Due to the high importance of the automotive industry for the EU and the growing number of discovered automotive supplier cartels in this economic area, the purpose of the master thesis at hand is to analyze and display why cartelization – especially among automotive suppliers in the EU – is observed so frequently. Particularly, it investigates factors that facilitate collusion of car part manufacturers.
Furthermore, it focuses on cartelization in procurement auctions as the touch point of automotive manufacturers and suppliers where collusive activities are executed. Hence, it examines the current state of theoretical research on collusive mechanism in auctions and provides implications for further research. Finally, it analyzes approaches to prevent collusion and assesses whether such measures are applicable to the automotive industry.
The thesis is structured as follows: After this introduction, chapter two defines the scope of the industry for this paper and provides a broad overview of its different sectors and significant players. In addition, due to their overall importance for the following analysis, procurement and bidding processes in the automotive industry are exhibited upfront. To emphasize the industry’s importance for the EU, an outline of the state of this industry sector in the EEA is given.
Building on that, chapter three presents a general introduction to cartelization in the automotive industry, followed by a presentation of three representative recent cartel cases in the EU: Car Glass, Automotive Bearings and Parking Heaters. This sets ground for a detailed analysis of the prevailing environment in the automotive industry. First, the analysis examines the manufacturer side including degrees of concentration, dominant strategies and effects of the automotive manufacturers’ market power. This is followed by an analysis of the supplier side regarding concentration and barriers to entry. Contingent on the analysis, factors that facilitate collusion in the automotive industry are summarized
To introduce collusion in auctions, chapter four starts with an outline of the theoretical foundation of auction theory. Based on this, auction formats that foster collusion and stability of cartels are discussed. Furthermore, the most relevant incentive compatible mechanisms are introduced distinguishing between one-shot and repeated auction games.
Table of Contents
1 Introduction
2 General Insights in the Automotive Industry
2.1 Definition and Delimitation of the Automotive Industry and its Sectors
2.2 Procurement and Bidding Processes in the Automotive Industry
2.3 The Automotive Industry in the European Union and Germany
3 Cartelization in the Automotive Industry
3.1 Car Part Cartels in the European Union
3.1.1 Car Glass – EC Case 39125
3.1.2 Automotive Bearings – EC Case 39922
3.1.3 Parking Heaters – EC Case 40055
3.2 Industry Analysis
3.2.1 Buyer Power and Strategies of Automotive Manufacturers
3.2.2 The Supplier Side of the Automotive Industry
3.2.3 Factors that Facilitate Collusion of Automotive Suppliers
4 Collusion in Auctions
4.1 Theoretical Foundation of Auction Theory
4.2 Auction Formats that Foster Collusion and Stability of Bidding Rings
4.2.1 Collusion in One-Shot Auctions
4.2.2 Collusion in Repeated Auctions
4.2.3 Implications for the Automotive Industry
4.3 Preventing Collusion in Auctions
5 Conclusion
Objectives and Topics
This master thesis aims to analyze and explain the high frequency of cartelization among automotive suppliers within the European Union. It investigates the facilitating factors for collusion, specifically focusing on procurement auctions as the critical interaction point where collusive activities are executed.
- Analysis of cartelization drivers in the automotive industry.
- Examination of manufacturer-side buyer power and its impact on supplier behavior.
- Evaluation of theoretical auction models regarding their vulnerability to collusion.
- Assessment of current approaches and mechanisms to prevent bid rigging in procurement.
- Implications for future research on collusive mechanisms in the automotive sector.
Excerpt from the Book
3.1.1 Car Glass – EC Case 39125
In 2008 the EC convicted four car glass manufacturers – Saint-Gobain (FR), Pilkington (GB), Asahi (JPN) and Soliver (BE) – for prohibited allocation of supply contracts, predetermination of market shares, exchange of sensitive information, price fixing and bid rigging in RFQ processes. The collusion took mainly place between the “Big Three” Saint-Gobain – who can be seen as the leader of the infringement – Asahi and Pilkington. Soliver just participated in a few collusive actions. After an anonymous tip, the EC started investigations in 2005 and imposed, based on their findings, a record penalty of €1.383 billion on the respecting companies for colluding over a period of 5 years from 1998 to 2003.
The overall objective of the cartel was to maintain the respective market shares through allotting new and reallocating ongoing car glass suppling contracts among the four companies. For this purpose, meetings where organized on a regular basis all over Europe and contracts were entered to consolidate the collusive agreements. During those meetings the participants coordinated their replies to upcoming RFQs of different automotive manufacturers by exchanging price and other sensitive information.
