Question

Please type!!!

Find in the news a case of price fixing conspiracy and discuss why cartels would form in the presence of penalties.

Answer 1

Cartel activity is a type of cooperation among competitors identified both by what the competitors do and what they don't do. With cartel activity, the competitors enter into an agreement as to the material terms on which they compete, e.g., the prices they charge, or as to whether they compete at all in particular places or for particular customers. And with cartel activity, the agreement on the terms of competition or on whether to compete is not part of a larger cooperative venture in which the competitors integrate their activities in a manner reasonably expected to generate efficiencies or otherwise benefit consumers.

Rigging bids and allocating customers are typical examples of cartel activity. An agreement between competitors to merge could be construed as an agreement as to whether they compete and might be anticompetitive, but unlike cartel activity, the merger produces a potentially efficiency enhancing integration. The agreement among competitors to pool complementary resources in ways that create new products or serve additional customers normally is procompetitive and has little resemblance to cartel activity.

A key distinction between cartel activity and other types of competitor cooperation that also could offend competition law is that cartel activity entails cooperation on business decisions, such as the choice of prices, outputs, or which customers to serve, and not also cooperation on business functions such as research or distribution.Competitors engaged in legitimate cooperation might use it as a cover for cartel activity, but the existence of the legitimate cooperation is irrelevant if the suspect cooperation is not reasonably necessary to the accomplishment of the procompetitive objectives of legitimate cooperation.

Cartel Activity Should Be Viewed and Treated as a Crime

Cartel activity is properly viewed as a property crime, like burglary or larceny, although cartel activity inflicts far greater economic harm. Cartel activity robs consumers and other market participants of the tangible blessings of competition. Cartel activity is never efficient or otherwise socially desirable; cartel participants can never gain more than the public loses. Cartel activity, therefore, is not like tortious conduct, which is redressed with a liability rule focusing on the harm to victims and providing the incentive to take due care. Like other property crimes, cartel activity should be prohibited rather than merely taxed.As Judge Richard Posner explained of criminal sanctions generally, they "are not really prices designed to ration the activity; the purpose so far as possible is to extirpate it."

Cartel activity materially differs from other property crimes only with respect to the purpose of sanctions. Rehabilitation and incapacitation are important purposes for most criminal sanctions, but deterrence is the only significant function of sanctions for cartel activity, and the specific deterrence of convicted offenders clearly is secondary to the general deterrence of potential offenders

Price-fixing, in the words of Canada's Competition Bureau, is "consumer fraud." It is a difficult crime to detect, because a price-fixing conspiracy between companies also resembles actual competition between firms.

An often-cited example is that of gasoline stations. If Station A sells gas for $1 a litre and moves the price up to $1.10, or down to 90 cents, and Station B then makes the same move, the actions resemble the motions of price-fixing but are deemed the movements of a competitive market.

Price-fixing happens when Stations A and B agree on a price. The U.S. Federal Trade Commission says: "Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms."

Because price-fixing is difficult to spot, and even more difficult to prove, the Competition Bureau and its peers in other countries rely on a confessor in such schemes. The first to come clean receives immunity. The next confessor gets a degree of leniency but still faces criminal charges and fines.

"These programs," according to the bureau, "have consistently proven to be an effective means of uncovering and breaking cartel activities. … Without them, many cartels would go undetected."

In Canada, price-fixing can lead to fines of as much as $24-million and jail time to a maximum of 14 years. Loblaw Cos. Ltd. and parent George Weston Ltd. are co-operating with the Competition Bureau as "an immunity applicant" in the current bread price-fixing case.

Studies indicate that only a minority of such schemes are ever uncovered, roughly one in five, said lawyer Michael Osborne, a competition law expert and partner at Affleck Greene McMurtry LLP in Toronto.