Question 1

What are the 4 key features of Anti-Cartel Enforcement Policies?

Accepted Answer

1. Deter cartels forming in the firm place 2. Detect Cartels that haven't been deterred and have formed 3. Punish the detected Cartels 4. Compensate the victims of the Cartels --\> the firms arent used to compensate the victims though (too costly for the Competition Agency to administer --\> so usually goes into the public purse) 1. Victims have to sue for damages to get their compensation Large fines with a leniency program can help with the first 3 points

Question 2

What are the two cases that we will be looking at?

Accepted Answer

1. Graphite electrodes cartel: deterring explicit collusion How fines are calculated, asked if the commission policy for issuing fines is in line with a policy promoting deterrence 2. District heating cartel: suing for damages How damages are calculated (economics of this calculations)

Question 3

GEC: What is the market?

Accepted Answer

Product market: Graphite electrode ceramic-moulded column of graphite used in the production of steel --\> used to transform old steel into new steel The process of using a graphite electrode on top of a furnace to recycle steel accounts for 1/3 of steel production in Europe in the 1990s Geographic market: Global (US, Europe, Asia) Firms: 9 firms operating in Europe in the 1990s Two global leaders controlled most of the market: SGL and UCAR 4 big players in the US (UCAR, SGL, C/G, SDK) CR4=95% A strong fall in demand(slump in steel production) in 1982 reduced the number from 18 overtime --\> common theme among cartels is a fall in the demand right before they are set up Entry barriers: High "complicated and expensive processes necessary for production" No significant entry since 1950

Question 4

GEC: Overview of the case?

Accepted Answer

June 1997: the investigation started by European Commission (in parallel with others) --\> started with Dawn raids of their factories Infringement of Article 81 (now 101) and conduct continued beyond June 1997 Firms attempted to obstruct the investigations and gathering of evidence July 2001: decision of EC delivered 8 of 9 firms fixed prices during 1992-98 in ‘top guy’ meetings in Switzerland Side payments between firms prevented gains from cheating E.g. if one cartel made lots of sales it would buy products from the other firms to smooth the profits across all C/G did not attend meetings but received information from cartel Used this info to undercut collusive price more than doubling its sales ==\> they were deviating from the cartel April 2004:Court of First instance decision relating to appeal by 7 firms June 2006: European Court of Justice (highest court) decision relating to appeal by EC and 2 firms Firms fined €218.8m in total following appeal (9.5% of EEA turnover)

Question 5

DHC: What are the 5 methods for calculating the but-for price?

Accepted Answer

Before/After method: use prices in same market from before or after cartel period Yardstick method use prices in a different comparable (geographic) market for the same product Cost-based method use accounting data to calculate average cost + normal return Econometric method use time-series regression to estimate the overcharge Oligopoly model develop a theoretical model of competition in the market and use real world data to parameterise the model to quantify the effects

Question 6

Pros and Cons of the methods of calculating the but-for price?

Accepted Answer

Simple methods (B/A and Yardstick) dont control for other factors e.g. demand and supply conditions were very different before and after the cartel came into play How do we know that prices before and after or in different geographical markets are competitive --\> these prices could have been affected/influenced by the cartel and arent wholly accurate Also if firm's in the cartel know damages are going to be calculated using the price before and after the cartel disappears --\> they would raise the after price as much as possible to reduce what they would have to pay Cost-based method issue is it start of with perfect competition for it calculations but we know that the Cartel's arise in markets with few competitive firms seems like a strange way to calculate what the price would have been without the cartel --\> market would have always been imperfectly competitive anyways Oligopoly model: You need to be able to develop a theoretical model of competition in the market and this is always going to need some simplification --\> so you may miss out on some of the important factors that are going on in the market

Question 7

DHC: What was the market like?

Accepted Answer

Product market: District heating pipes Pre-insulated pipes to supply hot water from district heating stations to households Discontinuous (standard way) vs continuous pipe production (cheaper and faster to do with less materials) Geographic market: Western Europe (national level) Found in Nordic countries, northern Germany, Eastern Europe, Mediterranean Germany largest market (40%) and Denmark second largest (20%) Firms: more than 10 firms active in the market 4 largest firms: ABB (40%); LR (20%); Tarco (14%); Pan-Isovit (12%) Highly concentrated market where CR4=86 and HHI = 2461 Customers: municipalities (local government) Buy pipes through tender or EU procurement (bid for the job)

Question 8

DHC: Overview of the Case?

Accepted Answer

June 1995- investigation started by European Commission Tipoff from competitor Powerpipe (Swedish company) The cartel continued 9 months after investigation began October 1998 - decision of EC delivered The infringement occurred between 1990-1996 (though may have started in 1988) There were 10 cartel members in total, with four core Danish firms The cartel was active in Demark initially (1991), then expanded to Italy/Germany (by 1994) , then EU The behaviour included: price-fixing, market sharing (firms in certain countries would supply certain markets (German companies service German municipalities), delayed innovation & predation (try and knock Powerpipe out the market) March 2001 --\> decision of Court of First Instance (later upheld by ECJ) Fines totalling €92.21m were reduced by €5.1m on appeal 2004/5 Four Danish municipalities sued 3 main Danish firms for damages (ABB, DRI, LR) Settlement in court in which 3 firms paid total of €21m (57% of claimed damages)

Brainscape's Knowledge GenomeTM

L7 - Collusion Case Studies Flashcards

Brainscape's Knowledge Genome^TM