Friday, October 3, 2008
Posted by D. Daniel Sokol
Does economic downturn lead to crisis cartels? Find out by reading Cartel Enforcement Today: The Perils of the Economic Downturn by Don Klawiter (Mayer Brown).
ABSTRACT: These are dangerous times for corporate executives. In times of economic downturn and financial dislocation, the temptation for corporate executives to embrace a short-term fix to raise prices and allocate markets is almost irresistible. An historical review of economic downturns provides powerful testimony that the major global cartels, ranging from lysine and citric acid to vitamins and graphite electrodes, had their origins at moments of economic stress when executives sought the easy—and illegal—solution to their financial woes. Similarly, the more recent “fuel surcharge cartels” were the result of dramatic increases in the price of oil which drastically affected profitability for airlines and other shippers.
Agreements to raise or stabilize prices or eliminate discounts are the easiest and most convenient short-term solutions to reductions in demand and market slowdowns. They are usually “justified” in the executives’ minds both because of profitability drops that affect the executive’s performance and compensation and employment drops that affect the future of those who work for them. The executives believe that they only need to take drastic steps for a short time and that they are doing it for the greater good. They also believe fervently that their competitors will support them since it is not in anyone’s interest to “turn in” the cartel that is saving jobs and keeping the industry viable.