According to the mainstream explanation of the origin of the Sherman Act, in 1890 the US Congress was persuaded by farmers and other small businesses about the dangers posed by big trusts (especially railroad monopolies) and enacted the first national antitrust law to curtail their market power. However, Stigler (1985) argued that there was modest proof of such account. The origin of the Sherman Act is still an issue of subject of recent revision and debate. While the US case requires to revise what happened more than 100 years ago, other regions in the World have witnessed the passing (or opposition to the enactment) of antimonopoly laws more recently. In Latin America, for example, most of the 22 national competition laws were enacted between the second half of the 20th century and beginning of the 21st century. Hence, Latin America offers a more recent story (and perhaps a clearer one) about the interest groups that resist competition law’s enactment and enforcement. Drawing from local press accounts and from a small sample of expert interviews, that I recently conducted to write a paper with A. Palacios-Lleras (UCL), there have been multiple sources of opposition to the enactment or enforcement of competition laws in Latin America. To make a long story short, the opposition is comprised of the usual suspects: large business associations, some sectors that benefit from sector-specific regulation (e.g. agroindustry)
In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than those based on profit) while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn out-perform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.
Recent works in the field of leniency programs have uncovered many ambiguous effects that these programs can have and some unexpected incentives for firms they may also generate. It is quite a common intuition that low standards of economic analysis can undermine the overall effectiveness of antitrust enforcement. What might be a counterintuitive result is how the treatment of different types of agreements – not just cartels, but vertical, conglomerate and horizontal cooperation agreements – and the standards of their assessment by the antitrust authority can influence the effectiveness of leniency programs. It is customary to think that leniency programs are targeted at cartels (even predominantly hardcore ones), whereas their use to fight any other type of conduct is dubious. Yet what happens when participants of other types of agreements try to use the program to get fine discounts in exchange for a confession, and what incentives might they have to do so? How should the antitrust authority act in this case? If normally such – “non-cartel” type – agreements would be assessed based on a “rule of reason” approach, it seems that applying the same approach to any agreement brought forward with the help of a leniency program would essentially defeat the aim of the program, which is to minimize investigation costs. And would the antitrust authority even have the necessary
In Motorola Mobility LLC v. AU Optronics, No. 14-8003, 2014 WL 1243797 (7th Cir. Mar. 27, 2014), the Seventh Circuit Court of Appeals offers an interpretation of the Foreign Trade Antitrust Improvements Act (FTAIA), 15 U.S.C. §6a that would have significant implications for the right to sue foreign companies under the Sherman Act. The FTAIA states that the Sherman Act “shall not apply to conduct involving trade or commerce … with foreign nations.” but provides some exceptions to that rule. The exception of relevance to Motorola Mobility is that foreign companies are liable under the Sherman Act when their conduct has “a direct, substantial, and reasonably foreseeable effect” on U.S. commerce and “such effect gives rise to a claim under [the Sherman Act].” Motorola Mobility involves an alleged cartel of foreign manufacturers of liquid crystal display (LCD) panels used in mobile phones. In a decision written by Judge Richard Posner, the LCD manufacturers were found not liable because their conduct did not have a “direct” effect and thus did not fall into the above-stated exception to the FTAIA: The alleged price fixers are not selling the panels in the United States. They are selling them abroad to foreign companies (the Motorola subsidiaries) that incorporate them into products that are then exported to the United States for resale by the parent. The effect
In accordance with the provisions of article 7, par. 3 of Portuguese Competition Act (hereinafter, ‘PCA’) arising of the 2012 comprehensive reform (Law nº 19/2012), the Portuguese Competition Authority (hereinafter ‘AdC’) set out by the end of 2013 the “Priorities of Competition Policy for 2014”. This happens only some months after the Government empowered a new President of AdC (Prof. António Ferreira Gomes, formerly at the OECD). After emphasizing as new relevant developments to take into consideration in the course of 2014, the importance of the new provisions of the 2012 PCA and the establishment of the specialized Competition and Regulation Court, the AdC set as its priorities (i) the safeguard of effective competition towards a dynamic economy, (ii) the promotion of a competition culture and of transparency and (iii) the reinforcement of the capacity of intervention of the Authority. As regards safeguarding effective competition (i), particularly noteworthy is the fact that AdC, beside a stated intention of fighting cartels, promoting for that the leniency regime (scarcely used so far in Portugal), also purports to act ‘ex officio’ against anticompetitive practices regardless of complaints and of leniency applications. That is a development to welcome since these days some Competition Authorities tend to rely almost exclusively on leniency and focus entirely on cartels (thus unduly reducing their scope of action). Also of the