Price-Fixing Overcharges: Legal and Economic Evidence

Abstract

This paper surveys 259 published studies, spanning a broad swath of history and all types of private hard-core cartels, that contain 1,040 quantitative estimates of overcharges. The primary finding is that the median long-run overcharge for all types of cartels over all time periods is 25.0%: 18.8% for domestic cartels and 31.0% for international cartels. About 7% of the sampled cartels were unsuccessful in raising prices. Cartel overcharges are positively skewed, pushing the mean overcharge for all successful cartels to 43.4%. Convicted cartels are on average as equally effective at raising prices as unpunished cartels. However, bid-rigging conduct does display somewhat lower mark-ups than price-fixing cartels.

Most of the studies are by social scientists, but their findings are not dissimilar to overcharges in a sub sample of final verdicts in decided U.S. horizontal collusion cases nor to the decisions of foreign competition commissions.

There are three significant policy implications. First, some antitrust writers believe that there is little evidence that cartels raise prices significantly or are durable enough to justify the height of current U.S. corporate cartel penalties. This survey's results sharply contradict these views. In fact, the data suggest that the penalties specified by U.S. and foreign fining guidelines ought to be increased.

Second, average fines imposed since 1995 by Canada and the EU on identical international cartels have been lower than U.S. government fines, yet overcharges generated by cartels discovered outside the United States are higher than North America-centered cartels. Consequently, fine-setting practices abroad are in need of strengthening.

Third, cartels with multi-continental effects raise prices higher than other types of international cartels. Despite the evident increases in cartel detection rates and the size of monetary fines and penalties in the past decade, a good case can be made that current global anticartel regimes are under-deterring.

Keywords: cartel, collusion, overcharge, mark-ups, price effects, antitrust

JEL Classification: L12, L42, K22, B14, F29