A Peak into the Swedish Cartel Register
∗
Petter Berg
Copenhagen Business School
July 2011
[Early draft - please do not quote]
Abstract
Until the mid 1990's cartels were not prohibited in Europe. They
were instead in many countries registered for varying monitoring purposes. The national registers constitute unique and underexploited
source of information about cartel behaviour. This paper focuses on
the Swedish cartel register, operating between 1946 and 1993, and
describes the institutional design and detailed characteristics of the
cartels registered during the rst 10 years of operation.
Keywords:
Cartels, Registration, Antitrust, Institutions.
JEL-Classication:
K21, L41, N44
Corresponding author: Copenhagen Business School, Department of Economics,
Porcelænshaven 16 A, DK-2000 Frederiksberg, e-mail: [email protected]. I thank the
Swedish Competition authority for the funding.
∗
1
Introduction
Cartel registration was a common legal provision in Europe during the last
century. Most of the registers were either started in the 1930's or in the mid
1950's and lasted until the introduction of cartel prohibition in the beginning
1
of the 1990's, see Table 1 .
Table 1: European cartel registers
Country
Start End
Czechoslovakia
1933
1993
Denmark
1937
1989
Finland
1957
1992
Germany
1957
1985
Netherlands
1958
1993
Norway
1926
1993
Poland
1933
1993
Sweden
1947
1993
United Kingdom
1956
1989
Source:
2
The purpose of the registers were very dierent but in many instances
the
registers were public and aimed at making the cartel agreements known
(Thorelli, 1958) and thereby to foster self regulation.
The exception was
the German register that instead was a record of approved cartels.
Registration seems to have been more prominent in the Northern and Eastern
parts of Europe. All Nordic countries had registers and Norway was the rst
3
country in Europe with cartel registration already in 1926 . All registers in
the Nordic countries were public, but surprisingly little economic research
has been carried out using register data.
The rst modern study of the Swedish Cartel Register was made in 1995
(Fölster and Peltzman, 1995) and assessed the eects of cartels and regulation
on prices, output and productivity in manufacturing industry between 1976
and 1990. Surprisingly they found that cartels had no eect on prices and
1 Cartels
were also found in non-European countries such as Japan and Australia
example Denmark, Finland, Germany, Norway, Sweden and the United Kingdom.
3 Trustloven
2 For
1
that they even were more ecient than other rms. Two conclusions that
are contrary to the normal economic theory of cartel eects.
In a recent
paper, using almost the same data, Ciarreta (2010) nds that cartels with
both horizontal and vertical provisions, had on average higher prices than
non-cartel rms.
The Finish register recently started to be explored with an institutional analysis by Fellman (2010) and the descriptive study by Hyytinen and Toivanen
(2010). Hyytinen et al. (2011) use a hidden markov model on the register
data to elicit the degree of cartelisation in the Finish manufacturing industry.
According to their ndings the proportion of the industry covered by cartels
increased over time and in 1990 reaches more than 90 percent.
This paper is a descriptive study of the Swedish cartel register. We nd that
that the register to a large extent consists of cartels (despite fears that it
would mostly contain vertical agreements), and that the information in the
les convey detailed information about the cartels' organization. Apart from
being an important source of information about Sweden's transition from
regulated to market based economy, the register also provides a set of unique
data of cartel behaviour that can be used in modern analysis of cartels, such
as understanding the eects of cartels and the processes that brings cartels
into life, or terminates them.
The outline of the paper is as follows. Section 2 briey describes the Swedish
cartel legislation from the turn of the last century until today, in order to
dene the legal boundaries for cartels at dierent points in time. Section 3
consists of two parts. First it discusses the registers regulatory and administrative framework and the reliability of the information. Thereafter it turns
to an overall analysis of all registered agreements. Section 4 is devoted to
the cartels. The section consists of six parts analysing dierent aspects of
cartel behaviour. Section 5 concludes.
2
Swedish competition law
Like in most European countries, cartel prohibition wasn't introduced in
Sweden until in the 1990's. Prior to this the cartel legislation aimed at investigating the behaviour and preventing abusive behaviour by cartels (Berg,
2011).
The rst Swedish law regulating cartels was introduced in 1925, but only conferred the government general rights to investigate the cartels' eect on price
and turnover. During the inter-war period cartels were encouraged in Europe
2
in order to maintain industry stability, and for this purpose sometimes were
even set up by governments (Berg, 2011). But after the Second World War
the attitudes towards cartels started to change in Europe, inuenced by the
tough approach against cartels in the US.
The extent of the cartel problem in Sweden after the war was unknown and
to understand more about the workings of the cartels, a public register was
instated (SOU 1945:42). To promote self regulation and deterrence (REF),
the register was made public and constituted a substitute to a more active
legislation.
It was unclear if the register had any eects and therefore new legislation was
introduced in 1953. Like most cartel legislations in Europe at the time, car-
4
tels were by themselves not prohibited , but abusive behaviour was. If cartels
were found to be abusive, the problem was to be solved through negotiation.
