Source: PURDUE UNIVERSITY submitted to NRP
AN ASSESSMENT OF GLOBAL ANTITRUST ENFORCEMENT OF INTERNATIONAL PRICE FIXING
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
COMPLETE
Funding Source
HATCH
Reporting Frequency
Annual
Accession No.
0179397
Grant No.
(N/A)
Cumulative Award Amt.
(N/A)
Proposal No.
(N/A)
Multistate No.
(N/A)
Project Start Date
Oct 1, 2008
Project End Date
Jun 30, 2011
Grant Year
(N/A)
Program Code
[(N/A)]- (N/A)
Recipient Organization
PURDUE UNIVERSITY
(N/A)
WEST LAFAYETTE,IN 47907
Performing Department
Agricultural Economics
Non Technical Summary
Information on optimally deterring penalties is the basis of rational antitrust enforcement. Monetary penalties imposed on cartels have exploded in the past 15 years. In the case of U.S. cartels, private settlements since 1990 total at least $18 billion (Lande and Davis 2008). Connor (2007: Table 6) finds a slightly higher figure of about $21 billion for international cartels. Moreover, corporate fines and personal sanctions handed out to price fixers in the past decade were far above historical levels (Connor 2008). Since 1990, U.S. fines imposed on cartels have exceeded $4 billion and in the EU have reached $21 billion (ibid. Table 6). Other jurisdictions have negligible cartel fines. These large penalties have raised concerns about supra-optimal deterrence. The advent in 1987 of the double-the-harm standard for setting U.S. government price-fixing fines has led some legal writers to criticize cartel sanctions as having reached supra deterrent levels (Easterbrook 1986, Cohen and Scheffman 1989, Kobayashi 2001, Baker 2004). More recently, Denger (2003) too asserts the prevalence of excessive price-fixing fines and private settlements. It is true that the theoretical maximum fines and private settlements faced by prosecuted cartelists have reached surprisingly high multiples of cartel overcharges in the U.S. legal system. Cartels are liable to pay as much as six or seven times their illegal monopoly profits if they are found guilty. On the other hand, Connor (2007) provides eight more theoretical arguments as to why cartel penalties are likely to be sub deterrent. Those who are concerned about supra deterrence generally confuse the ex post liabilities faced by discovered cartel members with the ex ante decision making process that deterrence-fines are supposed to affect. Deterrence effects of anticartel policies must be evaluated ex ante, that is, from the perspective of a company considering forming or joining a global price-fixing conspiracy. Concerns about excessive awards to plaintiffs may be unwarranted. In practice, it appears that historically private plaintiffs typically have received less than single damages (Lande 1974). More recent empirical research by Connor (2008: Table 8) shows that public and private U.S. sanctions on international cartels have risen as a portion of affected sales. Previous attempts to analyze optimal cartel fines have generally remained at a theoretical level. In the few cases where optimal fines have been empirically estimated, the studies have relied on broad point estimates of key parameters, the fines considered have been those of only one jurisdiction, private settlements have been ignored, and the scenarios have been generic cartel situations. This research will overcome these limitations by applying data taken from my Private International Cartels (PIC) data set. The PIC spreadsheet currently contains 4.1MB of detailed legal and economic information on nearly 4000 observation from about 500 international cartels discovered by antitrust authorities since 1990. To my knowledge, the PIC sample is at least three times larger than any historical cartel sample.
Animal Health Component
(N/A)
Research Effort Categories
Basic
(N/A)
Applied
(N/A)
Developmental
(N/A)
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
6035010301040%
6035230301020%
6035299301010%
6105010301010%
6105230301010%
6105299301010%
Knowledge Area
603 - Market Economics; 610 - Domestic Policy Analysis;

Subject Of Investigation
5299 - Agricultural supplies, general/other; 5230 - Feed and feed additives; 5010 - Food;

Field Of Science
3010 - Economics;
Goals / Objectives
The principal objective of this project is to assess the effectiveness of all the antitrust authorities in the world in deterring the formation of international price-fixing conspiracies. Specific goals include: (1) the development of testable models of optimal deterrence of property crimes, (2) the collection of data sets containing economic and legal information for a large sample of discovered international cartels, (3) empirical analyses of the determinants of antitrust enforcement applied to international cartels, and (4), using the results of (3), normatively judging whether antitrust enforcement is or can be sub optimal, optimal, or supra optimal.
Project Methods
This project will start with the legal-economic theory of optimal deterrence. This theory forms a rational basis for antitrust law enforcement and has become nearly universally accepted in the legal-economic literature since the classic articles of Lande (1983) and Stigler (1970). In more recent years optimal deterrence theory has become unexceptional among Western European antitrust scholars as well (Harding and Joshua 2003, Wils 2005, Camilli 2005). Because U.S. and EU antitrust laws are the templates for the other 100 nations with anti-cartel legislation, optimal deterrence is primary basis for such laws worldwide. Optimal deterrence theory is couched in terms of the expectations of the founders and managers of cartels. Individual expectations are formed on the basis of historical experience, that of the firm itself, its legal advisors, and of other firms that were defendants in comparable price-fixing litigation. Case evidence supports the view that potentialconspirators are adept at predicting the quarterly or annual profits from an effective cartel, though they might have uncertainty about the longevity of the scheme. To simplify operationalizing my empirical applications, I make several reasonable assumptions.[see proposal for details] The decision facing a firm trying to decide whether to form a cartel or join an existing cartel may be explained using an ex ante benefit-cost framework. The expected financial benefit is the net present value of the expected monopoly profits accruing to the firm from an effective cartel, M x AS, where M is the anticipated mark-up above the price obtainable with no cartel and AS is market cartelized (affected) sales. Also critical to optimal deterrence is the expectations of participants concerning the probability of being caught (p). As to the probability p that a cartel will be discovered, most evidence seems to suggest a 10- to 20-percent chance (Connor 2007: Table 1). In my research, I will performsensitivity analyses for this probability. Let E(C) be the expected monetary costs of forming or joining the cartel, where the managerial costs are assumed to be negligible. Then the firm will opt to enter an existing cartel or create a new cartel agreement if [1] E(C) < M x AS , but will opt to stay out if the inequality sign in equation [1] is reversed. If E(C) = M x AS, then the costs are deemed privately optimal. In the simplest version of this decision model, one used by Richard Posner (2001), [2] E(C) = p x F, where p = the probability of antitrust-authority discovery and conviction and the only sanction is F, the fine (more generally, penalty) imposed for the violation. The optimal fine is [3] F* = E(C)/p. To apply variations on this model, data on cartel overcharges and monetary penalties must be collected and scenarios developed for amnesty/no amnesty expectations.

