Formal Rules versus an Economic Approach in Dealing with Cartels: The Need for More Coherence in European Competition Law

By Musetescu, Radu; Stamate, Andreas | Romanian Journal of European Affairs, December 2011 | Go to article overview

Formal Rules versus an Economic Approach in Dealing with Cartels: The Need for More Coherence in European Competition Law


Musetescu, Radu, Stamate, Andreas, Romanian Journal of European Affairs


Abstract**:

Cartelizing is today among the most hunted business conduct in the world. Competition authorities from the countries where these statutes were adopted embrace the wisdom that such agreements between competitors are unquestionably anti-competitive. As opposed to other business practices, cartel agreements seem to offer an undeniable proof of intent that confers comfort for those who are investigating and prosecuting them. A cartel is today qualified as per se illegal. No further proof is needed but the formal agreement and the shared intentions. They are, at least until now, the only business practice that has lead, in certain jurisdictions, to jail terms and criminal record for individuals who were engaged in their negotiation and implementation. However, cartels are business practices that do not fundamentally aggress against any property right. From a public policy perspective, the harsh attitude towards cartels is lacking a theoretical coherence. Today, when competition policies all over the world and especially in the European Union are gradually transiting towards a more economic approach to evaluating the welfare effects of business practices, reassessing cartels is a critical imperative in the effort for a more coherent and reasonable public policy.

Keywords: competition policy, cartels, per se rules, economic approach

JEL Code: D43, D6

A cartel is an agreement among direct competitors to prevent or restrict competition. It is a horizontal agreement defined, from a legal perspective, in the Treaty of the European Union. It is the article 101 (former article 81), dealing with a larger specter of agreements between undertakings: "The following shall be prohibited as incompatible with the internal market all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment;

(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts".

The term "cartel" is however used exclusively for horizontal (as opposed to vertical) agreements, referring to agreements between producers which are qualified as being in a competitive position towards each other. In other words, they sell the same product. It should also be noted that, historically, the term was used for a formal written agreement - for example, a contract (the origin of the term comes from the Italian "carta"). It was a commercial practice that, for a period, was even enforceable like any other contract in some legal systems. But for the majority of time, a cartel has remained nothing but an informal agreement between businessmen whose observance was guaranteed by nothing but the promise of the other party.

A core difference between the types of agreements that are qualified as cartels lies in the difference between such practices on the free market as opposed to a hampered market. In the first instance, cartels have proved to be a short-lived practice that may attempt to solve some immediate dilemma for producers but cannot solve their strategic position. They are, in consequence, notoriously unstable and prone to cheating. In the second instance, due to the difference in the legal environment, cartels may be more successful due to state-erected barriers. They may be even means for reaching objectives of public policy. …

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