This paper deals with cartels with a focus on the banking sector. This will be explained or examined using the case study of the Lombard Club (banking cartel in Austria around 1995).
The second chapter uses industrial economics to provide the basis for understanding restric-tions of competition, as well as cartels, supplier concentration, barriers to entry and their effects on the market.
In the third chapter, this market, which is imperfect because of betting restrictions, is exa-mined and analysed more specifically for the banking sector. Here the restrictive cooperation between banks and its effects on the market are described.
The fourth chapter examines the Austrian situation in the 1990s (beginning of cartel forma-tions and cartel agreements (including the formation of the Lombard Club). Here the situation on the financial market in 1990 is analysed. Furthermore, statements are made on competition and market concentration. The theories developed previously are used as a basis for this.
The fifth chapter focuses on the Lombard Club and its structures and facts about the cartel. It analyses the distortive measures of the so-called Club of Bankers in Austria in order to show how the measures have affected the Austrian banking market. The theoretical foundations previously elaborated will also serve as a basic understanding in this context.
The sixth chapter provides a summary of this topic and a conclusion with an outlook on the cartel situation in Austria and the EU.
Table of Contents
1 Introduction
2 Theoretical foundations of competition economics
2.1 Focus on industrial and competitive economics
2.2 Main features of competition law
2.3 Restrictions of competition through agreements, decisions and concerted practices of undertakings
2.3.1 Cartel by agreement between companies
2.3.2 Cartel by corporate decision
2.3.3 Cartel through concerted behaviour by companies
2.4 Cartels through horizontal restrictions of competition
2.5 Cartel formation through vertical restraints of competition
2.6 Restrictions of competition through supplier concentration, merger, entry barriers
2.6.1 Prohibition of abuse
2.6.2 Market definition
2.6.3 Dominant position
2.6.4 Offences of abuse
2.6.5 Prohibition of abuse by companies with a superior market power/hegemony
2.6.6 Prohibition of restrictive practices, in particular boycotts
3 Competition between banks
3.1 Development in the EU
3.2 Barriers to market entry - Competition (restrictions) - Reasons for bank cooperations
3.2.1 Economies of scale
3.2.2 Capital requirements
3.2.3 Product diversification and conversion costs
3.2.4 Negotiating power of customers/banks and substitute products
3.2.3 Rivalry between banks
3.2.3.1 Market structure
3.2.3.2 Industry growth
3.2.3.3 Overcapacity
3.3 Conclusion of the chapter
4 Situation of banking competition in Austria in the 1990s
5 The Lombard Club vs. competition economics
6 Conclusion and outlook
Objectives and Topics
This work examines the phenomenon of illegal banking cartels, focusing on the theoretical foundations of competition economics and their practical application. It investigates the mechanisms through which banking institutions restrict competition to secure profits, ultimately aiming to answer how such coordinated behavior distorts market dynamics and negatively impacts consumers. Using the "Lombard Club" in Austria during the 1990s as a primary case study, the research highlights the conflict between anti-competitive practices and the principles of a functioning, consumer-oriented market economy.
- The theoretical and legal framework of anti-trust laws and competition economics.
- The specific nature of horizontal and vertical restrictions in the banking sector.
- The identification of market entry barriers and banking cooperation strategies.
- A detailed analysis of the "Lombard Club" as a case study for illicit cartel formation.
- The consequences of market concentration for consumer welfare and banking innovation.
Excerpt from the Book
The Lombard Club vs. competition economics
The Lombard Club consisted of a group of bank representatives including senior representatives (first level), professional representatives (second level) and controllers (commercial representatives). Monthly meetings of the senior representatives always had as their agenda general banking topics and competitive topics related to decision-making (regulating and agreeing on interest rates as well as the terms and conditions, advertising measures, etc.). Here it can be stated immediately that the competitive theories were not taken into account at all. For there can be no question of rival market action. It is true that there can be talk of a restriction of the freedom of action of other market participants, but this is not for the benefit of the consumer or for competitive pricing. Functioning competition through an allocation with an adjustment of supply to changes in demand could not be built up as a result, because the banking market in Austria could not develop freely in the interests of the consumer and the market. It can therefore be assumed here that a functioning competitive process was to be prevented by concerted behaviour on measures restricting competition (Bester, 2017).