Progress 10/01/08 to 06/30/11

Outputs
Target Audience: Nothing Reported Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided? Nothing Reported How have the results been disseminated to communities of interest? Nothing Reported What do you plan to do during the next reporting period to accomplish the goals? Nothing Reported

Impacts
What was accomplished under these goals? Professor Connor retired from Purdue University in 2011.

Publications


    Progress 10/01/09 to 09/30/10

    Outputs
    OUTPUTS: Outputs include three refereed journal articles, three accepted for publication, four working papers posted on SSRN.org, and six international conference presentations. Cartel data sets were continuously updated and shared with several researchers, journalists, and antitrust authorities. I was active on several antitrust-law consulting projects. PARTICIPANTS: Nothing significant to report during this reporting period. TARGET AUDIENCES: The main targets are economists specialized in cartel studies, antitrust lawyers and law faculty, and antitrust officials. PROJECT MODIFICATIONS: Not relevant to this project.

    Impacts
    In a series of papers presented in Europe and North America and in journal review, I report on the results of an original predictive model of global cartel fines. The model is primarily specified by factors suggested by optimal deterrence theory, but is augmented with temporal, industry, and other determinants derived from US and EU legal practices. To test these models we developed samples of all companies that were convicted of participating in illegal global cartels during 1990-2008. The model demonstrates for the first time that cartel fines are quite predictable and that both the EC and DOJ impose fines that are consistent with principles of optimal deterrence theory. In addition, fines are influenced by temporal and jurisdiction-specific factors that are unique to each of the authorities. The results of our EC and DOJ analyses turn up much evidence of harmonization of cartel punishments. First, both models explain a high share of the variance in fines imposed on these global cartelists. In short, given certain objective economic and legal information, price-fixing fines are predictable. Second, as expected from optimal deterrence principles, both the EC and the DOJ correlate cartel fines closely with the degree of economic harm imposed on buyers in their respective jurisdictions. Moreover, both antitrust authorities tend to impose sub-optimal fines. Third, U.S. and EU antitrust authorities tend to lower fines on companies that were members of cartels that were relatively easy to detect. This too is compatible with optimal deterrence sentencing rules. Fourth, after 2004 EC fines rose precipitously. EC fines rose strongly during 1990-2008, but there is no evidence that DOJ fines are increasing over the same period. In the case of trans-Atlantic cartel fines, we discovered one glaring anomaly - a clear violation of optimal deterrence principles. Until penalties imposed by other jurisdictions exceed $600 million, both the EC and DOJ increase their cartel fines as other penalties increase. This robust empirical regularity found in both jurisdictions is strikingly similar. The more other penalties pile up, the more officials in both antitrust authorities pile on higher fines. The second edition of my book Global Price Fixing received a very nice review in the June 2009 issue of the AEA's prestigious Journal of Economic Literature. Only a small share of all economics books are awarded full reviews by the JEL. Here is a key quote from the review: "Global Price Fixing continues to be an invaluable reference for those with a deep interest in the economics of cartels, and a very readable and accessible narrative on the stories behind three famous contemporary international cartels. Given the apparent continued proclivity of firms to conspire to fix prices and allocate markets, these stories will continue to be relevant for researchers and policymakers for years to come." My work on cartels was quoted in press articles and by top decision-makers in antitrust enforcement, including the EC Commissioner for Competition,

    Publications

    • Connor, J. M. About Cartel Overcharges: Kroes Was Right. Concurrences: Revue des droits de la concurrences No. 1-2010 (January 2010): 1-6.
    • Connor, J. M. and D.J. Miller. The Predictability of Global Cartel Fines. Concurrences: Revue des droits de la concurrences No. 2-2010 (April 2010): 59-64.
    • Connor, J. M., A. Foer, and S. Udwin. Criminalizing Cartels: An American Perspective. New European Journal of Competition Law Vol. 1, Issue 2 (Fall 2010): 199-217.


    Progress 10/01/08 to 09/30/09

    Outputs
    OUTPUTS: Two original data sets were expanded. First, the "Cartel Overcharges" spreadsheet is nearing completion. A summary working paper will be posted in 2010. Second, the "Private International Cartels" spreadsheet had about 50 new observations added. This spreadsheet is the basis of several on-going research projects by the author and has been sent to at least three other researchers during the reporting period. I presented six research papers (competitively chosen) at six academic conferences, including: "Determinants of Cartel Duration" at the 7th International Industrial Organization Conference; "Determinants of U.S. Antitrust Fines of Corporate Participants of Global Cartels" at the 7th International Industrial Organization Conference; "Factors influencing the magnitude of cartel overcharges: an empirical analysis of the US market" at the 7th annual International Industrial Organization Conference; "Determinants of EC Fines for Members of Global Cartels" at the 3rd Conference on The Economics of Competition Law; "Ownership Composition in Local Hotel Markets" at the Ag. & Applied Econ Assn.; and "International Cartels and Antitrust Enforcement" at the 10th Annual Meeting of the American Antitrust Institute. I was a panelist on Worldview, a nationally syndicated program produced by Chicago Public Radio WBEZ. PARTICIPANTS: Not relevant to this project. TARGET AUDIENCES: Anti-trust lawyers and government regulatory agencies PROJECT MODIFICATIONS: Not relevant to this project.