The allocations were based on measurements and predictions of the current and future market shares on a European level each supplier generated independently and constantly compared against those of the other cartel members. When needed, correcting measures were introduced to rebalance the supply contracts according to the desired dispersion of market shares. Target prices were discussed upfront and the winner of an RFQ auction was predetermined by arranging who was supposed to submit the lowest bid or who does not participate in an auction. One concern of the cartel was to preserve the constellation of existing dual or multi sourcing contracts. In this case, the cartel members claimed no production capacity was available and forced the automotive manufacturer to maintain the existing distribution of production contracts. The colluding parties agreed on not accepting APRs or taking over costs for additional developing services requested by automotive manufacturers. Hence, information disclosed in RFIs of OEMs were coordinated and RFQ responses were submitted accordingly.
Summary of Chapters
1 Introduction: This chapter introduces the prevalence of cartelization in the automotive supplier industry and outlines the thesis's purpose to analyze facilitating factors and auction-based collusion.
2 General Insights in the Automotive Industry: This section defines the industry scope and provides a detailed overview of procurement and bidding processes that serve as the foundation for the subsequent analysis of collusive behavior.
3 Cartelization in the Automotive Industry: This chapter presents representative EU cartel cases and performs an industry analysis, focusing on manufacturer buyer power and supplier-side factors that drive collusion.
4 Collusion in Auctions: This part examines the theoretical foundations of auction theory, explores formats prone to bid rigging, and discusses potential mechanisms for preventing collusion in the context of the automotive sector.
5 Conclusion: The final chapter summarizes the key findings regarding the multifaceted drivers of cartelization and identifies the need for further research that incorporates specific automotive industry realities, such as sequential RFQ processes and subsequent negotiations.
Keywords
Cartelization, Automotive Industry, Procurement Auctions, Bid Rigging, Antitrust, Supplier Selection, Buyer Power, Collusion, RFQ, Market Concentration, Incentive Constraint, Competitive Bidding, European Union, Supply Chain, Pricing Strategies.
Frequently Asked Questions
What is the primary focus of this work?
The thesis focuses on analyzing why cartelization is frequently observed among automotive suppliers in the European Union and identifies the specific factors that facilitate such collusive practices.
What are the central themes of the research?
The core themes include the structure of the automotive supplier industry, the impact of manufacturer buyer power on suppliers, the role of procurement auctions as a bottleneck for collusion, and theoretical approaches to deterring bid rigging.
What is the primary goal of the paper?
The main objective is to understand the drivers of collusive behavior in the automotive supply chain and to assess whether existing theoretical auction models can be effectively applied to prevent these practices.
Which scientific methods are employed?
The work utilizes an analytical approach, combining literature reviews of industrial organization and auction theory with an empirical analysis of past cartel cases within the European automotive industry.
What topics are covered in the main section?
The main section covers the definition of the automotive industry, the analysis of specific cartel cases (Car Glass, Bearings, Parking Heaters), an analysis of market power and supplier concentration, and a review of auction mechanisms that foster or inhibit collusion.
Which keywords define this work?
Key terms include Cartelization, Automotive Industry, Procurement Auctions, Bid Rigging, Antitrust, Supplier Selection, Buyer Power, and Collusion.
How does the "PAKT" mechanism function?
The PAKT (precaution knockout) mechanism uses an independent "ring center" to facilitate side payments and coordinate bidding in a pre-auction, thereby ensuring the cartel remains incentive-compatible and stable.
Why is the "repeated auction" model more suitable for the automotive industry than "one-shot" models?
Repeated auction models better approximate the industry's reality of ongoing, sequential RFQ processes and help explain the observed long-term stability and longevity of automotive supplier cartels.
Why are standard collusion-proof mechanisms often impractical in this industry?
These mechanisms often rely on assumptions like the anonymity of bidders or the ability to implement side payments, which are contradicted by the highly transparent and specific supplier-manufacturer relationships found in the automotive sector.
What is the role of subsequent negotiations in this analysis?
The author identifies subsequent negotiations as a neglected factor that undermines collusive equilibria established during the initial auction phase, suggesting this as a critical area for future research.
- Citar trabajo
- Johannes Gerhardt (Autor), 2016, Cartelization in the Automotive Industry and Bid Rigging in Procurement Auctions, Múnich, GRIN Verlag, https://www.grin.com/document/349793
