Robert H. Lande

Cartels as Rational Business Strategy: Crime Pays

Cartels have always been the highest concern of antitrust. They overcharge consumers many billions of dollars every year and there is a strong consensus that they should be sanctioned heavily. Yet, until now no one has ever seriously attempted to analyze whether cartel sanctions are at the optimal level. This article is the first to undertake this formidable task. Rather surprisingly, it demonstrates that the combined level of United States cartel sanctions has been only 7% to 17% as large as it should be to protect potential victims of cartelization optimally. To remedy this the average level of United States anti-cartel sanctions should be approximately quintupled.

Cartel Overcharges and Optimal Cartel Fines

This Article examines whether the current penalties in the United States Sentencing Guidelines are set at the appropriate levels to deter illegal price fixing cartels optimally. The authors analyze two data sets to determine how high on average cartels raise prices. The first consists of every published scholarly economic study of the effects of cartels on prices in individual cases. The second consists of every final verdict in a U.S. antitrust case in which a neutral finder of fact reported collusive overcharges. They report average overcharges of 49% and 31% for the two data sets, and median overcharges of 25% and 22%. They also report separate results for domestic cartels, international cartels, more recent cartels, and bid‑rigging. The authors conclude that the current Sentencing Commission presumption that cartels overcharge on average by 10% is much too low, and that principles of optimal deterrence indicate that current levels of cartel penalties should be increased significantly. The Sentencing Commission should consider raising the presumption to 15% for domestic cartels and 25% for international cartels. Alternatively, if the policymakers decide this distinction is unwise, a 20% overall presumption would be appropriate. This is a conservative and modest proposal in light of this articles results.

How High Do Cartels Raise Prices? Implications for Reform of the Antitrust Sentencing Guidelines

Our survey identified about 200 serious social-science studies of cartels which contained 674 observations of average overcharges. Our primary finding is that the median cartel overcharge for all types of cartels over all time periods has been 25%; 17-19% for domestic cartels, and 30-33% for international cartels. Thus, in general, international cartels have been about 75% more effective in raising prices than domestic cartels. Since the United States has had, historically, by far the toughest system of anti-cartel sanctions, this could imply that these sanctions have been having significant effects.In our social-science sample, 79% of the overcharges were higher than the 10% presumption contained in the US Sentencing Guidelines; 60% were above 20%. Perhaps surprisingly, bid rigging was no more injurious than other forms of collusion. If anything, our data suggests that bid rigging might be about one-fifth less injurious. These results suggest that the USSC should amend its Guidelines, which currently treat bid rigging more harshly than other forms of collusion.The results of the survey of final verdicts in decided U.S. collusion cases, only three of which were international cartels, show an average median overcharge of 21.6% and an average mean overcharge of 30.0%. Thus, the 25 decisions produce average overcharges that are quite comparable to the results of the much larger set of economic estimates. All but five of the reported decisions found that the cartel had raised prices by more than the USSCs 10% benchmark.For these reasons, if the U.S. Sentencing Commission decides to re-examine whether 10% is the right overcharge presumption, it should consider raising the presumption to 15% for domestic cartels and 25% for international cartels. This is a conservative and modest proposal in light of this articles demonstration that cartels typically generate at least two or three times the harms presumed by the current Sentencing Guidelines.

Not Treble Damages: Cartel Recoveries Are Mostly Less Than Single Damages

Antitrust law provides treble damages for victims of antitrust violations, but the vast majority of private cases settle. The average or median size of these settlements relative to the overcharges involved has, until now, been only the subject of anecdotes or speculation. To ascertain what we term “Recovery Ratios,” we assembled a sample consisting of every completed private U.S. cartel case discovered from 1990 to mid-2014 for which we could find the necessary information. For each of these 71 cases we assembled neutral scholarly estimates of affected commerce and overcharges. We compared these to the damages secured in the private cases filed against these cartels. The victims of only 14 of the 71 cartels (20%) recovered their initial damages (or more) in settlement. Only seven (10%) received more than double damages. The rest — the victims in 57 cases — received less than their initial damages. In four cases the victims received less than 1% of damages and in 12 they received less than 10%. Overall the median average settlement was 37% of single damages. The unweighted mean settlement (a figure that gives equal weights to the cartels that operated in large markets and to those that operated in small markets) was 66%. . The mean and median average Recovery Ratios are higher (81.2% and 52.4%, respectively) for the 36 cases that followed criminal convictions of U.S. antitrust law. The conclusion of this Essay briefly discusses some of the implications of these findings.