    Impacts
    My research publications and conference presentations incorporate several novel empirical findings. One group of publications has measured and verified the degree to which US and EU antitrust penalties conform to the legal-economic philosophy of optimal criminal deterrence. One paper analyzes the determinants of variation in size of criminal fines imposed by the Antitrust Division of the DOJ on corporate participants of hard-core global cartels. The behavioral model provides the first direct test of the optimal deterrence theory of antitrust crimes. The analysis in this paper finds that U.S. corporate cartel fines are directly related to economic injuries from collusion, are inversely related to proxies for the probability of detection and conviction of clandestine cartels, and that fines increase with the number of months that a corporate defendant's managers are sentenced to prison. The predictive power of the optimal-deterrence model is quite satisfactory. A second paper applied to cartel fines by the European Commission also verifies the predictions of the optimal deterrence theory of crime. However, in both jurisdictions monetary penalties are sub-optimal. A second group of publications evaluates the effectiveness of anti-cartel enforcement in Asia, Latin America, and the United States. US enforcement is in most ways the best in the world, though subject to improvements, followed by the EC, some EU Member States, Brazil, and South Korea. The prevalence of private rights of action in US courts is one of the major ways that makes US enforcement superior. A third group of publications displays summaries of the author's data sets on cartels overcharges and modern private international cartels. One finding is the the rates of discovery of these conspiracies is more than ten times higher in the past few years compared to the early 1990s. Unique information has been published of the identities and frequency of cartel recidivism and cartel amnesty recipients.

    Publications

    • Connor, J.M. 2008. Global Antitrust Prosecutions of International Cartels: Focus on Asia, World Competition 31: 575-600.
    • Connor, J. 2009. Global Price Fixing: Kindle Edition. Berlin and Heidelberg,Germany: Springer Verlag, 503 + xxv pp.
    • Connor, J.M. 2008. Countering the Evil of Cartels, Chapter 1, pp. 22-54 in The Next Antitrust Agenda, ed. by Albert Foer. Lake Mary, Florida: Vanderplas Publications.
    • No publications reported this period


    Progress 10/01/07 to 09/30/08

    Outputs
    OUTPUTS: Connor gave addresses at 12 conferences, one a keynote address, ten at international conferences, and two domestic invited speeches. The international conferences were held in Canada, Brazil, Denmark, France, the Netherlands, and the United States. One was at the invitation of the Canadian Competition Bureau. All covered topics in international cartels and antitrust policies on price fixing. Audience members include economists, lawyers, legal scholars, and antitrust officials. Services include consulting with non-profit organizations and law firms on matters pertaining to price fixing allegations. Products include the expansion and updating of electronically stored data sets, which are increasingly being shared by scholars inside of and outside of the University. The largest is "Private International Cartels." This spreadsheet, first created ca. 1998, is continuously updated. As of March 2008, the Combined spreadsheet was a file of 4.11MB and consisted of 3767 observations of cartels, companies, and individuals with data in 633,000 cells. There are also 13 back-up spreadsheets. The newest is "DOJ Cartel Fine Discounts," created in 2007-08 and consisting of 128 sentencing observations. The file is 158KB. PARTICIPANTS: Prof. Darren Bush, University of Houston Law School. Prof. Daniel Sokol, Univ. of Florida Law School. Prof. Robert Lande, Univ. of Baltimore Law School. Prof. Yuliya Bolotova, Univ. of Idaho Prof. Douglas Miller, Univ. of Missouri Mr. Albert Foer, President, American Antitrust Institute. TARGET AUDIENCES: Economics Graduate students and scholars; students, practitioners, and teachers of competition law; antitrust enforcement officials. PROJECT MODIFICATIONS: Nothing significant to report during this reporting period.

    Impacts
    One way of measuring impact is by the number of downloads that are made of online publications. Here are three examples: 1. On 10/22/07 Connor was informed by the Social Science Network that his working paper on Forensic Economics made the "Top Ten List" out of 1153 papers in the Price Analysis category for the 60 days ending 10/22/07. 2. His paper entitled, "The Great Global Vitamins Conspiracies" was listed on SSRN's Top Ten download list for the month of May, 2008 in "International Trade Policy". 3. His paper "Latin America Cartel Control" was on SSRN's Top Ten download list for International Trade Policy twice. On 10/21/07 Connor was informed that his forthcoming speech and paper on Latin American enforcement of anti-cartel laws was one of only 15 accepted out of 69 submissions. A peer-review panel of 20 scholars from three continents selected the papers. The paper was presented at the Latin American Competition Policy Conference in Sao Paolo in 2008. Connor was interviewed by Brazil's leading business newspaper on the occasion of a speech give at IBMEC business school on Oct. 29th in Sao Paolo. The President of Brazil's antitrust authority CADE, Dr. Elizabeth Farinha, was present and commented positively on the content. The article follows. Connor's popular book is more likely to be adopted for student teaching because "Global Price Fixing" now appears in a paperback edition at a much lower price. Connor received the following short review from Prof. Elizabeth Farina of the Univ. of Sao Paulo and President of the Brazilian Federal Antitrust Authority CADE: "I have used John Connor's book "Global Price Fixing" as a wonderful complement to my IO theoretical classes on firms' strategies, including collusion. The book brings theory down to earth, showing real conduct adopted by very well known world leader companies. Differently from many books on firms' strategies, it offers a solid economic theory basis. Moreover, the book brings the evaluation of overpricing due to international cartels and, therefore, it shows very clearly the social impact that different strategies effectively produce... The book motivates students to go deeper in the theory and practice of the Industrial Organization field." In April 2008 the European Commission released a massive report "Making antitrust damages actions more effective in the EU" authored by nine leading EU legal scholars. In it 12 of Connor's publications on cartels and cartel law are listed as sources, more than any other author. Moreover, the text cites these works 47 times. Connor had three papers (one co-authored) accepted at the premier professional meeting in the world for industrial economists. There were 626 papers submitted and 105 (17%) accepted. Connor's papers were delivered in the largest of the rooms in the conference center. Connor actively assists antitrust authorities around the world. On September 20, 2008, Connor received a letter from the New Zealand Ministry of Commerce to ask him to prepare an analysis for the Competition Commission concerning air-cargo firms alleged to have been illegally colluding on prices.

