Cartel Laws Undermined: Corruption, Social Norms, and Collectivist Business Cultures

Journal of Law and Society

Volumn 37, Issue 2, 2010, Pages 345-367

  Stephan, Andreas ^a  

^a UNIVERSITY OF EAST ANGLIA   (United Kingdom)

Author keywords

[No Author keywords available]

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EID: 77954116376     PISSN: 0263323X     EISSN: 14676478     Source Type: Journal    
DOI: 10.1111/j.1467-6478.2010.00507.x     Document Type: Article

References (109)

1. M. Monti, 'Cartels Why and How? Why should we be concerned with cartels and collusive behaviour?', speech to Third Nordic Competition Policy Conference, Stockholm, (September 2001); Verizon Communications Inc v. Law Offices of Curtis V Trinko LLP, 124 S Ct 872, 879 (2004); N. Kroes, 'Enforcement of Prohibition of Cartels in Europe' in European Competition Law Annual 2006: Enforcement of Prohibition of Cartels, eds. C. Ehlermann and L. Atanasiu (2006).
2. For example, in a European case involving the price fixing of beer in Holland, the company Interbrew received immunity for reporting the infringement, while its competitor Heineken was fined €219.3 million (DG Competition Press Release, IP/ 07/509, 18 April 2007).
3. There has been a high volume of private action suits in the United States, although it is unclear what proportion of these primarily concern a breach of contract. In Europe, private enforcement is currently perceived as weak and the European Commission is making efforts to encourage damage claims. DG Competition, 'White Paper on Damages Actions for Breach of the EC antitrust rules' COM(2008) 165, 2 April 2008; D.I. Baker, 'Revisiting History - What Have We Learned About Private Antitrust Enforcement That We Would Recommend To Others?' (2004) 16 Loyola Consumer Law Rev. 379.
4. For a discussion of criminalization and extradition, see: J. Lawrence et al., 'Hardcore bargains: what could plea bargaining offer in criminal cartel cases?' (2008) 7 Competition Law J. 17-42
5. A. Stephan, 'The UK Cartel Offence: Lame Duck or Black Mamba?', CCP Working Paper 08-19 (2008) 24; Norris v. Government of the United States of America and others [2008] UKHL 16.
6. W. Blumenthal, 'The Challenge of Sovereignty and the Mechanisms of Convergence' (2004) Antitrust Law J. 72, 267-82.
7. B. Sweeney, 'Export Cartels: is there a need for global rules?' (2007) 10 J. of International Economic Law 87-115
8. J.M. Connor, 'Global Antitrust Prosecutions of Modern International Cartels' (2004) 4 J. of Industry, Competition and Trade 239-67, at 241.
9. F. Hoffman-LaRoche, Ltd. v. Empagran S.A. US Supreme Court, 14 June 2004, No. 03-724.
10. B.M. Owen, 'Competition policy in emerging economies', SIEPR Discussion Paper 04-10 (2005) 4.
11. J. Connor, 'The size of cartel overcharges: implications for US and EU fining Policies' (2006) 51 Antitrust Bull. 983; E. Combe and C. Monnier, 'Fines Against Hard Core Cartels in Europe: The Myth of Over Enforcement', unpublished paper (2009), at SSRN: .
12. OECD, Fighting Hard Core Cartels: Harm, Effective Sanctions and Leniency Programmes (2002).
13. M. Levenstein and V.Y. Suslow, 'Contemporary International Cartels and Developing Countries: Economic Effects and Implications for Competition Policy' (2003) 71 Antitrust Law J. 801-52
14. See, also, F. Jenny, 'Cartels and Collusion in Developing Countries: Lessons from Empirical Evidence' (2006) 29 World Competition 109-37 on the damaging effects of cartels in developing countries.