At regular intervals, the senior representatives met with specialist representatives to coordinate lending and deposit conditions (so-called Lending and Deposit Rates Committees). The information and the results of the decisions were then communicated to the higher-level bodies (the Lombard Club) so that they could be applied in the coming weeks and thus taken into account in practice. A cartel-like relationship was thus created in which commercial practices and prices were discussed in such a way that one can speak of a concerted practice and, as a result, of a cartel by decision, to which each cartel member had to adhere. In competition theory, this can also be called a horizontal cartel, a restriction of competition between companies at the same level of production and distribution.
Summary of Chapters
1 Introduction: Provides an overview of recent antitrust investigations into the banking sector and introduces the "Lombard Club" as the core case study for the research.
2 Theoretical foundations of competition economics: Explores the regulatory frameworks and economic theories that define market competition, cartels, and abuse of dominant positions.
3 Competition between banks: Analyzes specific competitive forces and barriers to entry in the banking industry, including economies of scale and product differentiation.
4 Situation of banking competition in Austria in the 1990s: Discusses the historical context of the Austrian banking sector, emphasizing the transition toward internationalization and liberalization.
5 The Lombard Club vs. competition economics: Investigates the structural details and operational methods of the Lombard Club cartel in light of competition theory.
6 Conclusion and outlook: Summarizes the findings on how cartel behavior distorts markets and offers an outlook on future banking trends amidst increasing digitalization.
Keywords
Banking Cartels, Lombard Club, Antitrust Law, Competition Economics, Market Concentration, Horizontal Restrictions, Vertical Restraints, Consumer Welfare, Financial Market, Market Entry Barriers, EU Competition Policy, Price Fixing, Bank Cooperation, Monopoly, Oligopoly
Frequently Asked Questions
What is the core subject of this research paper?
The paper investigates the nature of illegal banking cartels and how financial institutions coordinate to restrict competition, specifically analyzing the theoretical framework and a practical case study.
Which specific case study is highlighted in the text?
The primary case study is the "Lombard Club," a notorious banking cartel in Austria that operated until 1998, which was later sanctioned by the European Commission.
What is the main goal of the study?
The objective is to analyze how cartel-like cooperation between banks distorts the market, limits consumer choice, and violates antitrust regulations, using the Lombard Club as a benchmark for these negative effects.
What scientific methods were employed?
The paper utilizes a descriptive and analytical approach, synthesizing existing competition theories with empirical evidence and reports regarding the Lombard Club to evaluate its anti-competitive impact.
What does the main body of the work cover?
It covers the definitions of market competition, various forms of restrictive agreements, the specifics of banking competition in the EU and Austria during the 1990s, and a deep dive into the operations of the Lombard Club.
Which key terms define the scope of this paper?
Key terms include cartel formation, market dominance, anti-trust compliance, financial market liberalization, and the impact of banking concentration on profitability and consumer prices.
How did the Lombard Club specifically influence the Austrian banking market?
The Lombard Club suppressed competition by coordinating interest rates, lending terms, and fees across member banks, effectively creating a monopoly-like environment that prevented new market entrants and harmed consumer interests.
What was the role of the European Commission in the Lombard Club case?
The Commission acted as the investigative body that uncovered the cartel’s activities and imposed significant fines on the involved Austrian banks for serious infringements of Article 81 of the EC Treaty.
Why did banks participate in the Lombard Club?
Banks participated to reduce uncertainty, secure profit margins in a declining lending environment, and maintain market structures that favored incumbent institutions over more efficient competitors.
- Quote paper
- Dipl.-Betriebs- und Verwaltungswirt und PhD Maged Hassanien (Author), 2018, Banking cartels investigated using the Lombard Club case study, Munich, GRIN Verlag, https://www.grin.com/document/974157