    Publications

    • Connor, J. M. Latin America and the Control of International Cartels: SSRN Working Paper (April 14, 2008). [http://ssrn.com/abstract=1156401]
    • Connor, J. M. A Critique of Partial Leniency for Cartels by the U.S. Department of Justice: SSRN Working Paper (May 26, 2008). [available at SSRN: http://ssrn.com/abstract=977772]
    • Connor, J. M. et al. The United States Department of Justice Antitrust Divisions Cartel Enforcement: Appraisal and Proposals: SSRN Working Paper. (Revised April 26, 2008). [available at SSRN: http://ssrn.com/abstract=1130204]
    • Connor, J. M. The Great Global Vitamins Conspiracies, 1985-1999: SSRN Working Paper (April 9, 2008). [available at SSRN: http://ssrn.com/abstract=1120936]
    • Connor, J. M. Global Price Fixing: Paperback 2nd Edition. Berlin and Heidelberg, Germany: Springer Verlag (released April 2008).
    • Connor, J. M.Forensic Economics Applied to Price-Fixing Overcharges. Journal of Competition Law & Economics Vol. 4, No. 1 (October 2007): 31-59.
    • Connor, J. M.and Darren Bush. How to Block Cartel Formation and Price Fixing: Using Extraterritorial Application of the Antitrust Laws as a Deterrent, Pennsylvania State University Law Review 122 (March 2008): 813-855.
    • Bolotova, Yuliya, Connor, J. M., and Douglas Miller. The Impact of Collusion on Price Behavior: Empirical Results from Two Recent Cases. International Journal of Industrial Organization (posted January 15, 2008, available at http://www2.lib.purdue.edu:2184/science/journal/01677187).
    • Connor, J. M. Evolution of the Global Lysine Industry, 1960-2000, Chapter 8, pp. 237-66 in Innovation in the Food & Drink Industry, Ruth Rama (ed.). New York: Haworth Press (2008).
    • Connor, J. M. Global Cartels Redux: The Amino Acid Lysine Antitrust Litigation (1996), The Antitrust Revolution (Fifth Edition), John E. Kwoka and Lawrence White (editors). Oxford: Oxford University Press (July 2008).
    • Connor, J. M. Our Customers Are Our Enemies: The Lysine Cartel of 1992-1995, Recent Developments in Monopoly and Competition Policy, edited by George Norman (in The International Library of Critical Writings series, Mark Blaug general editor). Cheltenham: Edward Elgar Publishers (2008).
    • Connor, J. M. et al. Countering the Evil of Cartels, Chapter 1, pp. 22-54 in The Next Antitrust Agenda, ed. by Albert Foer. Lake Mary, Florida: Vanderplas Publications (September 2008).
    • Connor, J. M. Punicoes por cartel sao leves no Brasil segundo professor dos Estados Unidos: Justica lenta e penas leves facilitam acao dos carteis, interview in Valor Economico.(October 29, 2007).
    • Connor, J. M. On the History and Impacts of International Cartels: Op-Ed, 3 pp. (June 2008). [http://www.lecgcp.com/us/forum/index.aspx?id=387]
    • Connor, J. M. and Robert H. Lande. Optimal Cartel Fines, Chapter 88, pp. 2203-2218, Issues in Competition Law and Policy: Volume III, Wayne Dale Collins (editor). Chicago: Section of Antitrust Law of the American Bar Association (July 2008)
    • Connor, J. M. Cartel Enforcement at the Antitrust Division, U.S. Department of Justice, 1990-2007. Global Competition Policy (September 25, 2008: Release Two): 2-11. [http://www.globalcompetitionpolicy.org/index.php?&id=1393&action=907 ]
    • Jeffrey Zimmerman and Connor, J. M. Determinants of Cartel Duration: A Cross-sectional Study of Private International Cartels, 1990-2003: SSRN Working Paper (posted July 2008). [http://ssrn.com/abstract=1158577]


    Progress 10/01/06 to 09/30/07

    Outputs
    OUTPUTS: Connor disseminated his research at the following ten conferences (title, location, and date): Cartel Duration: An Empirical Analysis, 5th Annual International Industrial Organization Conference, Georgia Southern University, Savannah, Georgia (April 14, 2007) [with Yuliya Bolotova]. Optimal Deterrence and Private International Cartels, 5th Annual International Industrial Organization Conference, Savannah, Georgia (April 14, 2007). Comment on Predatory Buying and the Antitrust Laws by Roger D. Blair and John E. Lopatka, 5th Annual International Industrial Organization Conference, Savannah, Georgia (April 14, 2007). Global Antitrust Prosecutions of International Cartels: Focus on Asia, Department of Business Administration, National Taipei University, Taipei, Taiwan (August 16, 2007). Thoughts on Research and Academic Publishing, Department of Business Administration, National Taipei University, Taipei, Taiwan (August 16, 2007). Global Antitrust Prosecutions of International Cartels: Focus on Asia, Asian Law and Economics Society annual meeting, Taipei (August 17, 2007). Canada and the Control of International Cartels, Presentation at the Speakers' Series, Economic Policy and Enforcement Branch, Canadian Competition Bureau, Ottawa, Canada (October 8, 2007). Latin America and the Control of International Cartels, Presentation at the 2007 International Seminar on Strategy, Market Power and Antitrust, sponsored by the Center for Research in Strategy at IBMEC, Sao Paulo, Brazil (October 29, 2007). Effectiveness of Sanctions on Modern International Cartels, Allied Social Sciences Association, American Economic Association session, annual meeting, Chicago, January 6, 2007. International Cartels: Research Overview. Departmental Seminar, Purdue University, September 18, 2007. Economic consulting services were offered to clients and the judiciary on about six alleged illegal cartels. PARTICIPANTS: University of Baltimore Law School, Robert Lande. TARGET AUDIENCES: Industrial-organization economists, antitrust scholars and practitioners, graduate students of economics.