The economic principle of abuse remained in the Swedish legislation until
1993. In parallel to the abuse principle, tender cartels and resale price maintenance was prohibited since these behaviours were assumed to be harmful.
The legislation was revised already in 1956 and both the register law and
the competition law were replaced with new legislation, but in most material
5
aspects, they remained the same . In 1982 new legislation was introduced
and the main novelty was that abusive practices could be prohibited by court
if negotiations failed. Despite similar wordings in the laws of 1956, 1956 and
1982, the tone from the authorities and application of the law was gradually
strengthened, especially from the mid 1970's and onward.
As an example
6
of this, the registry stated in relation to a price cartel on bibles
in 1975,
that the price cooperation at hand was a restriction of competition that the
authorities in general could not accept. However, the doctrinal change came
with introduction of cartel prohibition in 1993. The new Swedish cartel law
was among the rst in Europe to mimic the competition provisions in the
Treaty of Rome (1957).
4 Except
for tendering cartels that were banned.
for contract changes could be undertaken for all types of restrictive prac-
5 Negotiation
tices.
6 Reg nr. 614
3
Table 2: Swedish cartel legislation
3
Period
Law
Legal principles
1925-1946
Law on investigation of monopolistic rms and associations (SFS
1925:223)
Information gathering.
No sanctions
1946-1956
Law on monitoring of restraints
of competition (SFS 1946:448)
Publicity to prevent abuse.
No sanctions
1953-1956
Law against restraints on competition (SFS 1953:603)
Abuse principle.
Prohibition of tender cartels.
Negotiations
1956-1982
Law against restraints on competition. (SFS 1956:244)
Abuse principle.
Prohibition of tender cartels.
Negotiations
1956-
Law on reporting obligations
concerning price and competition conditions (SFS 1956:245)
Publicity to prevent abuse
No Sanctions
1982-1993
Competition law (SFS 1982:729)
Abuse principle.
Prohibition of tender cartels.
Market Court could ban practice
1993-2008
Competition law (SFS 1993:20)
Prohibition.
Fines.
2008-
Competition law (SFS 2008:579)
Prohibition.
Fines.
The Register and sample
The Swedish cartel register was founded in 1946 but the rst registrations
took place in the beginning of 1947. The register was active for 48 years until
it was closed down as Sweden introduced cartel prohibition in 1993. It has
since been stored at the Swedish National Archives in Stockholm.
In total, the register contains 4.777 agreements of dierent kinds but the
large number is misleading since many agreements were not cartels, and
single agreements could be registered as several cartels. This could be due
to registration practices, where some contract changes triggered cancellation
of the previous cartel entry and the creation of a new one. It could also be
due to contract practices where some cartels were organised as a collection of
7
local cartels , with or without a national umbrella contract. Some agreements
7 For
example in the brick and brewery industries
4
8
were also arranged as a series of bilateral contracts
which also inates the
number of agreements in the register.
In the current sample agreements starting from nr 1 to nr 1596 have been
scanned and coded into a cartel database. Hence the sample constitute 33
percent of the total amount of registered agreements.
3.1 Administration
The register was initially placed with the Monopoly Investigation Bureau, a
division within the National Board of Trade. The registry was apart from
the registration duties, also instructed to prepare reports on the existence
of restraints of competition in industries where it was suspected that the
restraints were harmful.
The duty to keep the register was subsequently transferred to the Price and
Cartel Board, the Price and Competition Authority and nally the Com-
9
petition Authority . Cartels in the nance and insurance sectors were not
included in the general registry, but had separate registers at the respective
industry regulator.
Procedure
According to 2
§
of the registration law
10
, all rms, or association of rms,
were obliged to, upon request, notify the registry about restrictive agreements
concerning price, production, turnover or transports in Sweden. Notication
was therefore not mandatory and while mandatory registration was discussed,
the government feared that it would cause the registry to overcrowd with
notications and inquiries regarding individual agreements.
By giving the
authority discretionary powers it would be able to focus on the important
industrial sectors immediately and continue with sectors of less importance
and those believed to have fewer cartels, later on (SOU 1945:42 and Prop
1946:264).
By proceeding sector by sector the authority could tailor the
request for cartel documentation for each industry.
The registration procedure started with the registry sending out a standardised form to all rms in an industry, asking them about the existence of anticompetitive agreements. The request form was fairly consistent over time
8 Mostly
9 Statens
common for vertical agreements.
Pris- och Kartellnämnd, Statens Pris- och Konkurrensverk and Konkur-
rensverket
10 Law on monitoring of restraints of competition, SFS 1946:448
5
and contained information about the extent of the inquiry and the due date
for the answer.
Failure to answer on time, or supplying false information
could be punished with nes or in considerable aggravating circumstances,
by imprisonment up to six months (10
§
1946:448 and 10§ 1956:245). The
registry threatened with these provisions when rms stalled the process by
11
for example not answering on time
, but there are no records in the register
of nes actually being imposed.
