The European Cartel LawA cartel is the group of severallarge 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 newcompetitors from entering this market.
Thus, they ensure a sharing of marketparts and comfortable profits. Constituting a cartel goes against thetransparency of a market, as well as the free entry and exit of the actorsbecause it distorts the rules of free competition and is opposed to theconsumers interests. In fact, the competing company or companies in the samesector should wage a price war in order to attract a maximum of customers, but theagreement allows them to set similar prices, preventing an effective comparisonof prices. This practice is illegal in most countries around the world, as itdoesnt benefit consumers and distort market laws.The European Union has, since the2000s, decided to actively fight against this phenomenon, with the aim ofobtaining a deterrent effect on companies that would be tempted to agree. Allwith an inexpensive method.
The principle is simple: The first company of thecartel which denounces profits from a complete immunity. The second of immunityup to 50%, the third of 10 to 30%, and so on, depending on the new informationthey provide. This method, called Nash equilibrium, strongly encouragesdenunciation and create a fear of being betrayed for all companiesparticipating in a cartel.
With this operation, the EuropeanUnion has found an effective way to fight against these illegal agreements. In2017, one billion euros in fines have already been distributed. 2016 was themost prolific year with 3.
7 billion, but this is partly due to the weakness of2015, where only 365 million were obtained.The victims of a cartel being theconsumers dependent on it, the European Union exclusively targets cartelshaving 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 thesame level. such as two distributors who market the same type of products.Vertical agreements, when theeconomic actors who agree belong to a different level, such as an agreementbetween a supplier and a distributor for example.
We will study here two cases ofhorizontal cartel, one dealing with financial services, the other on automotiveequipment, in order to highlight the diversity that an unlawful cartel cantake. Case 1The first case concerns a cartelwhich is rather particular since it is one of the first concerning thefinancial sector on which the European Commission has investigated. The Commission’s investigation found that acartel was in place between September 2005 and May 2008, involving the seven followingbanks : Barclays, Crédit Agricole, HSBC, JPMorgan Chase, Deutsche Bank,RBS and Société Générale over the whole European Economic Area (EEA) and duringdifferent amounts of time.
In December 2013, the Commissiondiscovered that a group of traders and bankers from seven banks were usingforums and mails to distort the normal course of the price components of theeuro interest rate derivatives. The participating traders of the banks w?re inregular contact through corporatexchat-roomsor instant messagingxservices.The traders goal was to artificially modify the pricing course components ofthe euro interestxratederivatives. They did it by telling each other their desired or intendedxEURIBOR submissions andby exchanging sensitive information on their trading positions, on theirtrading and pricing strategies. This exchange of illicit information hasenabled the banks concerned to enrich themselves by neglecting the duty ofconfidentiality that is supposed to exist between rival companies, which isreprehensible under the laws of the European Union as the EURIBOR interest rateshould always correspond to the interbank loans cost in euros. The« Euribor Cartel » banks refused to comply to those rules and putthemselves in an illegal situation.The resolution of this conflictwas done in two stages.
Barclays, Deutsche Bank, RBS and Société Généralechoose to cooperate with the Commission, and agreed to paid fines around 1.5billion euros in 2013. On the contrary, Crédit Agricole, HSBC and JPMorganChase chose not to settle this cartel case with the Commission. The commissionthen continued its investigations and finally fined Crédit Agricole, HSBC andJPMorgan Chase of 485 million Euros in 2016. JP Morgan Chase and Crédit Agicoletook the biggest fine, respectively 337 000 000 and114 000 000 euros for participating five months to this cartel. HSBCtook only a 33 000 000 euros fine which is explained by its shortparticipation of one month only.I chose this case because it isemblematic in several ways. In addition to being the first for financialinstitutions of such importance, the length of the investigation (5 years),shows the difficulty for the European authorities to prove these illegalagreements.
The two different strategies of the Cartel’s Banks, to cooperate orto deny, have shown the effectiveness of the European Commission which managedto sanction all the actors concerned, although legal actions are still inprogress from the Banks which refused to cooperate. Case 2 The second case involves four battery recycling companiesthat have decided to agree to maximize their profits. First, recyclingcompanies bought used car batteries in garages, maintenance and repair shops,battery distributors, scrap yards and other waste disposal sites.
They transformedand 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 thatthese companies have agreed not to set a high selling price, but to buybatteries to recycle from garages, scrap metal dealers or scrap collectors at aridiculous 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 coordinationfor the price fixation between these companies have influenced and mislead marketprices, to the detriment of used battery sellers which were spoiled of a partof their incomes.This cartel operated during three years, from 2009 to 2012and was composed by Campine, an Belgium company, Eco-Bat Technologies from UK,Johnson Control operating from the US and Recylex, a french company. Thesecompanies communicated by email and met at several occasions, and even usedcoded language so that their agreement would not be discovered.
Indeed, theyused the weather pretext to transmit sensitive information on market prices viaambiguous sentences.In addition to having maximized the profit of thesecompanies in disregard of other links in the chain, this agreement hasconsiderably weakened competition in the countries where it operated, namelyBelgium, France, Germany and the Netherlands.In compensation for this agreement, three of the four actorswere sentenced to a total of 68 million euro fine for fixing the purchase priceof 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 disclosedthe existence of the cartel to the Commission. However, the Brussels decisiondoes not necessarily close the case.
First, the concerned companies can stillappeal this decision. Secondly, it opens the way for legal action by any personor company harmed by these anticompetitive practices, which can lead todamages.This case is particularlyinteresting because it highlights the fact that cartels not only penalize thefinal consumer but are also detrimental to companies that have economicrelations with them. ConclusionIn conclusion, the two casesstudied above show two examples of illegal agreements between companies. Thefirst was aimed at maintaining high prices for the consumer while the secondone deliberately kept the price of used batteries at a low price in order tomaximize profit and weaken competition.
In both cases, it was through thedenunciation that these agreements were discovered, which shows theeffectiveness of the European Commission’s strategy. The diversity of thesectors facing the commission is considerable, since the phenomenon of illegalcartels can apply to all sectors, goods and services. These two examples alsoprove that cooperation with the European Commission is the best solution to getout of an illegal situation.