Thursday, July 24, 2008

The United States Department of Justice Antitrust Division's Cartel Enforcement: Appraisal and Proposals

Posted by D. Daniel Sokol

Jconnor John Connor of Purdue University's Applied Economics Department offers some important thoughts on DOJ's cartel enforcement program in his paper The United States Department of Justice Antitrust Division's Cartel Enforcement: Appraisal and Proposals.

ABSTRACT: This paper evaluates the effectiveness of the efforts of the Antitrust Division of the U.S. Department of Justice (hereafter "Division") to detect, indict, and deter horizontal collusion, and to offer suggestions for policy or procedural changes that are likely to improve that enforcement. It is unusual to read much negative criticism of federal cartel enforcement. Indeed, for decades the Division has largely been lionized for its aggressive campaign to rid the nation and the world of cartels.

Division leaders emphasize that collusion is the agency's number-one priority. Paradoxically, there is evidence that the number, size, and injuriousness of discovered cartels is increasing. This is particularly true for international cartels.

Since 1990, the number of cartel investigations has not risen appreciably. Moreover, the number of criminal Section 1 cases filed annually fell during 1990-2007. Even from 1995-99 to 2004-06 cartel cases filed fell by 49%. Moreover, the number of corporations charged annually averaged 68 in 1990-1994 and dropped continuously throughout 1995-2007. There now is a significant and growing backlog of criminal investigations and unresolved matters that may exceed the Division's ability to dispose of cases effectively.

Although the Division is bringing fewer Section 1 cases, the monetary penalties imposed on convicted price fixers have grown. The total amount of cartel fines imposed since FY1990 is approximately $4.2 billion, but damages recouped by private plaintiffs in the United States are roughly four times as large.

Division policy statements place great weight on the deterrence value of predictably high prison sentences for convicted cartel managers. Not only the frequency but also the severity of prison sentences has increased. These trends are positive in terms of cartel deterrence. However, the number of prison-days imposed per person is flat; the number of carve-outs of officers of guilty corporations is also flat.

There is no question that higher cartel penalties would be in the public interest, especially for international cartels. The Division should take several steps to expand potential fines that do not require new legislation. They include: filing more multiple counts, substituting the global affected sales of cartels members in place of U.S. sales when computing the base fine, applying the principle of joint and several liability to maximum fines, using the middle or upper end of the Guidelines' range as the standard starting demand in plea negotiations, applying strong culpability multipliers to recidivists, and requiring cartel fines to include pre-plea interest. Other improvements would require changes in the U.S. Sentencing Guidelines (USSGs). For example, the 10% overcharge assumption should be raised to at least 20 or 30%, with the latter applying to international conspiracies. To effectively deter cartels, a substantial increase in Division positions and budget is amply justified; perhaps at least a 50% increase in professional positions dedicated to cartel matters.

July 24 Update

Listen to Scott Hammond's (DOJ) comments on this paper.

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