Firms were asked to describe all anticompetitive agreements entered into
after the laws were in place
12
even if the agreements had already been termi-
nated. The answers should contain the formal cartel agreements, price lists,
minutes and a list of members (Andrée 1958). Since associations also were
covered by the law, industry organisations were asked to submit agreements
concerning prices or pricing policies or other recommendations. The registration requirement applied to all agreements, even oral, temporary and local
ones.
When the registry received the documentation it summarized the features of
the agreement. The summary was sent back to the parties for comments and
the registry then decided whether to include the agreement in the register
or not.
This decision could be appealed within three weeks, but in 1958
when the registry consisted of 1.727 agreements, only 17 publications had
been appealed and only one resulted in a slightly dierent wording of the
summary (Andrée 1958).
Upon registration, all agreements were given an ocial cartel number and in
order to make the ndings public, the summaries were regularly published.
13
Firms could apply for secrecy protection for the entire or parts of the agreement, but few agreements were kept secret and the timespan for protection
was often limited to a few years.
The registry continuously contacted the registered rms interrogating whether
the agreements were still operational and whether the agreements had undergone changes. Further it also demanded that the registered cartels updated
the information if important changes took place.
14
total revision on several occasions
The register underwent
due to suspicions that all updates were
not registered, Modin and Sandberg (1958).
It is apparent from the les that many rms were uncomfortable with having the agreement public and therefore contacted the registry to terminate
11 For
example in the concrete cartel, reg nr. 833.
1946 and 1957 depending on when the request was sent out
13 See A.1 for publications.
14 Total revision of the registry was undertaken in 1950, 1953, 1957, 1982 and 1984.
12 After
6
the registration as soon as the agreement was cancelled. Other agreements
just faded out and were terminated when the registry sent out a request for
information. Some agreements were simply not terminated in the register at
all.
Sanctions
The law did not contain any sanctions against harmful cartels and the registry
did not analyse the eects of the agreements. But, the registry could conduct
special investigations and for this purpose require access to internal business
documentation. If harmful eects were found, the government could appoint
a commission to negotiate with the rms to revise the agreement. As a last
resort the government could use its general powers, i.e. to increase or decrease
duty taris, legislate, start competing public rms or simply take over one
or several rms. These types of intervention were however not anticipated to
become very common (SOU 1951:27).
There are several reasons as to why the authority was not given executive
power. The legislative proposal stated that the investigative and executive
powers should be separated. The authority might otherwise run the risk of
becoming a general price control authority. There was also a risk that without
separation, the possibility for publication and hence deterrence, would be
reduced (SOU 1955:45). Since there were no clear sanctions, the eects of
the registry relied on self regulation which was to be encouraged with the
publication of agreements.
Completeness
The register did not cover all horizontal cooperation in Sweden. In an attempt to elicit how much information that was missing, the Price and Competition Authority conducted a large study just before the registry was terminated SPK (1992). By using also other sources and including industries
with price leadership and pronounced price and rebate recommendations,
they argued that the industry tried to hide horizontal cooperation.
The main risks of under-registry were:
•
Non-registration
•
Under reporting
•
Missing les
7
•
Missing documentation
The question is how important these risks were.
Non-registration:
There are several reasons as to why agreements may be missing from the
registry. First, rms may have decided not to disclose their secret agreements
so that the authorities, customers or competitors wouldn't learn about their
practices. But, considering that cartels were not illegal and that rms could
be ned and the responsible managers even sent to jail if lying to the registry,
the risk of non-disclosure generally seems low.
As bidding cartels became
prohibited in 1953 and the competition enforcement became stronger in the
1980's, the risk for non-registration increased.
Second, it could be that the registry simply did not ask the rms in a cartel. This is probably true for local cartels, but considering that the registry
could make its own priorities, the most important industries and the industries most prone to cartels should have been covered.
The registry had a
limited sta and proceeded sector by sector, therefore only looking at a limited sample can result in several sectors appearing free from cartels while in
reality, they were not.
Under reporting:
There is also a risk that rms reported being members of a cartel but played
down the anticompetitive practices. In fact this can sometimes be seen in
the les where there are examples of rms declaring that the cartel only
recommends prices, while it in the statues is clear that the price lists are
binding.
Since the statutes are available for most written agreements and
most of them have clear price xing provisions, the risk of under reporting
is relatively low.
Missing les:
Some les are missing in the registry.
16 percent of the analysed sample
15
.
Currently missing les constitute
The missing observations could be
non-random, but most likely they arise from the register being transferred
between four dierent authorities to nally end up in the national archive.
Most of these are in dierent sequences, suggesting that entire binders are
missing. Since the summaries of these agreements are available, it is possible
to supplement the database with missing information and also to analyse
whether the missing les are random or not.
15 In
total 258 missing les.
8
In some les part of the information is missing, but this seems to be related
to poor register keeping since in most occasions, the information missing is
provided in the summary and hence must have been available to the registry.
3.2 Agreements
The registration laws stated that all anticompetitive agreements should be
registered, without dening what constituted an anticompetitive practice
16
.
This resulted in a variety of agreements being included in the registry. But
most agreements registered had potential anti-competitive eects.