Afterword: Could a Merger Lead to Both a Monopoly and a Lower Price?

This article demonstrates that significant net efficiencies from a merger could cause prices to decrease, even if the merger results in a monopoly. The article also shows that a price focus would require substantially more efficiencies to justify an otherwise anticompetitive merger than would an efficiency focus (in other words, it re-does the Williamsonian merger tradeoff, using price to consumers instead of net efficiencies as its focus). We demonstrate this by calculating how large the necessary efficiency gains would have to be to prevent price increases under different market conditions.

Comment on “The Empirical Basis for Antitrust: Cartels, Mergers, and Remedies”

Abstract In this journal, James Langenfeld critically reviewed four of the present authors’ articles that analyze the size of cartel overcharges and their antitrust policy implications. In this comment, we explain why we believe Langenfeld errs in his criticism of our work. In particular, this comment discusses the variation in research quality of the sources used to compile a large sample of historical cartel overcharges; the advisability of trimming outliers or large estimates from the sample; alleged publication bias; why our 25% median estimate is much more likely to be correct than the US Sentencing Guideline’s 10% presumption; and the implications of the average cartel overcharges results for optimal deterrence and antitrust policy.

The Extraordinary Deterrence of Private Antitrust Enforcement: A Reply to Werden, Hammond, and Barnett

In 2011, we documented an extraordinary but usually overlooked fact: private antitrust enforcement deters a significant amount of anticompetitive conduct. Indeed the article showed that private enforcement probably deters even more anticompetitive conduct than the almost universally admired anticartel enforcement program of the United States Department of Justice. In a recent issue of The Antitrust Bulletin, Gregory J. Werden, Scott D. Hammond, and Belinda A. Barnett, members of the Justice Department staff, challenged our analysis, asserting that our comparison “is more misleading than informative.” However, their specific criticisms do not withstand scrutiny. In this reply, we explain why our original conclusions survive the efforts of Werden, Hammond, and Barnett to debunk them.

Consumer Choice as the Best Way to Describe the Goals of Competition Law

This article is both a short introduction to the Consumer Choice explanation for Competition Law or Antitrust Law, and also a short advocacy piece suggesting that Consumer Choice is the best way to articulate the goals of European Competition Law and United States Antitrust Law. This article briefly: 1. defines the consumer choice approach to antitrust or competition law and shows how it differs from other approaches; 2. shows that the antitrust statutes and theories of violation embody a concern for optimal levels of consumer choice; 3. shows that the United States antitrust case law embodies a concern for optimal levels of consumer choice; 4. presents evidence of the new paradigm: United States v. Microsoft; 5. argues that non-price competition should become a higher priority for he enforcers; 6. Discusses Consumer Choice and the media. The article shows that the choice framework has many advantages. It takes full account of all the things that are actually important to consumers - price, of course, but also variety, innovation, quality, and other forms of non-price competition. It is also far more transparent, which is an important administrative virtue even where, as in the great majority of cases, it will reach the same result. And in some important real-world situations it will lead to better substantive outcomes. There are a number of variety-valuing industries and circumstances that can be assessed correctly only by including an effective analysis of nonprice factors. We identify these in the article.

New Options for State Indirect Purchaser Legislation: Protecting the Real Victims of Antitrust Violations

Illinois Brick held that only direct purchasers successfully can sue for damages under federal antitrust law. Since this left most true victims of antitrust violations without an effective remedy, most states enacted Illinois Brick Repealers (IBRs), to give indirect purchasers the right to sue for damages when firms violate analogous state laws.Although many benefits would arise if national legislation overturned Illinois Brick, to date every attempt to achieve a comprehensive federal solution has failed. Because this thirty year stalemate is almost certain to continue, this article instead focused on reform at the state level, where reform is much more achievable.This article presents a large number of IBR options that address the spectrum of a states potential needs, together with commentary giving the major effects, advantages and disadvantages of each. As its Conclusion, this article suggests its own Model State Illinois Brick Repealer legislation.

FTC v. Intel: Applying the "Consumer Choice" Framework to "Pure" Section 5 Allegations

The Commission was wise to keep its options open by pleading both pure Section 5 violations and also violations of Section 2 of the Sherman Act....If the Commission does find a pure Section 5 violation, however, it should only do so if it does this while utilizing the consumer choice framework.