The Impact of Cartels on National Economy and Competitiveness : A Lithuanian Case Study

The book presents theoretical and empirical research on the integrated assessment of cartels’ effects on national economies. The empirical analysis is based on three cases in Lithuania, a country chosen because it corresponds to the features of a small economy with a developing culture of competition. An integrated assessment of a cartel’s impact by measuring the net economic effect created by its operations on the market is extremely important at the scale of national economies. If a cartel’s true impact is not identified and evaluated, it is impossible to make important strategic decisions, for the whole economy instead of individual affected parties, and to establish an optimum baseline for mitigating the harm done to the economy. Thus, an integrated cartel impact assessment can help to more proactively combat cartel agreements on the market and improve the economic welfare of the respective country. Preface 6 Introduction 10 Contents 18 Chapter 1: Conception of Cartels: Definition and Diversity 22 1.1 Conception of Cartels 23 1.1.1 Concepts of Collusion 23 1.1.2 Concept of Cartel 24 1.1.3 Cartel: Is It a Combination of Independent Firms or a Single Corporation? 28 1.1.4 Variety of Cartels 29 1.2 Cartels in the Theories of Economic Thought: Two Different Approaches 33 1.3 Key Characteristics of Cartels 37 1.3.1 Cartel Duration 39 1.3.2 Cartel Overcharge 45 1.3.3 Cartel Profitability 50 1.4 Cartel Statistics in the European Union and Lithuania 53 1.4.1 Cartels in the European Union 54 1.4.2 Lithuanian Cartels 56 1.4.3 Fines for Cartels in Lithuania 59 1.4.4 Basic Features of Cartels in Lithuania 60 References 64 Chapter 2: Cartel Occurrence and Operation in Market 69 2.1 Cartels and Markets 69 2.2 Cartel Formation Methods 71 2.3 Principles of Cartel Formation 74 2.4 Cartel Structure 76 2.5 Cartel in the Market Economic System 77 2.6 Cartels and Producer Associations 80 2.7 Cartel Stability 83 References 86 Chapter 3: Cartel Markets 88 3.1 Cartel During Different Business Cycle Stages 88 3.1.1 Cartel During the Boom Phase of Business Cycle 90 3.1.2 Cartel During the Decline Phase of Business Cycle 91 3.1.3 Cartel During the Depression Phase of Business Cycle 92 3.1.4 Cartel During the Recovery Phase of Business Cycle 94 3.2 Characteristic Features of Industries with Increased Cartelisation Risks and Identification Thereof in Lithuania 97 3.2.1 Key Indications of Cartel Markets 98 3.2.2 Cartel Markets in Lithuania: Identification and Features 102 3.2.3 Economic Methods in Cartel Detection 110 References 112 Chapter 4: Legal Regulation of Cartels 116 4.1 Reasons and Objectives of Cartels Regulation 116 4.2 Regulation of Cartels in the EU and in Lithuania 120 4.3 Detection of Cartels: Authorities and Measures in the EU and in Lithuania: System of Fines 125 4.3.1 EU Network of Competition Authorities 125 4.3.2 EU Commission 127 4.3.3 Lithuanian Competition Council 127 4.3.4 Cartel Fining System 129 4.4 Measures to Prevent Cartels: Peculiarities and Problems of Their Application in the EU and in Lithuania 134 4.4.1 Leniency Programmes 134 4.4.2 Private Actions for Damages Caused by Cartels 138 4.4.3 Problems Concerning Imposition of Individual Liability for Cartel Activity 141 4.4.4 Restrictions on Participation in Public Procurement Procedures 142 4.4.5 Rewards to Natural Persons for the Provision of Information About a Cartel 143 4.4.6 Competition Law Compliance Programme 144 4.5 Main Problems of Implementing Competition Policy in Respect of Cartels in Lithuania and Solutions to them 145 References 150 Chapter 5: Analysis of the Impact of Cartels on National Economy and Competitiveness 154 5.1 Cartel and Market Inefficiency (Deadweight Loss) 154 5.2 Cartel Adverse Impact on Economy and Competitiveness 157 5.2.1 Cartel Adverse Impact at National Level 157 5.2.2 Cartel Adverse Impact at International Level 162 5.3 Cartel Positive Impact on Economy and Competitiveness 167 References 171 Chapter 6: Critical Analysis of Economic Efficiency of Fines Imposed on Cartels 174 6.1 Cartels and Antitrust Policy 175 6.2 Theoretical Concept of Optimal Fines 177 6.3 Deterrent Effect of Fines 180 6.4 Empirical Research on the Economic Efficiency of Fines 184 References 187 Chapter 7: Methodological Principles of Assessing Cartel Harm (Effects) 191 7.1 Assessment of Harm in Social-Economic System: Role and Principles 192 7.2 Parties Affected by Cartels 195 7.3 Quantitative Assessment of Cartel Effects 198 7.4 Phases of Effects Estimation 206 7.5 Methods for Estimating Harm Caused by Cartels 209 7.5.1 Overcharge Calculation 211 7.5.2 Calculation of the Pass-On of Overcharges 216 7.5.3 Evaluation of Lost Profit (Losses) 217 7.5.4 Methodology for Cartel Effects Assessment Applied by Competition Supervisory Authorities 218 7.6 Practical Difficulties in Harm Assessment 221 7.7 Aspects of Increasing Harm Estimation Accuracy 226 References 230 Chapter 8: Assessment of Cartel Impact on the National Economy: Integrated Model 234 Reference 246 Chapter 9: Empirical Application of a Model for an Integrated Assessment of Cartel Impact on the National Economy in the Case ... 