15. See, for example, International Competition Network, Co-operation Between Competition Agencies in Cartel Investigations (2007), at .
16. J. Ayers and J. Braithwaite, Responsive Regulation: Transcending the Deregulation Debate (1992).
17. Although high levels of damage suits can negate the effects of a leniency programme, as even immunity will generally provide no protection from such follow-on actions
18. In Europe, the Court of First Instance's decision in Woodpulp OJ [1985] L 85/1, [1985] CMLR 474 made it clear that circumstantial economic evidence alone could not prove an infringement, unless every other possible explanation for the observed behaviour is successfully rebutted. For a comprehensive discussion of parallelism, see A. Devlin, 'A Proposed Solution to the Problem of Parallel Pricing in Oligopolistic Markets' (2007) 59 Stanford Law Rev. 1111.
19. This assumption is largely accepted by the law and economics literature on cartels. It is inspired by the writings of J. Bentham, The Theory of Legislation (1931) and is most notably set out in G.S. Becker, 'Crime and Punishment: An Economic Approach' (1968) 16 J. of Political Economy, 169; leniency plays an important role in improving detection rates, as imposing very high fines infrequently is unlikely to encourage desistance and may signal to cartelists what the extent of enforcement avoidance is: S.M. Sheffrin and P.K. Triest, 'Can brute force deterrence backfire? Perceptions and attitudes in taxpayer compliance' in Why People Pay Taxes: Tax Compliance and Enforcement, ed. J. Slemrod (1992) at 12
20. D.M. Kahan, 'Social Influence, Social Meaning and Deterrence' (1997) 83 Virginia Law Rev. 349, at fn. 111.
21. For example, the extremely wide discretion retained by the European Commission in calculating fines is discussed in: A. Stephan, 'The Bankruptcy Wildcard in Cartel Cases' (2006) J. of Business Law, issue 5, 511-34
22. M. Hviid and A. Stephan, 'The Graphite Electrodes Cartel: Fines that deter?' in Cases in European Competition Policy: the Economic Analysis, ed. B. Lyons (2009).
23. C. Hood, The Art of the State (1998) 29.
24. 'Corruption Charges Issued', Kathimerini, 13 September 2006; 'Bribery Plot Curdles' Athens News, 15 September 2006; Hellenic Competition Commission Press Release, 12 September 2006, at . The former HCC director and two associates were found guilty of attempted extortion in April 2009. See 'Three Guilty of Mevgal Blackmail' Kathimerini, 14 April 2009.
25. J. Chang et al., 'Casual police corruption and the economics of crime: Further details' (2000) 20 International Rev. of Law and Economics 35-51.
26. R. Bowles and N. Garoupa, 'Casual police corruption and the economics of crime' (1997) 17 International Rev. of Law and Economics 75.
27. Key publications on corruption include: A.J. Heidenheimer and M. Johnston (eds.), Political Corruption: a Handbook (1989)
28. D. Della Porta and Y. Mény (eds.), Democracy and Corruption in Europe (1997)
29. A. Doig, Corruption and Misconduct in Contemporary British Politics (1984)
30. M. Clarke (ed.), Corruption, Causes, Consequences and Control (1983)
31. S. Rose-Ackerman, Corruption and Government: Causes, Consequences and Reform (1999).
32. World Bank, 'Competition' in World Development Report 2002 (2002) ch. 7, at 142.
33. UNCTAD, The relationship between competition, competitiveness and development (2002) 8.
34. OECD, 'Challenges/Obstacles faced by competition authorities in achieving greater economic development through the promotion of competition' (2004) CCNM/GF/COMP/WD(2004)4.