    Impacts
    One of Connor's most important scientific publications presents a novel meta-regression analysis of the size of cartel overcharges from a sample of more than 800 observations collected from a wide variety of published sources. The analysis of a subsample of 395 cartel episodes finds that duration, legal environment, and organizational characteristics of cartels explain variation in overcharge rates to a greater extent than the type of publication or the method of calculation. Overcharges tend to be significantly higher for durable international cartels. Secular decline is observed as antitrust-enforcement regimes have stiffened. These conclusions are of interest to antitrust authorities in designing public policies to combat cartel formation.

    Publications

    • Connor, J. M. Our Customers Are the Enemy: The Lysine Cartel of 1992-1995, Cartels (2 Volumes), Stephen W. Salant and Margaret C. Levenstein (editors). Cheltenham, UK: Edward Elgar (2007).
    • Connor, J. M. Evolution of the Global Lysine Industry, 1960-2000, Innovation in the Food & Drink Industry, Ruth Rama (ed.). Haworth Press (2007).
    • Connor, J. M. The Great Global Price-Fixing Conspiracy: Sanctions and Deterrence, Linex Legal European Competition Law Alerter (30 August 2007). [http://www.linexlegal.com/CONTENT/10551/10551Microsoft%20Word%20-%20 GREAT%20GLOBAL%20VITAMINS%20CONSPIRACY%20Antitrust%20Mag%2008-06.pdf]
    • Connor, J. M. Forensic Economics: An Introduction with Special Emphasis on Price Fixing: SSRN Working Paper (March 2007). [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=988709]
    • Connor, J. M. Statistics on Modern Private International Cartels: SSRN Working Paper (Revised May 2007), [with Gustav Helmers]. [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=944039]
    • Connor, J. M. A Critique of Cartel Fine Discounting by the U.S. Department of Justice: SSRN Working Paper (March 31, 2007). [available at SSRN: http://ssrn.com/abstract=977772]
    • Connor, J. M. Global Antitrust Prosecutions of International Cartels: Focus on Asia: SSRN Working Paper (November 5, 2007). [available at SSRN: http://ssrn.com/abstract=1027949]
    • Connor, J. M. Global Price Fixing: 2nd Updated and Revised Edition: Studies in Industrial Organization No. 26. Berlin and Heidelberg, Germany: Springer Verlag (Copyright 2007, released December 2006)
    • Connor, J. M. A Meta-Analysis of Cartel Overcharges, International Journal of Industrial Organization 24 (Nov. 2006): 1109-1137 [with Yuliya Bolotova]. [available at http://dx.doi.org/10.1016/j.ijindorg.2006.04.003]
    • Connor, J. M. Factors Influencing the Magnitude of Cartel Overcharges: An Empirical Analysis of Food-Industry Cartels, Agribusiness: An International Journal 23 (Winter 2006-2007):17-33. (Published online: Jan. 16, 2007) [with Yuliya Bolotova and Douglas J. Miller].
    • Connor, J. M. Price-Fixing Overcharges: Legal and Economic Evidence, Chapter 4, pp. 59-153 in John B. Kirkwood (editor), Volume 22 of Research in Law and Economics. Oxford, Amsterdam and San Diego: Elsevier (January 2007).
    • Connor, J. M. Effectiveness of Antitrust Sanctions on Modern International Cartels, The Political Economy of Antitrust by Vivek Ghosal and Johan Stennek (editors). Amsterdam: North-Holland (2007).
    • Connor, J. M. Cartel Overcharges: Implications for U.S. and EU Fining Policies, Antitrust Bulletin 51 (January 2007): 983-1022 [with Robert H. Lande].


    Progress 10/01/05 to 09/30/06

    Outputs
    An appropriate mix of government and private sanctions is required to optimize the deterrence of cartel formation and recidivism. To examine this issue empirically I first surveyed published economic studies and judicial decisions that contain 1,040 quantitative estimates of overcharges of hard-core cartels. The primary finding is that the median long-run overcharge for all types of cartels over all time periods is 25.0%: 18.8% for domestic cartels and 31.0% for international cartels. The mean overcharge for all successful cartels is 43.4%. Convicted cartels are on average as equally effective at raising prices as unpunished cartels. These findings suggest that optimal deterrence requires that monetary penalties ought to be increased. Second, a formal meta-regression analysis confirms the previous survey. The analysis finds that duration, legal environment, and organizational characteristics of cartels explain variation in overcharge rates to a greater extent than the type of publication or the method of calculation. Overcharges tend to be significantly higher for durable international cartels. Secular decline is observed as antitrust enforcement regimes have stiffened. Third, a case study of the vitamins cartel confirms the inadequacy of antitrust sanctions to deter recidivism. Evidence is presented that these 16 interrelated cartels were the largest discovered international price-fixing schemes of the late 20th century in terms of affected commerce and direct overcharges. Although organizationally similar in many respects, the cartels also displayed a wondrous variety of collusive conducts. Only six of the cartels died natural deaths.There is little question that the convicted members of the vitamins cartels were in absolute monetary terms the most heavily sanctioned defendants in the history of antitrust law. Yet, it is equally non-controvertible that the impressive corporate monetary sanctions imposed worldwide were inadequate to deter recidivism. Fourth, I assessed the antitrust fines and private penalties imposed on the participants of 260 international cartels discovered during 1990-2005, using four indicators of enforcement effectiveness. First, the United States is almost always the first to investigate and sanction international cartels, and its investigations are about seven times faster than EU probes. Second, U.S. investigations were more likely to be kept confidential than those in Europe, but the gap nearly disappeared since 2000. Third, median government antitrust fines average less than 10% of affected commerce, but rises to about 35% in the case of multi-continental conspiracies. Civil settlements in jurisdictions where they are permitted are typically 6 to 12% of sales. Canadian and U.S. fines and settlements imposed higher penalties than other jurisdictions. Fourth, fines on cartels that operated in Europe averaged a bit more than half of their estimated overcharges; those prosecuted only in North America paid civil and criminal sanctions of roughly single damages; and global cartels prosecuted in both jurisdictions typically paid less than single damages.