247 9.1 Integrated Assessment of the Paper Cartel ́s Impact on the National Economy 248 9.1.1 Description of Paper Cartel Products 249 9.1.2 Paper Cartel Market Description 249 9.1.3 Paper Cartel Performance Analysis 249 9.1.4 Identification of Parties Affected by the Paper Cartel 250 9.1.5 Objects Affected by the Paper Cartel 251 9.1.6 Modelling of a Counterfactual Scenario for the Paper Cartel 251 9.1.7 Evaluation of the Paper Cartel ́s Economic Impact 254 9.1.8 Robustness and Sensitivity Analysis of Paper Cartel Assessment Results 262 9.1.9 Interpretation of Paper Cartel Assessment Results: Assessment of the Economic Efficiency of Fines 265 9.2 Integrated Assessment of the Orthopaedic Cartel ́s Impact on the National Economy 266 9.2.1 Orthopaedic Cartel Product Description 267 9.2.2 Orthopaedic Cartel Market Description 267 9.2.3 Orthopaedic Cartel Performance Analysis 267 9.2.4 Identification of Parties Affected by the Orthopaedic Cartel 268 9.2.5 Objects Affected by the Orthopaedic Cartel 268 9.2.6 Modelling of a Counterfactual Scenario for the Orthopaedic Cartel 269 9.2.7 Assessment of the Orthopaedic Cartel ́s Economic Impact 271 9.2.8 Robustness and Sensitivity Analysis of Orthopaedic Cartel Assessment Results 275 9.2.9 Interpretation of Orthopaedic Cartel Assessment Results: Estimation of the Economic Efficiency of Fines 277 9.3 Integrated Assessment of the Milk Cartel ́s Impact on the National Economy 278 9.3.1 Milk Cartel Product Description 279 9.3.2 Milk Cartel Market Description 279 9.3.3 Milk Cartel Performance Analysis 279 9.3.4 Identification of Parties Affected by the Milk Cartel 279 9.3.5 Objects Affected by the Milk Cartel 279 9.3.6 Modelling of a Counterfactual Scenario for the Milk Cartel 280 9.3.7 Assessment of the Milk Cartel ́s Economic Impact 283 9.3.8 Robustness and Sensitivity Analysis of Milk Cartel Assessment Results 288 9.3.9 Interpretation of Milk Cartel Assessment Results: Evaluation of the Economic Efficiency of Fines 289 9.4 Generalisation and the Main Problems of Empirical Cartel Impact Assessment 291 References 293 Chapter 10: Recommendations to Minimise an Adverse Impact of Cartels on the National Economy 295 References 302 Conclusions 303 Annexes 314 Annex 1. Detailed Analysis of Fines Levied on Lithuanian Cartels in 2011 and 2012 314 Annex 2. Main Data About Unclosed Cartels in 2000-2012 321 Annex 3. Consumer Price Index in Lithuania 328 Annex 4. Data Used in the Empirical Research 328 Paper Cartel 328 Orthopaedic Cartel 329 Milk Cartel 329 The book presents theoretical and empirical research on the integrated assessment of cartelѕђ́ة effects on national economies. The empirical analysis is based on℗¡three cases in Lithuania, a country chosen because it corresponds to the features of a small economy with a developing culture of competition. An integrated assessment of a cartelђ́ةs impact by measuring the net economic effect created by its operations on the market is extremely important at the scale of national economies. If a cartelђ́ةs true impact is not identified and evaluated, it is impossible to make important strategic decisions, for the whole economy instead of individual affected parties, and to establish an optimum baseline for mitigating the harm done to the economy. Thus, an integrated cartel impact assessment can help to more proactively combat cartel agreements on the market and improve the economic welfare of the respective country.℗¡℗¡ Front Matter....Pages i-xx Conception of Cartels: Definition and Diversity....Pages 1-47 Cartel Occurrence and Operation in Market....Pages 49-67 Cartel Markets....Pages 69-96 Legal Regulation of Cartels....Pages 97-134 Analysis of the Impact of Cartels on National Economy and Competitiveness....Pages 135-154 Critical Analysis of Economic Efficiency of Fines Imposed on Cartels....Pages 155-171 Methodological Principles of Assessing Cartel Harm (Effects)....Pages 173-215 Assessment of Cartel Impact on the National Economy: Integrated Model....Pages 217-229 Empirical Application of a Model for an Integrated Assessment of Cartel Impact on the National Economy in the Case of Lithuania....Pages 231-278 Recommendations to Minimise an Adverse Impact of Cartels on the National Economy....Pages 279-286 Back Matter....Pages 287-315