35. See E.M. Farina and P.A. Araújo, 'The Recent Development of the Brazilian Competition Policy System' in Competition Law and Policy in Latin America, eds. E.M. Fox and D. Sokol (2009) 33-46.
36. I. De Leon, 'A Market Process Analysis of Latin American Competition Policy' (2000) UNCTAD Regional Meeting on Competition Law and Policy, San Jose, Costa Rica; W.E. Kovacic, 'Designing and implementing competition and consumer protection reforms in transitional economies: perspectives from Mongolia, Nepal, Ukraine and Zimbabwe' (1995) 44 DePaul Law Rev. 1417.
37. See, in particular, T. Stewart, An Empirical Examination of Competition Issues in Selected CARICOM Countries: Towards Policy Formulation (2004), at .
38. M. Gal, 'The Ecology of Antitrust: Preconditions for Competition Law Enforcement in Developing Countries' in UNCTAD, Competition, Competitiveness and Development (2004) 21-52.
39. F. Robertson-Snape, 'Corruption, Collusion and Nepotism in Indonesia' (1999) 20 Third World Q. 589-602.
40. W.E. Kovacic, 'Institutional Foundations for Economic Legal Reform in Transition Economies: The Case of Competition Policy and Antitrust Enforcement' (2001) 77 Chicago Kent Law Rev. 265.
41. See M. Gal, 'Free Movement of Judgements: Increasing Deterrence of International Cartels Through Jurisdictional Reliance' (2008) unpublished. NYU School of Law, Law and Economics Research working paper 08-44.
42. World Bank, op. cit., n. 23, p. 142.
43. Gal, op. cit., n. 29.
44. D. Gambetta and P. Reuter, 'Conspiracy among the many: The Mafia in Legitimate Industries' in The Economics of Organized Crime, eds. G. Fiorentini and S. Peltzman (1995).
45. D. Gambetta, The Sicilian Mafia: The Business of Private Protection (1993).
46. J. Barbee, 'Cartels battle for supremacy in South Africa's taxi wars' New York Times, 17 September 2006, at .
47. M. Sekhonyane and J. Dugard, 'A Violent Legacy: The taxi industry and government at loggerheads' (2004) SA Crime Q. issue 10.
48. N. Garoupa, 'The Economics of Organised Crime and Optimal Law Enforcement' (1997), unpublished paper presented at annual conference of the European Association of Law and Economics, Barcelona, September 1997.
49. The only documented EC cartel case involving violence was French Beef (COMP/C.38.279/F3 OJ [2003] L 209). Farmer members of three beef federations used the threat of violence to compel the slaughterer federations to accept the agreement (at 101).
50. Kovacic, op. cit., n. 31, p. 1200.
51. E. Fehr and U. Fischbacher, 'Social norms and human cooperation' (2004) 8(4) Trends in Cognitive Sciences 185-90.
52. E.A. Posner, 'Law, Economics and Inefficient Norms' (1996) 144 University of Pennsylvania Law Rev. 1697.
53. C. Harding and J. Joshua, Regulating Cartels in Europe: A Study of Legal Control of Corporate Delinquency (2003) 76.
54. Attorney General of the Commonwealth of Australia v. Adelaide Steamship Co Ltd [1913] A.C. 781, 797 (Mogul Steamship Co Ltd v. McGregor, Gow & Co (1888) 21 Q.B.D. 544; (1889) 23; Q.B.D. 598 (C.A.); [1892] A.C. 25).
55. Jones v. North (1875) L.R. 19 Eq 426.
56. Norris v. Government of the United States of America and others [2008] UKHL 16.
57. id., p. 17; conspiracy to defraud is a broad English common law offence which hinges on a two-part subjective/objective test of dishonesty as set out in R v. Ghosh [1982] 2 All E.R. 689.
58. 'Price Fixing is a Serious Crime' Chosun Ilbo (English edition) 21 February 2007, at .
