What are cartels and how do they affect consumers?
Hard core cartels (when firms agree not to compete with one another) are the most serious violations of competition law. They injure customers by raising prices and restricting supply, thus making goods and services completely unavailable to some purchasers and unnecessarily expensive for others.
The categories of conduct most often defined as hard core cartels are:
Hard core cartel prosecution is a priority policy objective for the OECD. Increasingly, prohibition against hard core cartels is now considered to be an indispensable part of a domestic competition law.
- price fixing
- output restrictions
- market allocation
- bid rigging (the submission of collusive tenders)
Challenges in detecting hard core cartels
Cartels are very difficult to detect. They can involve many firms in the industry and customers are rarely in a position to detect the existence of a cartel. Antitrust enforcers should be helped in their ability to detect cartels by various means and instruments, the most effective being leniency programmes. These programmes provide immunity or reduction in sanctions for cartel members that co-operate (or ‘whistleblow’) with competition enforcers. Leniency programmes have been adopted by most OECD countries and have been instrumental in increasing the success rate of the detection of cartels.
The best outcomes are secured by deterring firms from forming cartels in the first place. Strong sanctions are therefore a fundamental component of an effective antitrust enforcement policy against hard core cartels. An important supplement to fines against organisations for cartel conduct is sanctions against individuals for their participation in the conspiracy. These sanctions can take the form of substantial administrative fines or, in some countries, the criminal sanction of imprisonment. The prospect of incarceration can be a powerful deterrent for businesspeople considering entering into a cartel agreement.
But cartels are not always harmful...
Some horizontal agreements between companies can fall short of a hard core cartel, and in certain cases may have beneficial effects. For example, agreements between competitors related to research & development, production and marketing can result in reduced costs for companies, or improved products, the benefits of which are passed on to consumers. The challenge for competition authorities is how to assess these agreements, balancing the pro-competitive effects against any anti-competitive effects which may distort the market.
For further information related to the OECD work on cartels and anti-competitive agreements, please contact us at DAFCOMPContact@oecd.org.