    Impacts
    In appearances before and pro-bono consultancies with the antitrust authorities of the United States, European Union, Canada, and the Netherlands, I have hammered home the theme that current cartel fining standards are sub optimal. A few months after my talk in Brussels, the European Commission altered its fining guidelines. Partly in response to testimony and several public comments, draft reports of the U.S. Antitrust Modernization Commission will back off from suggesting lower cartel fines.

    Publications

    • John M. Connor and Robert H. Lande 2005, How High Do Cartels Raise Prices? Implications for Optimal Cartel Fines, Tulane Law Review 80: 513-570.
    • John M. Connor 2006. The Great Global Price-Fixing Conspiracy: Sanctions and Deterrence. Concurrences (10/2006).
    • John M. Connor 2006, Effectiveness of Sanctions on Modern International Cartels, The J. of Industry, Competition, and Trade (accepted 6/2006).
    • John M. Connor 2006. The Great Global Vitamins Conspiracy: Working Paper. West Lafayette, IN: Department of Agricultural Economics, Purdue University (2/2006), 189 pp http://www.agecon.purdue.edu/staff/connor/papers/The pct 20Great pct 20Global pct 20Vitamins pct 20Conspiracy.pdf and http://papers.ssrn.com/sol3/papers.cfm?abstract_id=885968.pdf
    • Connor, John M. 2006, Our Customers Are the Enemy: The Lysine Cartel of 1992-1995, in Cartels (2 Volumes), Stephen W. Salant and Margaret C. Levenstein (editors). Cheltenham, UK: Edward Elgar (2006).
    • Bolotova, Yuliya 2006, Factors Influencing the Magnitude of Cartel Overcharges, Ph.D. Dissertation, Purdue University (6/2006).
    • Kenneth Adams, John M. Connor, Albert A. Foer, and Robert H. Lande 2006. Response of the American Antitrust Institute Working Group on Criminal Remedies to AMC Request for Public Comment. (6/30/2006), 4 pp. http://www.antitrustinstitute.org/recent2/460.pdf
    • John M. Connor 2006, Effectiveness of Antitrust Sanctions on Modern International Cartels, in The Political Economy of Antitrust by Vivek Ghosal and Johan Stennek (editors). Amsterdam: North-Holland (2006).
    • John M. Connor 2006. The Great Global Vitamins Conspiracy: Sanctions and Deterrence: Working Paper. West Lafayette, IN: Department of Agricultural Economics, Purdue University (2/2006), 85 pp. http://www.agecon.purdue.edu/staff/connor/papers/The pct 20Great pct 20Global pct 20Vitamins pct 20Conspiracy pct 20Sanctions pct 20and pct 20Deterrence.pdf and http://papers.ssrn.com/sol3/papers.cfm?abstract_id=XXXXX
    • John M. Connor 2006. The Great Global Vitamins Conspiracy: Sanctions and Deterrence: AAI Working Paper No. 06-02. Washington, DC: American Antitrust Institute (2/22/2006), 88 pp. http://www.antitrustinstitute.org/recent2/485.pdf
    • John M. Connor 2006, The Great Global Vitamins Cartels of 1989-1999, Economics Group, Directorate General for Competition, European Commission, Brussels, Belgium (3/20/2006).


    Progress 10/01/04 to 09/30/05

    Outputs
    Some highlights include a paper that proposes and tests empirically whether price dispersions change when cartels are formed; a cases study of structural and geographic change in the global lysine industry 1960-2000; a study that measures the influence of market structure and the enforcement environment on the duration of cartels; an event study of the effects of allegations of price fixing; a chapter that lays out and assesses court-approved methods of estimating cartel overcharges; two papers that examine the sources of variation in the size of cartel overcharges; a paper that traces for the first time the monetary antitrust sanctions on cartels from 1990 to 2005 everywhere in the world; a chapter that offers metrics on the speed and harshness of monetary penalties placed on 260 international cartels 1990-2005, concluding that collusion deterrence is severely suboptimal; a paper that critiques and offers amendments on the U.S. Sentencing Guidelines for cartel fines; and a legal-economic analysis of a case before the U.S. Supreme Court on the extent of extraterritoriality of the Sherman Act in the context of global cartels.

    Impacts
    The empirical results of cartel studies have been presented to practionioners (antitrust lawyers and angency enforcement officials), to briefs submitted to Appeals courts and the Supreme Court hearing arguments on cartel cases, the International Competition Network (80 of the world's top antitrust officials), and in public comments to and testimony before the U.S. Antitrust Modernization Commission. I expect the findings to result in expansions of antitrust monitoring of possible price fixing episodes and a heightened consideration of greater cartel sanctions to improve optimal deterrence of recidivism.

