Сartel Undercover: Anticompetitive Actions in the Market with Heterogeneous Producers of a Homogeneous Product

The article is devoted to the situation of a cartel agreement between market participants, disguised by the goals of industrial policy and supported by foreign trade restrictions. The relevance of the study lies in the fact that the functioning of such cartels can have a significant negative impact on consumer welfare for relatively long period of time, while being protected by economic regulators. We consider this situation using the example of the European unwrought aluminum market, where national producers benefit from the price overcharge incurred because of import customs duties. Based on the analysis of trade statistics, economic and mathematical modeling, the mechanisms of cartel price overcharges in such situations are shown. It is noted that the heterogeneity of producers in terms of foreign trade regulation regimes makes it possible to obtain a cartel overcharge to the price in the domestic market even in conditions of product uniformity and competitive pricing conditions ensured by the functioning of the commodity exchange. In this case, the regulator acts as a facilitator of the cartel agreement, leveling the heterogeneity of producers in terms of costs by selectively applying import customs duties and de facto acting as a controller for maintaining monopolistically high prices. The cartel agreement itself is presented in the form of the industry association position, which supports the maintenance of import customs duties in conditions of the domestic market shortage and restrictions on the capacity of national producers. At the same time, consumers of raw aluminum who are members of the association, being the main victims of the import customs duties persistence, apparently cannot influence the position of the association due to the specifics of internal coordination and decision-making processes. To test this hypothesis, additional data will be required, as well as information about the internal structure of the association. 

1. Avdasheva S., Shastitko A. International Antitrust: Demand, Restrictionsand Lessons for Customs Union. Voprosy Ekonomiki, 2012, no.9, pp.110-125 (in Russian). DOI: 10.32609/0042-8736-2012-9-110-125.

2. Parshina E. Development of Competition in the Rail Transport. Nauchnye issledovaniya ekonomicheskogo fakul’teta. Elektronnyj zhurnal=Scientific Research of Faculty of Economics. Electronic Journal, 2015, vol.6, no.3, pp.49-68 (in Russian).

3. Tambovcev V. L. Teorii gosudarstvennogo regulirovaniya ekonomiki [Theories of state regulation of the economy]. Moscow, Prospekt Publ., 2021, 160 p.

4. Shastitko A. E. Kartel’: organizatsiya, stimuly, politika protivodeistviya [Cartel: Organization, Incentives and Deterrence Policy]. Rossiyskiy zhurnal menedzhmenta=Russian Management Journal, 2013, vol.11, no.4, pp.31-56 (in Russian).

5. Shastitko A. To Allow for Cartels? Voprosy Ekonomiki, 2015, no.6, pp.143-150 (in Russian). DOI: 10.32609/0042-8736-2015-6-143-150.

6. Shastitko A., Avdasheva S. Competition Policy: composition, structure, system. Sovremennaya konkurentsiya=Journal of Modern Competition, 2010, no.1, pp.5-20 (in Russian).

7. Shastitko A., Pavlova N. National antitrust in a global context. Sovremennaya konkurentsiya=Journal of Modern Competition, 2019, vol.13, no.3(75), pp.5-15 (in Russian). DOI: 10.24411/1993-7598-2019-10301.

8. Afonso N. G. Cartel damage evaluation: A case study on the liquefied petroleum gas cartel in Pará, Brazil. Rio de Janeiro, 2017, 84 p.

9. Armentano D. Antitrust: The Case for Repeal. 3nd edition. Auburn, Ludwig von Mises Institute, 2007, 112 p.

10. Belleflamme P., Peitz M. Industrial Organization: Markets and Strategies. Cambridge, Cambridge University Press, 2010, 702 р. DOI: 10.1017/CBO9780511757808.

11. Bolotova Yu. V. Cartel Overcharges: An Empirical Analysis. Journal of Economic Behavior and Organization, 2009, vol.70(1-2), pp.321-341. DOI: 10.1016/j.jebo.2009.02.002.

12. Bolotova Yu. V., Connor J. M., Miller D. J. Factors Influencing the Magnitude of Cartel Overcharges: An Empirical Analysis for the U. S. Market. Journal of Competition Law and Economics, 2008, vol.5, no.2, pp.361-381. DOI: 10.1093/joclec/nhn025.

13. Bolotova Y., Connor J., Miller D. J. Factors influencing the magnitude of cartel overcharges: An empirical analysis of food-industry cartels. Agribusiness, 2007, vol.23, no.1, pp.17-33. DOI: 10.1002/agr.20111.

14. Brander J. A., Ross T. W. Estimating damages from price-fixing. Canadian Class Action Review, 2006, vol.3, no.1, pp.335-369.

15. Buchanan J. The Logical Foundations of Constitutional Liberty. Indianapolis, Liberty Fund, 1999, 546 p.

16. Chamberlin E. The Theory of Monopolistic Competition. 8th edition. Cambridge, Mass., Harvard University Press, 1965, 410 р.

17. Connor J. M. Price-Fixing Overcharges: Revised 3rd edition, 316 p. DOI: 10.2139/ssrn.2400780.

18. Connor J. M., Bolotova Yu. V. Cartel Overcharges: Survey and Meta-Analysis. SSRN Electronic Journal, 2005, vol.24, no.6, pp.1109-1137. DOI: 10.1016/j.ijindorg.2006.04.003.

19. Davis P., Garcés E. Quantitative techniques for competition and antitrust analysis. Princeton, Princeton University Press, 2009, 594 p.

20. Inderst R., Maier-Rigaud F. P., Schwalbe U. Umbrella effects. Journal of Competition Law and Economics, 2014, vol.10, no.3, pp.739-763. DOI: 10.1093/joclec/nhu009.

21. Kurdin A., Shastitko A. The new industrial policy: a chance for the BRICS countries. BRICS Journal of Economics, 2020, no.1, pp.60-80. DOI: 10.38050/2712-7508-2020-5.

22. Motta M. Competition policy: Theory and Practice. N. Y., Cambridge University Press, 2004, 704 p.

23. Smuda F. Cartel overcharges and the deterrent effect of EU Competition Law. Journal of Competition Law & Economics, 2013, vol.10, no.1, pp.63-86. DOI: 10.1093/joclec/nht012.

24. Telser L. Why Should Manufacturers Want Fair Trade? The Journal of Law and Economics, 1960, vol.3, pp.86-105. DOI: 10.1086/466564.

25. Tirole J. The Theory of Industrial Organization. Cambridge, London, The MIT Press, 1988, 496 p.

26. Verboven F., Dijk T. Cartel damages claims and the passing-on defense. The Journal of Industrial Economics, 2009, vol.57, no.3, pp.457-491. DOI: 10.1111/j.1467-6451.2009.00390.x.