Both horizontal and vertical agreements were included in the agreement,
but the content of the cartel les was the same for all agreements.
Apart
from a summary of the agreement written by the registry and the statutes,
the les often contain correspondence between the registry and all member
rms, price and member lists, declaration of contract changes, application for
secrecy and minutes. Further, if the agreement was subject to investigation
by the authorities, the ndings are sometimes also included.
The last registered agreements in our sample are registered in 1956. Hence
the sample consists of 10 years of registration. But, given that the register
proceeded industry by industry it is not certain that the registry is representative for the cartels during the period.
16 No
denition was given since it was deemed impossible to provide a denition without
making it too vague (Ref SOU 1945:42 and Prop 1956:148)
9
0
500
1000
1500
Figure 1: Registered agreements
1950
1960
1970
year
Registered agreements
Agreements alive
1980
1990
Terminated agreements
In Figure 1 is is clear that the registry expands fast during the rst years
and one third of the total number of agreements were registered in the 10
rst years. This development is to be expected with a the regulatory framework. However, surprisingly many agreements were also terminated during
the initial years of the registry.
There are several possible explanations for this.
First, agreements could
be terminated since the members did not want the public to know about
their practices. Self regulation of the industry was promoted by the Swedish
Industry Association, which set up a cartel bureau to advice cartels to cancel
or modify their contracts as a response to a public debate on abusive cartels
(SOU 1955:45). The bureau focused on cartels that potentially could have
important eects on the market price, such as market sharing and price
cartels.
However in 1951, a commission found that it was not likely that
even half of the harmful restraints on competition were actually removed
(SOU 1951:27-28).
Second, the rise in termination rates could be caused by rms terminating
void or unimportant contracts when the registry reminded them about their
existence. A third reason could be that the contracts were terminated due
to increased competition.
The fact that the registrations continued to increase (see Figure 1) does
not help us distinguish between the three hypothesis since registration was
10
lagged and also terminated agreements were registered.
New registrations
were therefore not necessarily new agreements. Most agreements were however short-lived in the registry and more than 20% of the contracts that
terminated before the expiry of the register, were terminated during the rst
year.
Table 3:
Registration by agreement type
Type of agreement
Years registered
Horizontal
Vertical
Hor-vert
Total
<1
18%
49%
37%
27%
<10
40%
35%
39%
39%
>10
42%
16%
24%
34%
Total
100%
100%
100%
100%
Source:
As can be seen in Table 3, horizontal agreements were typically registered
for a longer time than vertical agreements or a combination or the two.
17
Horizontal agreements have potentially stronger anticompetitive eects and
hence should have been the focus for authorities and consumers. This suggests that rms did not terminate agreements early to alleviate publicity. In
fact it could be interpreted that rms, despite publicity, found the agreements
too protable to terminate.
The majority of agreements in the sample are horizontal agreements
18
. Among
these agreements, pricing agreements followed by market sharing, were the
most common types of agreements, see Table
??.
Many of the agreements
constitute hard core cartels and therefore had strong potential competitive
eects.
The agreements labelled "Other" mainly consists of agreements to restrict
19
establishment
, sales agreements and pure condition agreements.
The ta-
ble also illustrates that most of the agreements were national in scope, but
also that there were many local price and sharing agreements.
This will
be discussed further in section 4.1. The international sharing cartels refers
to agreements where rms from dierent countries agree not to sell to each
17 The
chi-square test conrms that the relation between the two variables is signicant.
percent of the registered agreements in the sample are horizontal, 27 percent are
vertical and 6 percent are a combination.
19 Industry organisations were often involved in this type of agreements and it was particularly popular in the retail sector.
18 67
11
Table 4:
Geographic scope of horizontal agreements
Geographic scope
Local
National
International
Total
Price
Agreement type
185
215
3
403
Share
263
106
15
384
1
15
1
17
46
28
1
75
495
364
20
879
Comp. clause
Other
Total
Source:
others countries, or at least to limit the sales.
This type of national sales
territories were common among the Nordic countries for products such as
wood and iron.
4
The Cartels
This section directs the attention to the cartels in the sample. But, as illustrated in the previous section, not all agreements in the register are cartels
and the denition therefore becomes important. After dening a cartel we
analyse the cartels in six sections: outcome, type, detection and punishment,
cartel maintenance and nally technology and eciency.
4.1 Cartel denition
In this study we only want to capture hardcore cartels and thus focus on pricing and market sharing agreements. Further, only cartels that have the possibility to eect the industry are included, hence only cartels with a national
and international scope are selected. This yields the following denition:
Denition. A cartel is a horizontal pricing or sharing agreement at national
or international level
The denition excludes all local cartels which could potentially be a problem
since some large industries such as the brick, brewery, agricultural and wood
product industries were organised as many local cartels.
But, these large
cartels often had an umbrella agreement containing general provisions for
12
the cooperation at a national level, and are therefore still included in our
denition.
From Table
?? it is clear that 448 local cartels are excluded form the sample
by our denition and our sample consists of 300 cartels
only include horizontal provisions, see Table 5.