    Publications

    • John M. Connor, Global Antitrust Prosecutions of Modern International Cartels. The J. of Industry, Competition, and Trade 4 (2004): 239-267.
    • John M. Connor, Collusion and Price Dispersion, Applied Economics Letters 12 (May 2005): 335-338.
    • Roberto Vassolo, John M. Connor, and Filipe A. Ravara, Food Multinational Enterprise Investment Strategies: An Option Theory Approach, Research Management 3 (Winter 2004-2005): 87-99.
    • John M. Connor, Price-Fixing Overcharges: Legal and Economic Evidence, Research in Law and Economics (2006).
    • John M. Connor, Global Cartels Redux: The Amino Acid Lysine Antitrust Litigation (1996), pp. 252-276 in The Antitrust Revolution (Fourth Edition), John E. Kwoka and Lawrence White (editors). Oxford: Oxford University Press (2004).
    • John M. Connor and Robert H. Lande. Optimal Cartel Fines, in Thinking Creatively about Antitrust Remedies. Proceedings of the American Antitrust Institute annual meeting, June 21, 2005, 30 pp. [approved for 2 CLE credit hours by the Virginia State Bar].
    • Alla Golub, Joshua Detre, and John M. Connor, The Profitability of price Fixing: Have Stronger Antitrust Sanctions Deterred?, paper prepared for submission to the Second Biennial Conference of the Food System Research Group, University of Wisconsin-Madison, June 2005 (February 15, 2005), 15 pp.
    • Bolotova, Yuliya, John M. Connor, and Douglas Miller. The Impact of Collusion on Price Behavior: Empirical Results from Two Recent Cases, selected paper, annual meeting of the American Agricultural Economics Association, Providence, RI, July 25-27, 2005.
    • John M. Connor, Price-Fixing Overcharges: Legal and Economic Evidence, selected paper, annual meeting of the American Agricultural Economics Association, Providence, RI, July 25-27, 2005.
    • John M. Connor. Extraterritoriality of the Sherman Act and Deterrence of International Cartels, selected paper, annual meeting of the American Agricultural Economics Association, Providence, RI, July 25-27, 2005.


    Progress 10/01/03 to 09/29/04

    Outputs
    Publications continue to document the products, market size, location, membership, collusive techniques, duration, and price effects of international cartels. This information is being combined with facts about criminal fines, imprisonment, and civil penealties imposed on these cartels by antitrust authorities, courts and commissions worldwide. In the context of optimal deterrence theory, no case of overdeterrence can be documented; the degree of underdeterrence is in average profound. A brief written for the U.S. Supreme Court has outlined these facts and argued that permitting overseas buyers to have standing in U.S. courts for international price-fixing allegations would move closer to optimal deterrence.

    Impacts
    During 1995-2004 more than 200 illegal international cartels have been exposed by antitrust authorities worldwide. They affected at least $400 billion in commerce worldwide, one-fourth in food and agricultural industries. Despite the adoption of increasingly effective enforcement techniques and harsher penalties, the deterrence effect of antitrust sanctions is still suboptimal. The purposes of this project are to collect information on the economic factors that explain the formation of cartels; to identify effective conduct; to estimate the size of and injuries in affected markets; and to identify optimal deterrence policies.

    Publications

    • John M. Connor and Robert H. Lande, How High Do Cartels Raise Prices? Implications for Reform of Sentencing Guidelines, Working Paper 01-04, American Antitrust Institute (August 2004), 94 pp. [http://www.antitrustinstitute.org/]
    • John M. Connor, Antitrust Issues: Global Cartels, Competition Law, and the New Economy, Urban and Regional Prosperity in the Globalized New Economy, Roger Sugden et al. (Ed.). London: Edgar (2003).
    • John M. Connor, Global Cartels Redux: The Amino Acid Lysine Antitrust Litigation (1996), pp. 252-276 in The Antitrust Revolution (Fourth Edition), John E. Kwoka and Lawrence White (editors). Oxford: Oxford University Press (2004).
    • John M. Connor. The Benefits and Costs of COOL. Purdue Agricultural Economics Report (December 2003): 1-4.
    • John M. Connor. A Comment on Crandall and Winston. American Antitrust Institute Web site (http://www.antitrustinstitute.org/recent2/291.cfm) (January 2004).
    • Bush, Darren, John M. Connor, et al. How to Block Cartel Formation and Price-Fixing, Washington, DC: American Enterprise Institute-Brookings Joint Center, Brief 04-01 (March 15, 2004) (http://www.aei-brookings.org/publications/abstract.php?pid=728).
    • John M. Connor. Private International Cartels: Effectiveness, Welfare, and Anticartel Enforcement, Staff Paper 03-12. W. Lafayette, IN: Department of Agricultural Economics, Purdue University (November, 2003), 145 pp. [www.agecon.lib.umn.edu/pu.html.]
    • John M. Connor. Extraterritoriality of the Sherman Act and Deterrence of International Cartels, Staff Paper 04-08. West Lafayette, IN: Department of Agricultural Economics, Purdue University (April 2004), 26 pp. [www.agecon.lib.umn.edu/pu.html] and [http://law.bepress.com/expresso/eps/263].
    • Bush, Darren, John M. Connor (author), et al. Brief Amici Curiae No. 03-724 in the Supreme Court of the United States, F. Hoffmann-LaRoche et al. v. Empagran et al.(March 15, 2004).
    • John M. Connor, La mondialisation des delites en col blanc: les cartels agroalimentaires des annees 90 (The Globalization of Corporate Crime: Food and Agricultural Cartels of the 1990s), Revue d Economie Rurale (September-December 2003): 3-26. [in French].
    • Yu, Chih-ching and John M. Connor, Choosing the Best Competition Models for the Margarine Industry in the United States, Journal of Agricultural Economics 74 (December 2003): 1-22.


    Progress 10/01/02 to 09/30/03

    Outputs
    New Project -- Nothing to Report

    Impacts
    During 1995-2003 more than 165 illegal international cartels have been exposed, which affected at least $400 billion in commerce worldwide, one-third in food and agricultural industries. Despite the adoption of increasingly effective enforcement techniques and harsher penalties, the deterrence effect of antitrust sanctions is still suboptimal. The purposes of this project are to collect information on the economic factors that explain the formation of cartels; to identify effective conduct; to estimate the size of and injuries in affected markets; and to identify optimal deterrence policies.

