The European Cartel Law
A cartel is the group of several
large companies in the same sector that form an oligopoly to dominate a market.
These companies agree on different criterias such as the price, to dissuade new
competitors from entering this market. Thus, they ensure a sharing of market
parts and comfortable profits. Constituting a cartel goes against the
transparency of a market, as well as the free entry and exit of the actors
because it distorts the rules of free competition and is opposed to the
consumers interests. In fact, the competing company or companies in the same
sector should wage a price war in order to attract a maximum of customers, but the
agreement allows them to set similar prices, preventing an effective comparison
of prices. This practice is illegal in most countries around the world, as it
doesnt benefit consumers and distort market laws.
The European Union has, since the
2000s, decided to actively fight against this phenomenon, with the aim of
obtaining a deterrent effect on companies that would be tempted to agree. All
with an inexpensive method. The principle is simple: The first company of the
cartel which denounces profits from a complete immunity. The second of immunity
up to 50%, the third of 10 to 30%, and so on, depending on the new information
they provide. This method, called Nash equilibrium, strongly encourages
denunciation and create a fear of being betrayed for all companies
participating in a cartel.
With this operation, the European
Union has found an effective way to fight against these illegal agreements. In
2017, one billion euros in fines have already been distributed. 2016 was the
most prolific year with 3.7 billion, but this is partly due to the weakness of
2015, where only 365 million were obtained.
The victims of a cartel being the
consumers dependent on it, the European Union exclusively targets cartels
having all or part of their operations in Europe.
A cartel can take many forms.
Illegal agreements can be grouped into two sets:
Horizontal agreements, when the economic actors who agree are of the
same level. such as two distributors who market the same type of products.
Vertical agreements, when the
economic actors who agree belong to a different level, such as an agreement
between a supplier and a distributor for example.
We will study here two cases of
horizontal cartel, one dealing with financial services, the other on automotive
equipment, in order to highlight the diversity that an unlawful cartel can
The first case concerns a cartel
which is rather particular since it is one of the first concerning the
financial sector on which the European Commission has investigated. The Commission’s investigation found that a
cartel was in place between September 2005 and May 2008, involving the seven following
banks : Barclays, Crédit Agricole, HSBC, JPMorgan Chase, Deutsche Bank,
RBS and Société Générale over the whole European Economic Area (EEA) and during
different amounts of time.
In December 2013, the Commission
discovered that a group of traders and bankers from seven banks were using
forums and mails to distort the normal course of the price components of the
euro interest rate derivatives. The participating traders of the banks w?re in
regular contact through corporatexchat-rooms
or instant messagingxservices.
The traders goal was to artificially modify the pricing course components of
the euro interestxrate
derivatives. They did it by telling each other their desired or intendedxEURIBOR submissions and
by exchanging sensitive information on their trading positions, on their
trading and pricing strategies. This exchange of illicit information has
enabled the banks concerned to enrich themselves by neglecting the duty of
confidentiality that is supposed to exist between rival companies, which is
reprehensible under the laws of the European Union as the EURIBOR interest rate
should always correspond to the interbank loans cost in euros. The
« Euribor Cartel » banks refused to comply to those rules and put
themselves in an illegal situation.
The resolution of this conflict
was done in two stages. Barclays, Deutsche Bank, RBS and Société Générale
choose to cooperate with the Commission, and agreed to paid fines around 1.5
billion euros in 2013. On the contrary, Crédit Agricole, HSBC and JPMorgan
Chase chose not to settle this cartel case with the Commission. The commission
then continued its investigations and finally fined Crédit Agricole, HSBC and
JPMorgan Chase of 485 million Euros in 2016. JP Morgan Chase and Crédit Agicole
took the biggest fine, respectively 337 000 000 and
114 000 000 euros for participating five months to this cartel. HSBC
took only a 33 000 000 euros fine which is explained by its short
participation of one month only.
I chose this case because it is
emblematic in several ways. In addition to being the first for financial
institutions of such importance, the length of the investigation (5 years),
shows the difficulty for the European authorities to prove these illegal
agreements. The two different strategies of the Cartel’s Banks, to cooperate or
to deny, have shown the effectiveness of the European Commission which managed
to sanction all the actors concerned, although legal actions are still in
progress from the Banks which refused to cooperate.
The second case involves four battery recycling companies
that have decided to agree to maximize their profits. First, recycling
companies bought used car batteries in garages, maintenance and repair shops,
battery distributors, scrap yards and other waste disposal sites. They transformed
and recycled waste batteries and then resold it, mainly to battery manufacturers,
who use it to produce new car batteries.The particularity of this case is that
these companies have agreed not to set a high selling price, but to buy
batteries to recycle from garages, scrap metal dealers or scrap collectors at a
ridiculous price. Having no choice but to go through one of these 4 companies,
companies had to sell their used batteries at a derisory cost. The coordination
for the price fixation between these companies have influenced and mislead market
prices, to the detriment of used battery sellers which were spoiled of a part
of their incomes.
This cartel operated during three years, from 2009 to 2012
and was composed by Campine, an Belgium company, Eco-Bat Technologies from UK,
Johnson Control operating from the US and Recylex, a french company. These
companies communicated by email and met at several occasions, and even used
coded language so that their agreement would not be discovered. Indeed, they
used the weather pretext to transmit sensitive information on market prices via
ambiguous sentences.In addition to having maximized the profit of these
companies in disregard of other links in the chain, this agreement has
considerably weakened competition in the countries where it operated, namely
Belgium, France, Germany and the Netherlands.
In compensation for this agreement, three of the four actors
were sentenced to a total of 68 million euro fine for fixing the purchase price
of car battery waste, in breach of the competition rules of the European Union.
Johnson Controls, was not fined because it is the first company which disclosed
the existence of the cartel to the Commission.
However, the Brussels decision
does not necessarily close the case. First, the concerned companies can still
appeal this decision. Secondly, it opens the way for legal action by any person
or company harmed by these anticompetitive practices, which can lead to
This case is particularly
interesting because it highlights the fact that cartels not only penalize the
final consumer but are also detrimental to companies that have economic
relations with them.
In conclusion, the two cases
studied above show two examples of illegal agreements between companies. The
first was aimed at maintaining high prices for the consumer while the second
one deliberately kept the price of used batteries at a low price in order to
maximize profit and weaken competition. In both cases, it was through the
denunciation that these agreements were discovered, which shows the
effectiveness of the European Commission’s strategy. The diversity of the
sectors facing the commission is considerable, since the phenomenon of illegal
cartels can apply to all sectors, goods and services. These two examples also
prove that cooperation with the European Commission is the best solution to get
out of an illegal situation.