20
.
Most of these
Pure price cartels are the
most common type while pure sharing cartels are relatively rare.
Most of
the cartels with both price and sharing provisions are sharing cartels where
some kind of pricing mechanism, typically joint tendering, has been included
to maintain the production or market sharing agreement.
Table 5:
Main types of cartels
Contract relations
Cartel type
Only horizontal
Also vertical
Price
179
10
Share
36
1
37
PrShare
72
2
74
287
13
Total
Total
189
300
Source:
21
During the entire sample period
the number of registered cartels increased
and the upward trend started in the 1930's and escalated further after the
Second World War, see Figure 2.
20 54
cartel agreements in our possession remain to be coded.
registered between 1946 and 1956
21 Cartels
13
0
100
200
300
Figure 2: Active cartels
1920
1940
1960
year
Total cartels registered
Number of active cartels
1980
2000
Total terminated cartels
The introduction of the register seems to have had a negative eect on
the number of registered cartels. But since cartel formation only decreased
marginally after the register, most of the terminated cartels were probably
void agreements. The cartels in the sample show even less signs of termination after the introduction of cartel legislation in 1953 and 1956. If anything,
the termination rate is decreasing. The gure should however be interpreted
with caution since it only includes agreements registered until 1956.
The pattern could be caused by the general state of the economy, however
economic theory is ambiguous when it comes to the eect of demand uctuations on cartel stability. Green and Porter (1984) propose that unobserved
negative demand shocks will lead to price wars, whereas Rotemberg and
Saloner (1986) declare that price wars will occur in economic booms. Levenstein and Suslow (2006) summarize the available empirical ndings and
conclude that the ndings are far from consistent. In their own sample the
most striking result is how little relevance macro uctuations has on cartel
termination. This is consistent with the ndings of Green and Porter (1984)
since only unanticipated demand reductions should cause cartels to terminate
22
.
Levenstein and Suslow (2005) and Hyytinen et al. (2011) test the
hypothesis that unforeseen demand uctuations aect the cartel stability.
22 Ordinary
demand uctuations are common knowledge and the cartels have mechanisms to cope with these.
14
While the former nd no eects the latter nd that a positive GDP trend
increases the probability of forming a cartel, and in addition, positive GDP
shocks are positive related to cartel formation.
23
In our sample, most cartels are formed in economic booms
(see Table 6),
which is consistent with the ndings by Hyytinen et al. (2011). While many
cartels also form during recession, the dierence between the three economic
24
states is statistically signicant
.
On the other hand, cartels are rarely
terminated during recessions and cartel termination is most common when
the economy is in a normal state
25
.
This nding is consistent with Dick
(1996) but not with the limited sample in Levenstein and Suslow (2006).
Table 6:
Economic state and cartel formation
State of economy
Yearly starts
Yearly terminations
Normal
2.95
5.80
Boom
4.30
4.05
Recession
3.73
0.82
Total
3.85
4.04
Source:
4.2 Outcome
In this section we measure the success of the cartels. Since we don't have
access to prices, prots or market shares for the cartels, we use internal
measures for cartel success based on the ability to keep the cartel alive. In
this respect, the duration of the cartel is a natural expression for success. As
measure of success we also include the number of members since it reveals
if the cartel had the organisational strength required to accommodate many
members.
23 Economic
boom is dened as an annual real gdp growth >3 % and recession is dened
as negative real annual gdp growth.
24 The p-value from the Kruskal-Wallis test <0.0001
25 The p-value from the Kruskal-Wallis test <0.0001
15
Cartel duration
Cartels dier in duration and the shortest cartel in the sample was active for
0.4 years
26
27
while the longest one lasted for staggering 91 years
. The mean
is 19.3 years which is very long compared to other cartel samples, see Table
7. It is to be expected that legal cartels have on average longer duration than
illegal ones, but the Swedish cartels also lasted longer than the legal cartels
in Finland, Japan and Inter-war Europe.
Table 7: Cartel duration (Years)
Mean Legality
Sample size Reference
19.3
Legal (Swedish register)
300
Berg (2011)
13.0
Legal (Finish register)
109
Hyytinen et al. (2011)
10.0
Legal (Japanese export)
40
Jacquemin et al. (1981)
8.3
Legal (European Inter-war)
109
Suslow (2005)
8.9
Illegal (EU cartels)
88
De (2010)
6.3
Illegal (Recent international)
166
Zimmerman and Connor (2005)
8.1
Illegal (Recent international)
81
Levenstein and Suslow (2005)
7.5
Illegal (US cartels)
989
Posner (1970)
Further, there are two reasons to suspect that the average cartel duration in
Sweden in reality was even longer than reported. First, when no termination
date is available, cartels are assumed to be terminated during the last year
that there is knowledge about their existence. During the last years of the
register, updates were infrequent and there are few entries after the last large
inventory in 1984. Hence agreements surviving the register will be coded as
being terminated in 1984
28
, i.e. 9 years later than actual termination. Sec-
ond, some cartels terminated one agreement and continued operation under
a new registration number.
