTRY DISTRIBUTION: PIC
Number of International Cartels Detected, by Industry, 1990-2010
Industry
1990-1999
Year Episode Ended
2000-2010
Total
Primary:
Agriculture & Forestry
Mining
Food & Tobacco
Textiles
Wood, lumber
Chemical Fertilizers
Primary Metals
21
2
1
9
1
0
8
0
78
8
9
36
4
3
12
6
99
10
10
45
5
3
20
6
Other Industries:
Other Manufacturing
Construction
Transport & Communication
Distribution
Other Services
134
91
12
12
10
9
379
187
28
57
50
57
513
278
40
69
60
66
All Industries
155
457
612
Source: John M. Connor. Private International Cartels data spreadsheet dated June 21, 2011.
Numbers of Cartels Operating in
Low Income Regions, 1990-2010
GEOGRAPHIC DISTRIBUTION
Number of Known International Cartel Episodes, by Principal Geographic
Region of Operation, 1700-2010
Region
17021919
North America
EU (Multiple Member States)
Single Nations of W. Europe
Global (2+ Continents)
Asia & Oceania
Other Less Developed
Regions a
World (All Regions)
Asia, and LDCs
Global, Asia, and LDCs
Year Episode Ended
1920194619901945
1989
2010
Total
17
4
1
39
0
1
28
9
0
142
0
0
9
11
7
36
1
0
142
69
59
67
19
16
196
93
67
284
20
17
62
179
64
372
677
Percent of World
0%
1%
9%
79%
58%
27%
5%
47%
1%
65%
Source: John M. Connor. Price-Fixing Overcharges data spreadsheet dated May 4, 2011.
a)
Includes episode entirely within Africa, Latin America, or Eastern Europe.
Sales of Primary Product Cartels
Operating in Low Income Regions
MEDIAN CARTEL PRICE EFFECTS
PRICE EFFECTS: DISCUSSION
• Cartel overcharges are declining.
• Before 1946, cartel overcharges of primary
products cartels were lower (about 40%) on
average than for secondary products (55%).
• But since 1945 cartel overcharges of primary
products cartels are higher (38%) on average
than for secondary products (25%).
• Explanations of these empirical regularities
require further research.
ANTI-CARTEL ENFORCEMENT SPREADS
• Four historical phases:
1907-1911: antitrust wins in US courts
1920-1945: heyday of global cartels outside USA
1946-1989: methods weak, penalties low
1990-2011: cartels outlawed everywhere,
procedures strengthened, penalties rise
• Today at least 50 antitrust authorities have
investigated international cartels, including 30 in the
LDCs (Brazil, So. Africa, Korea are very active)
ANTI-CARTEL ENFORCEMENT STRONGER
• Cartel detections are up to 50+ per annum,
four times faster than 20 years ago.
• Penalties are rising everywhere; disgorgement
of cartel profits is now normal in US and EU,
but not elsewhere
• The spread and increasing power of antitrust
authorities is one cause of declining
international cartel overcharges
• Yet, penalties are sub-optimal for deterrence
CONCLUDING COMMENTS
• Primary products cartels are shrinking in
number and importance.
• But where they occur, the price effects are
more injurious, partly because they are
strongly associated with global cartels.
• Higher penalties are needed to deter.
• The Primary/Secondary products distinction
for cartels is analytically useful and deserves
further empirical research.