In the thesis, the goal is to examine which determinants have life-shortening or lifeprolonging effects on cartel duration by considering an up-to-date record of 123 cartel cases convicted by European Commission. The main goal is firstly to replicate the analyses by Hellwig and Hüschelrath on cartel level and secondly to extend their analyses by incorporating new covariates related to either internal enforcement methods and demand volatility. The paper at hand is methodologically in line with previous literature since it uses several Cox proportional hazard specifications and evaluates the findings to different natural death definitions. Furthermore, it also provides nonparametric Kaplan-Meier survival estimates of all categorical variables and estimates time-varying covariates by a piecewise-constant exponential PH model.
Over 28 billion Euro fines imposed by the European competition authority (ECA) in 135 decisions between 1990 and 2018, of which the majority took place after the turn of the millennial, underline that the fight against cartels is far from over. The anticompetitive practices of cartels can lead to increased consumer prices and remain an important point on the agenda of antitrust authorities. As a reaction, the competition policy of the ECA has undergone several changes in the last decades, most prominently observable by the introduction of the EU corporate leniency program in 1996 and its modification ten years later.
Almost all of the current cartels are detected by leniency applications of one of their members because whistle blowing policies allow cartel members to get reductions in fines when they self-report the committed infringements. Before the implementation of these policies, the most crucial threat for internal cartel stability was strategic deviations from the cartel agreement (for example price cuts) by one of the cartel members to increase short-term profits. The risk of being undercut on the one hand and the risk of leniency applications on the other hand place today’s cartel firms in a "between-life-and-death" situation in which persistence of the cartel is equally likely as its breakdown.
Contents
1 Introduction
2 Determinants of cartel survival
2.1 Fundamentals of Cartel Stability
2.2 Geographical Scope
2.3 Number of Firms
2.4 Ringleader
2.5 Type of Infringement
2.6 Internal Enforcement Methods
2.7 Entry and Exit Dynamics
2.8 Cartel Enforcement
2.9 Macroeconomic Determinants
3 Data
3.1 Data Set Description
3.2 Variables
4 Methodology and estimation strategy
4.1 Principles of Survival Analysis
4.2 Duration Modeling and Competing Risks
4.3 Time-varying Covariates
4.4 Models
5 Results and discussion
5.1 Estimation Results
5.2 Robustness Checks and Biases
6 Conclusion
Research Objectives & Core Topics
The primary objective of this thesis is to examine the determinants of cartel duration by analyzing a dataset of 123 cartel cases convicted by the European Commission. The research aims to replicate and extend existing studies on cartel survival by incorporating internal enforcement mechanisms and macroeconomic indicators to determine which factors contribute to the life-shortening or life-prolonging effects of cartels.
- Analysis of organizational determinants such as firm number, ringleaders, and geographical scope.
- Evaluation of internal cartel enforcement techniques, including monitoring and compensation mechanisms.
- Investigation of external macroeconomic factors, specifically interest rates, demand growth, and demand volatility.
- Assessment of the effectiveness of the EU corporate leniency program on cartel stability.
- Methodological application of Cox proportional hazard models and piecewise-constant exponential models.
Excerpt from the Book
2.1 Fundamentals of Cartel Stability
Before I begin to outline the determinants, which are tested later in this paper, I will address some introducing words to the terminology used in this branch of research and highlight a few seminal theoretical contributions to the literature of cartel stability.
The paper at hand is related to cartel survival. A cartel survives until a certain point in time if it remained stable in all previous periods. Hence, I denote the persistence over a series of consecutive periods by cartel survival, whereas a cartel is said to be stable if it survives in a certain period. Formally, the cartel Γ survives until the beginning of period t if it has not experienced a breakdown in all t − 1 previous periods. Therefore, the determinants of periodical cartel stability are directly linked to determinants of overall cartel survival.
Instabilities can arise from several different threats which can be grouped loosely into internal and external threats. First and foremost, a cartel can break down internally because of its organizational and operational characteristics. Organizational characteristics refer to the overall structure of the cartel. Examples are the number of active firms in the cartel, the hierarchy and distribution of power or the number of cartel entries and exits. Operational characteristics incorporate the acting of the cartel within its market but also any form of communication among cartel members. Examples are the type of infringement used by the cartel, the geographical scope of the cartel activity, enforcement related mechanisms like monitoring, retaliation and compensation.
Summary of Chapters
1 Introduction: Provides an overview of the legal and economic landscape concerning cartels, the motivation for cartel survival analysis, and a summary of the thesis contributions.
2 Determinants of cartel survival: Reviews theoretical literature and case studies to establish testable hypotheses regarding internal and external factors influencing cartel duration.
3 Data: Describes the construction of the survival datasets comprising 123 cartel cases and details the operationalization of variables.
4 Methodology and estimation strategy: Outlines the econometric framework, focusing on survival analysis, proportional hazard models, and the handling of competing risks and time-varying covariates.
5 Results and discussion: Presents the empirical estimation results, compares findings with existing literature, and evaluates the robustness of the models.
6 Conclusion: Summarizes the key findings regarding the drivers of cartel instability and offers policy recommendations based on the empirical evidence.
Keywords
Cartel Survival, Antitrust Policy, Proportional Hazard Model, EU Corporate Leniency Program, Demand Volatility, Market Stability, Enforcement Mechanisms, Cartel Duration, Competition Authorities, Macroeconomic Determinants, Survival Analysis, Collusion, Internal Enforcement, Cartel Breakdown, Industrial Organization.
Frequently Asked Questions
What is the core focus of this research?
The research focuses on identifying which specific factors either extend or shorten the lifespan of cartels that have been prosecuted by the European Commission.
What are the primary themes covered?
The themes include the internal structure of cartels, the impact of antitrust policies like leniency programs, and the influence of macroeconomic factors on cartel stability.
What is the main objective or research question?
The central goal is to determine the factors that influence cartel duration, specifically evaluating how internal organization and market conditions affect the probability of cartel breakdown.
Which scientific methodology is utilized?
The study employs survival analysis techniques, primarily using Cox proportional hazard models and piecewise-constant exponential models to measure the hazard rate of cartel failure.
What is addressed in the main body of the work?
The work details the theoretical determinants of cartel stability, explains the data construction process, presents the econometric estimation strategy, and discusses the regression results and robustness checks.
What are the defining keywords for this study?
Key terms include Cartel Survival, Antitrust Policy, Leniency Program, Survival Analysis, and Demand Volatility.
How does the EU leniency program affect cartel stability?
The study concludes that the availability of the EU corporate leniency program is the strongest driver of cartel instability, significantly increasing the probability of cartel breakdown.
Does demand volatility increase or decrease cartel lifespan?
Contrary to initial intuition regarding uncertainty, the study finds that higher demand volatility has a hazard-decreasing, or strengthening, effect on cartel stability, suggesting cartels act as a hedge against uncertain economic conditions.
How does the study define 'natural death' for a cartel?
The study distinguishes 'natural death' from 'agency death' (breakdowns forced by authority intervention) using different time-based thresholds, allowing for a more nuanced analysis of cartel dissolution.
- Arbeit zitieren
- Niklas Martynkiewitz (Autor:in), 2018, Cartels Between Life and Death. What Determines Cartel Survival?, München, GRIN Verlag, https://www.grin.com/document/504104