29
With the limited sample it is however not
possible to correct for this splitting of agreements.
The median duration for the Swedish cartels was 15.8 and the distribution is
26 The
cartel was on radio tubes. In reality it did not end, but continued operations
under a new registration number.
27 A plater cartel, reg nr 759.
28 If no later entries are made.
29 Why some contract changes were registered as contract changes, while others triggered
new cartel registry, remains unknown.
16
thus right skewed with a few long lasting cartels increase the average. This
is conrmed by the distribution of duration in Figure 3 in the Appendix
??.
Cartel members
The second outcome variable is the number of members that the cartel managed to accommodate. It was common that business organizations were part
30
of, or even signed cartel agreements on behalf of their members
.
When
one or several business organizations signed the agreement, its unknown how
many rms that were actually bound by the agreement.
therefore excluded from the calculations.
These cases are
Since it is reasonable to assume
that the business organizations signed the contracts when the number of
members was very large, the ndings underestimate the average number of
participants.
If cartels with many members are harder to organize there should be a negative correlation between cartel members and cartel duration. However, in
the sample the correlation between members and cartel duration is positive
and signicant
31
. One explanation for this could be that cartels that manage
to organize a large cartel have stronger organizational skills that also enable
them to survive longer. The positive relation is consistent with the ndings
of Dick (1996). Suslow (2005) and Levenstein and Suslow (2005) instead nd
an insignicant positive relation between the number of members and cartel
termination.
Previous studies have found a large variation in the average number of members in a cartel, see Table 8 and Table 5 in Levenstein and Suslow (2006) .
Compared to the previous studies we nd 14.1. The median is 6 and thus a
few large cartels are very inuential on the average.
Table 8: Number of cartel members
Mean Median Legality
Sample size Reference
14.1
6
Legal (Swedish register)
300
Berg (2011)
7.4
4
Legal (European Inter-war)
109
Suslow (2005)
8.2
5
Illegal (Recent international)
166
Connor (2003)
Illegal (Recent international)
81
Levenstein and Suslow (2005)
Illegal (US cartels)
989
Posner (1970)
7.4
29.1
30 See
31 The
19.9
section 4.5
correlation is 0.15 and the p-value 0.0193
17
4.3 Type of cartel
According to Table 5, 189 agreements in the sample are price cartels, 37
are market sharing cartels and 74 are agreements that both contain pricing
and market sharing provisions. Hence the two main types of cartels are not
mutually excluding.
Table 9 illustrates that price cartels last on average more than three years
longer than sharing cartels
32
.
This is somewhat unexpected since sharing
cartels are traditionally seen as more stable. The dierence between price and
sharing cartels is however even more obvious when comparing the average
members in a cartel.
33
as many members
Price cartels on have on average more than twice
. This suggests that it is easier to accommodate many
members with pricing mechanisms.
Table 9:
Cartel duration and number of members by type
Cartel type
Duration
Members
Price
20.82
19.12
Share
17.18
6.44
PrShare
16.32
6.32
Total
19.25
14.09
Source:
Price cartels
Price cartels are the most common type of cartel in the sample. These cartels
can have very dierent eects on competition depending on which pricing
mechanism they use.
The vast majority of the price cartels in the sample
use minimum price regulations,(see Table 10) which together with tendering
cartels are the potentially most harmful types. In most of the price cartels
the cartel published a price list that the members were bound to follow, or
at least not to undercut. These price lists were detailed, sometimes covering
hundreds of products and they often contained provisions for pricing of also
non-standard products.
Multiple product provision therefore doesn't seem
32 The
Kruskal-Wallis test conrms that the dierences between the categories are statistically signicant in a 10% level, p=0.0899
33 The Kruskal-Wallis test conrms that the dierences between the categories are statistically signicant, p<0.0001.
18
to have posed a severe coordination problem for the cartels. Some rms are
still denoted price cartels while they do not have any pricing provisions. This
is the case when rms only agree on rebates or other conditions.
Table 10:
Pricing provisions
Provision
Number
Maximum price
1
Minimum price
219
Recommended price
Margins
19
1
Other
37
Source:
Parallel to the competition legislation Sweden had a strict price regulation
during most of the duration of the cartel register. This institutional factor
made the coordination problem easier for the cartels, as many of them simply
agreed to charge the maximum price allowed. In fact some cartels were even
formed with the purpose of negotiating higher prices with the price regulator.
The second most common type of price cartels were the tendering cartels
34
where market sharing cartels coordinated on tendering and allocated the bids
so that the next rm in line would win the tender. How these rms decided
on who would submit the lowest tender diers among the cartels but some
common allocation mechanisms are:
•
the next rm in line determines the price (Example)
•
internal tender and cheapest rm submitted the bid (Example
•
internal tender and next rm in line can sell at lowest bid, or lower.
(Example)
There are also a few cartels where the cartels issued price recommendations.