59. Owen, op. cit., n. 8, p. 27.
60. Robertson-Snape, op. cit., n. 30, p. 601.
61. De Leon, op. cit., n. 27. p. 5.
62. C. Parker, 'The 'compliance' trap: the moral message in responsive regulatory enforcement' (2006) 40 Law & Society Review 591-622.
63. Comments by David Murray, CEO of Commonwealth Bank; id., p. 17.
64. 'Allan Fels surprised he lasted so long at the ACCC' Australian Associated Press Financial News Wire, 29 June 2003; Parker, id., p. 31
65. D. Chong, 'Values versus Interests in the Explanation of Social Interests' (1996) 144 University of Pennsylvania Law Rev. 2079.
66. H.G. Grasmick and D.E. Green, 'Legal Punishment, Social Disapproval and Internalization as Inhibitors of Illegal Behaviour' (1980) 71 J. of Criminal Law & Criminology 325; Kahan, op. cit., n. 16, fn. 18.
67. M. Wenzel, 'The Social Side of Sanctions: Personal and Social Norms as Moderators of Deterrence' (2004) 28 Law and Human Behaviour 551-61, supported by previous studies into how crime is perceived, including B.E. Harcourt, 'After the "social meaning turn": implications for research design and methods of proof in contemporary criminal law policy analysis' (2000) 34 Law and Society Rev. 179-211
68. R. Paternoster, 'The deterrent effect of the perceived certainty and severity of punishment: A review of the evidence and issues' (1987) 4 Justice Q. 173-217.
69. Fehr and Fischbacher, op. cit., n. 42.
70. A. Stephan, 'Survey of Public Attitudes to Price-Fixing and Cartel Enforcement in Britain' (2008) 5 Competition Law Rev. 123-45.
71. See Commission Notice, Guidelines on the application of Article 81(3) of the Treaty OJ 2004, C101/97.
72. World Bank, op. cit., n. 23, p. 133.
73. See, for example, Case C-234/89 Delimitis v. Henninger Brau AG [1991] ECR I-935.
74. For example, R. Sunderland, 'OFT defends "snitch" policy' Observer, 5 August, 2007.
75. For a broader application of Hofstede's study to competition cultures, see K. Jong Lee, 'Culture and Competition: National and Regional Levels' (2008) 21 Loyola Consumer Law Rev. 33.
76. 'Ian This is a great initiative that you and Neil have instigated!!!!!!!! However, a word to the wise, never put anything in writing, its highly illegal and it could bite you in the arse!!!!' Agreements between Hasbro UK Ltd, Argos Ltd and Littlewoods Ltd fixing the price of Hasbro toys and games CA98/2/2003 [2003] UKCLR 553, para. 53; M. Furse, Competition Law of the EC and the UK (2006) 112.
77. A. Stephan, 'An Empirical Assessment of the European Leniency Notice' (2009) J. of Competition Law and Economics 537-61, doi: 10.1093/joclec/nhn031. C.R. Leslie, 'Trust, Distrust and Antitrust' (2004) 82 Texas Law Rev. 545; K. Eichenwald, The Informant (2000) 155.
78. J. Elster, 'Social Norms and Economic Theory' (1989) 3(4) J. of Economic Perspectives 99-117.
79. J. Connor, Global Price Fixing (2001) 131.
80. C. Downie, 'The Fix is in Detecting Cartels in Canada', address to ACCC conference, 'Cracking Cartels', Sydney, 24 November 2004.
81. G. Hofstede, Cultures and Organisations: Intercultural Cooperation and Its Importance for Survival (1994) 58
82. A. Uesugi, 'How Japan Is Tackling Enforcement Activities Against Cartels' (2005) 13 George Mason Law Rev. 349, at 353.
83. T.R. Tyler, 'The Psychology of Procedural Justice: A Test of the Group-Value Model' (1989) 57 J. of Personality & Social Psychology 830; Leslie, op. cit., n. 70, p. 543
84. M.A. O'Connor, 'A socio-economic approach to Japanese Corporate Governance Structure' (1993) 50 Washington and Lee Law Rev. 1529.
