How High Do Cartels Raise Prices? Implications for Reform of the Antitrust Sentencing Guidelines
Robert H. Lande
University of Baltimore - School of Law
John M. Connor
Purdue University; American Antitrust Institute (AAI)
Tulane Law Review, Vol. 80, 2005
American Antitrust Institute Working Paper No. 01-04
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 USSC's 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 article's demonstration that cartels typically generate at least two or three times the harms presumed by the current Sentencing Guidelines.
Number of Pages in PDF File: 55
Keywords: cartel, antitrust, sanctions, cartel fine, criminal fine, deterrence
JEL Classification: K22
Date posted: August 30, 2005 ; Last revised: September 16, 2008
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