In some cases this was the only form of coordination. One problem in the
analysis of these contracts is that the adherence to the recommendations is
35
unknown
. In a third of all cases of price recommendation, the recommen-
dation regarded ancillary services where the main product was covered by
34 In
the data coded as "other"
problem also identied by SPK (1992).
35 This
19
minimum prices or by sharing. Maximum prices or regulations on margins
was not common.
There were however some cartels that agreed on price
increases rather than prices (Example).
Common for the price cartels is that they also decided on a number of other
dimensions such as rebates, customer dierentiation, terms of delivery and
payment and other non-price provisions such as range of products, service
or advertising.
The purpose of these provisions was to avoid competition
along these dimensions which otherwise would have eroded the stability of
the cartel.
36
Out of the 263 price cartels
in the sample, the majority (164 cartels) also
decided on rebates, see Table 11. Since price agreements without rebate provisions easily would lead to high rebates and hence, an ineective cartel, this
nding is to be expected. Deciding on rebates normally implied specifying
rebate criteria, but could also, as in the mineral water cartel
37
, be an out-
right prohibition of rebates. The rebates were sometimes standard quantity
rebates, but more often tied to specic buyers such as large customers, preferred wholesalers or government customers. Hence customer dierentiation
was also a common element of the cartel contracts.
Table 11:
Pricing conditions
Conditions
Number
Rebates
164
Delivery and payment
126
Customer di.
103
Non-price cond.
55
Source:
When prices and rebates were xed, the scope of competition was signicantly
reduced. To tighten the rules further the cartels in almost half of the cases
(126 cases) also determined delivery and payment conditions.
With such
rules in place the members' oers had little room for variation. Some cartels
however took it one step further and decided also on non-price condition, for
example the range of products or if the rms could add services.
36 189
37 Reg
pure price cartels and 74 combined price and sharing.
nr. 669.
20
Market sharing cartels
The other strand of cartels are the sharing cartels.
These cartels decide
to share (or allocate) either production quotas or market shares. The vast
majority of the sharing cartels in this sample are production cartels, see Table
12.
Table 12:
Type
Production
Market share
Prod-Ms
Total
Sharing cartels
Number
Proportion
247
82%
50
17%
3
1%
300
100%
Source:
The most common type of production cartel were specialisation agreements
where the members either divided production of dierent products between
the members (example) or had one rm produce all and the non-producing
rm received a yearly cash compensation. A version of the latter was common
in the dairy sector where farmers got remunerated for refraining to produce.
When the cartel allocated production quotas, the allocation was often determined by previous years market shares. Other allocation mechanisms that
required less monitoring and less interaction, such as territorial or customer
allocation were used to a lesser degree, see Table 13. Territorial allocation
was however common in many local cartels especially in the beer, beverages,
agricultural and bricks industries. But local cartels are not included in the
sample.
Table 13:
Dierent types of production cartels
Type
Number
Market share
Territory
17
3
Capacity
6
Specialisation
Source:
21
33
The sharing cartels allocated either market share or volume to each member
and market share allocation was the most common, see Table 14.
While
volume allocation is easier for individual rms since they know their allowed
sales, it may cause imbalance in the cartel when there are unexpected demand
uctuations. Market shares are however hard to estimate for individual rms
if they are not fully informed of the other members sales.
38
extreme cases market such as the soda cartel
Still in some
market shares were decided
with the precision of six decimal places. These extremely narrowly dened
market shares were only dened when the rms had joint selling agencies.
But in tender markets, joint tendering provisions also allowed for precise
allocation.
Table 14:
Dierent types of market sharing cartels
Type
Number
Volume
11
Market share
24
Territory
8
Home market
7
Customer
8
Tender
6
Source:
When each rm sold their products independently they could use other market sharing provisions that required less frequent interaction such as customer, territorial or home market allocation which could be either of the
previous or a combination.
Among these mechanisms customer allocation
was the most common mechanism.
For both types of sharing cartels deviations from the assigned share or volume could easily occur either due to demand uctuations or due to some
members selling more than their allotted quotas. To re-balance the shares,
the cartel could either use side-payments or have rms who are above their
share to buy from rms that are below or both.
Table 15 illustrate that
while both provisions were used in practice, side-payments was more common. Production cartels used the re-allocation provisions to a higher extent
and this dierence was caused by several one-sided specialisation agreements
where one rm produced all and compensated the other(s) for shutting down
the production (examples).
38 Reg
nr 1176.
22
Table 15:
Side-payments and re-purchasing
Sharing cartel
Side-payments
Re-purchasing
Production
27
6
Market shares
20
4
Total
47
10
Source:
4.4 Detection and punishment mechanisms
All cartels, legal and illegal, face the risk that individual rms deviate from
the agreement to increase sales.
If deviation is unnoticed or if there is no
punishment for deviation, a cartel is less likely to sustain. The cartel therefore
has to have mechanisms to uphold the structure.