85. E.A. Posner, Law and Social Norms (2000) 91.
86. De Leon, op. cit., n. 27, p. 4.
87. G.R. Butterton, 'Pirates, Dragons and US Intellectual Property Rights in China: Problems and Prospects of Chinese Enforcement' (1996) 38 Arizona Law Rev. 1081, at 1108.
88. Using an empirical economic study, Lyons shows that where there is the need for flexible contracts between firms, that also enjoy a long-term business relationship (therefore a repeated game), expectations and reputation are more important than contracts that govern the present transaction: B. Lyons, 'Incomplete Contract Theory and Contracts Between Firms: A Preliminary Empirical Study' (2001), at ; there is also the influential work of Granovetter, who shows how interpersonal ties can facilitate more efficient information exchange than formal ones: M.S. Granovetter, 'The Strength of Weak Ties' (1973) 78 Am. J. of Sociology, 1360-80
89. M.S. Granovetter, 'Economic Action and Social Structure: The Problem of Embeddedness' (1985) 91 Am. J. of Sociology, 481-510.
90. T.C. Kiong and Y.P. Kee, 'Guanxi Bases, Xinyong and Chinese Business Networks' (1998) 49 Brit. J. of Sociology 75, 80.
91. Posner, op. cit., n. 77, p. 171; Elster, op. cit., n. 72, p. 99.
92. Kiong and Kee, op. cit., n. 81, p. 80
93. S. Rose-Ackerman, 'Trust, Honesty, and Corruption: Theories and Survey Evidence from Post-Socialist Societies' (2001), unpublished paper presented at workshop on 'Honesty and Trust in Post-Socialist Societies' at Collegium Budapest, 25-26 May 2001; Hofstede, op. cit., n. 75, p. 61; H.C. Triandis, The Analysis of Subjective Culture (1972).
94. Hofstede, id., p. 273
95. For example, A. Inkeles and D.J. Levinson. 'National Character: the study of model personality and sociocultural systems' in The Handbook of Social Psychology Vol. 4, eds. G. Lindzey and E. Aronson (1969, 2nd edn.) 418-506.
96. A discussion of possible implications for cartel enforcement with reference to a combined index of the second and fourth dimensions is contained in C.R. Lee, 'Cultures and Cartels: Cross-Cultural Psychology for Antitrust Policies' (2003), unpublished paper, Loyola University, Chicago.
97. P.C. Earley, 'Social Loafing and Collectivism: a comparison of the United States and the People's Republic of China' (1989) 34 Administrative Science Q. 565-81.
98. See, also, Hofstede, op. cit., n. 75, p. 84.
99. Adapted from id., p. 53, Table 3.1.
100. World Bank, op. cit., n. 23, p. 141.
101. Kiong and Kee, op. cit., n. 81, pp. 82-8.
102. Leslie, op. cit., n. 70, p. 545; Eichenwald, op. cit., n. 70, p. 204.
103. Kiong and Kee, op. cit., n. 81, p. 83
104. M.H. Bond and K.K. Hawang, 'The Social Psychology of Chinese People' in The Psychology of Chinese People, ed. M.H. Bond (1986).
105. The OECD believes that greater funding will also increase the perceived legitimacy of competition laws: OECD, op. cit., n. 25, p. 49.
106. Stephan, op. cit., n. 63.
107. Parker, op. cit., n. 54, pp. 9-10.
108. Ohio v. Louis Trauth Dairy, 856 F. Supp 1229, 1237 (S.D. Ohio 1994); R.H. Porter and J.D. Zona, 'Biding, Bid Rigging, and School Milk Prices: Ohio v. Trauth (1994)' in The Antitrust Revolution: Economics, Competition and Public Policy, eds. J.E. Kwoka Jr. and L.J. White (2004, 4th edn.).
109. Kovacic, op. cit., n. 31, p. 275; OECD, op. cit., n. 25, p. 49; D.K. Brown, 'Street Crime, Corporate Crime, and the Contingency of Criminal Liability' (2001) 149 University of Pennsylvania Law Rev. 1295, at 1301.