    Publications

    • No publications reported this period


    Progress 10/01/01 to 09/30/02

    Outputs
    The book chapter explains five methods of quantitative measurement of the monopoly overcharge generated by effective cartels, illustrated with data from the 1992-1995 global lysine conspiracy. These methods vary in the degree of data detail required and the extent to which they are likely to be accepted by courts for awarding legal damages to plaintiffs. The working paper is a survey of about 40 global cartels prosecuted by U.S. or EU antitrust authorities since 1995. About 85% of the cartel activity was concentrated in markets for food or feed ingredients. On average, cartels were successful in raising selling prices by 24%. An analysis of the financial costs incurred by discovered cartels (fines and settlements to private plaintiffs) reveals that in only one of 16 cases did these costs exceed global monopoly profits made by the cartels. Moreover, an analysis of the ex ante decision to join these types of cartels shows that present-day fine structures are wholly inadequate to deter cartel formation. Fines as high as 60 times expected cartel profits may be necessary for absolute deterrence.

    Impacts
    These publications may help inform the debate over whether U.S. and foreign sanctions should be made more harsh in order to curtail a seriously harmful form of corporate crime.

    Publications

    • Connor, J. M., August 2002. "The Food and Agricultural Global Cartels of the 1990s", SP 02-X, 56 pages. [www.agecon.lib.umn.edu/pu.html]. W. Lafayette, IN: Purdue University.
    • Connor, J. M., 2002. "Global Price Fixing: ADM et al. and the Lysine Case," in The Antitrust Revolution (Fourth Edition), John E. Kwoka and Lawrence White (editors). Oxford: Oxford University Press.


    Progress 10/01/00 to 09/30/01

    Outputs
    These monographs and papers provide a legal-economic analysis of three global price-fixing conspiracies (cartels) in the markets for lysine, citric acid, and bulk vitamins. These products are ingredients in processed foods or balanced animal feeds. Each of the three cases is covered by a description of the industry's global structure of production and consumption; by a detailed history of the cartel's formation, organization, and behavior; by an analysis of the cartel's impacts on production, international trade, corporate profits, and customer overcharges; and by the civil and criminal prosecutions of the conspirators by plaintiffs in the United States, Canada, Europe, and elsewhere. The book attempts to draw lessons about the effectiveness of current antitrust enforcement to deter future global cartels.

    Impacts
    Three food-and-feed ingredient cartels (lysine, citric acid, and vitamins) generated economic losses of $8 billion worldwide, yet the companies in the conspiracies paid fines and settlements of only about $4 billion. Antitrust fines have escalated greatly in North America and the European Union during the last 5 years, but private damage settlements are significant only in North America.

    Publications

    • John M. Connor, 2001. Global Price Fixing: 'Our Customers Are the Enemy'. Boston: Kluwer Academic.
    • John M. Connor, 2001. 'Our Customers Are Our Enemies:' The Lysine Cartel of 1992-1995. Review of Industrial Organization 18:5-21.
    • John M. Connor, 2001. The Lysine Cartel: Guest Editor's Introduction. Review of Industrial Organization 18:1-4.
    • John M. Connor, 2001. Archer Daniels Midland: Price-Fixer to the World: Fourth Edition, SP 00-11, West Lafayette, IN: Purdue University, December, 400 pages.


    Progress 10/01/99 to 09/30/00

    Outputs
    This book completes the legal-economic analysis of three global price-fixing conspiracies (cartels) in the markets for lysine, citric acid, and bulk vitamins. These products are ingredients in processed foods or balanced animal feeds. Each of the three cases is covered by a description of the industry's global structure of production and consumption; by a detailed history if the cartel's formation , organization, and behavior; by an analysis of the cartel's impacts on production, international trade, corporate profits, and customer overcharges; and by the civil and criminal prosecutions of the conspirators by plaintiffs in the United States, Canada, Europe, and elsewhere. The book attempts to draw lessons about the effectiveness of current antitrust enforcement to deter future global cartels.

    Impacts
    This research quantifies the economic harm of international price-fixing cartels to a degree not seen in previous statements. It also semonstrates the greater financial liability faced by cartel participants because of increases in legal sanctions in the 1990s.

    Publications

    • Connor, John M. Global Price Fixing. Dordrecht: Kluwer Academic (2000).


    Progress 01/01/99 to 12/31/99

    Outputs
    Using data on ready-to-eat breakfast cereals brands, a quantitative analysis shows that the size of the cents off coupons is directly related to brand prices and brand shares but is inversely related to the degree of consumer loyalty to the brand. There is evidence of excessive (profit-reducing) coupon expenditures in the 1990s. Manufacturers avoid price competition. Grocery supermarket retailers are facing many new forms of horizontal rivalry. Retail grocery prices are being affected by local competition from warehouse-type stores and fast-food places, but the effects vary across store departments. Prices tend to be lower in local markets that have relatively few general-line merchant wholesalers, but are not lower when retailers vertically integrate backward into general-line wholesaling.

    Impacts
    (N/A)

    Publications

    • John M. Connor, "Breakfast Cereals: The Extreme Industry," Agribusiness: An International Journal 15 (1999): 247-260.
    • John M. Connor, "Evolving Research on Price Competition in the Grocery Retailing Industry: An Appraisal," Agricultural and Resource Economics Review 28(October 1999):119-127.
    • John M. Connor, "Couponing as a Horizontal and Vertical Strategy: Theory and Effects," Vertical Relationships and Coordination in the Food System, G. Gallizzi and L. Venturini (editors). Heidelberg, Gernany: Physica-Verlag (1999).
    • Roland Herrmann, Claudia Roder, and John M. Connor, "How Market Structure Affects Food Product Proliferation: Theoretical Hypotheses and New Empirical Evidence for the U.S. and the German Food Industries," Working Paper No. 51. University of Giessen, Giessen, Germany (March 1999), 60 pp.