Legal cartels, unlike illegal ones, have a strong punishment mechanism in
that their contracts are enforceable in court. Since the enforceability of the
contracts allow the cartels to recover nes from member who breaches the
agreement, 43 percent of all cartels in the sample describe a sanction system
in the statutes, (see Table 16). Possible sanctions include exclusion, fees and
damages. Over 90 percent of the sanctions were in the form of damages, i.e.
they varied with the harm inicted on the other members. A few cartels only
had a xed fee, while others had a xed fee for the breach and then damages
on top.
Table 16:
Detection and punishment mechanisms
Mechanism
Number
Sanctions
128
Dispute resolution
172
Audit
100
Information exchange
98
Source:
Since contracts can be enforced, it is not strange that 57 percent of the
cartels explicit mention the dispute resolution mechanism. However, all but
a few statutes stated that disputes should be settled by arbitration and not
23
in the normal court system. One explanation for this is that arbitration is a
condential procedure and the authorities and public would therefore not be
informed that an industry sued a rm for charging too low prices. The use
of arbitration can also be interpreted that having an enforceable agreement
was important, but the actual legality of the agreement was less important.
To detect deviation many cartels had information sharing systems where the
members submitted sales, prices and customers (normally monthly or every
two weeks) to the cartel. Some cartels, such as [example], also required the
rms to submit informations on tenders that they were going to bid on. In
sharing cartels, the purpose of reporting was apart from making sure that the
members honoured the agreement (and for statistical purposes), also to make
sure that the members were balanced according to their quotas. To verify
the accuracy of these gures, or as a stand alone procedure in conicts, one
third of the cartels had auditing provisions. Some cartels has regular audits
whereas in most of them it was an instrument to use when deviation was
suspected or there was a conict. During the audit, the cartel representatives
were to be given access to all books and all internal information.
There is a moderate positive correlation between having sanctions and dispute resolution or information exchange provisions in the agreement,see Table
17. One explanation for this could be that in order to hand out sanctions, the
cartel needed a dispute resolution system and the audit to gather sucient
information to determine the size of the damages. All together the detection
and punishment variables are close to having enough common variance to be
considered measuring the same thing
39 Cronbach's
39
alpha ≈ 0.67, i.e. just below the conventional cut-o at 0.7.
24
Table 17: Correlation of detection and punishment mechanisms
Variables
Sanction
Sanction
1.00
Dispute
0.50*
Dispute
Audit
Info
Members
Duration
1.00
(0.00)
Audit
Info
Members
Duration
0.41*
0.21*
(0.00)
(0.00)
1.00
0.18*
0.26*
0.49*
(0.00)
(0.00)
(0.00)
1.00
0.15*
-0.04
-0.00
-0.10
(0.02)
(0.49)
(0.95)
(0.11)
0.12*
-0.04
0.00
0.00
0.15*
(0.04)
(0.50)
(0.98)
(0.95)
(0.02)
1.00
1.00
The correlation between the detection and punishment variables and cartel
duration and the number of members is however low and insignicant. This
suggests that the individual eects of the detection and punishment variables
on the cartel were small.
4.5 Cartel maintenance
The data also contains information regarding the maintenance or practical
organisation of the cartels. The variables cover dierent aspects previously
found to be important for cartel organisation
40
.
Industy organisations have previously been found to facilitate collusion, for
41
example Levenstein and Suslow (2005)
. Also in our sample (see Table 18)
reveals that industry organisations were highly involved in cartel activities
and were part of 58 percent of all cartels. The organisations' normal duties
were to represent the industry in front of the authorities.
One important
authority was the price regulator with whom the rms had to negotiate to
increase prices. Since the organisations negotiated maximum prices with the
authority, it is not surprising that they were also involved in industry price
setting.
40 See
for example Harrington (2006) and Levenstein and Suslow (2006).
the references cited their-in.
41 And
25
Table 18:
Cartel maintenance variables
Variable
Number
Re-purchasing
10
Side-payments
47
Potential competition
20
Meeting
58
Voting
92
Industry organisation
176
Joint sales
23
Oral contract
20
Yearly contract changes
0.21
Source:
Due to the high number of industry organisations active in the cartels, many
cartels were explicit about the voting rules, since this is a normal element in
the statutes of an organisation. It is however interesting that, while many
cartels employed a "one vote per member" rule, there was a variety of other
voting mechanisms such as voting in relation to market share, according to
shares in a joint sales company or according to membership fees.
The average yearly contract changes is a complicated variable since it can
imply several dierent things about the cartel behaviour. First, it can be seen
to measure how adaptive a cartel is to changes in the environment.
With
this interpretation the variable should be positively correlated with cartel
duration. Second, it can also be seen as a proxy for a changing environment.
In this case the correlation should instead be negative.
Third, it can also
capture the need for a cartel to codify all details into contracts. This interpretation could both be positively and negatively related to cartel duration
depending on whether control is good or instead a sign that the members
don't trust each other.
A fourth interpretation is that the variable is not
related to the behaviour of the cartel, but just reects how it interpreted the
reporting obligations.
All anticompetitive agreements were supposed to be registered, even if just
oral. But less than ten percent of the agreements in the register were oral. A
reason for this could be that complex and large cartels needed a written code
to stay alive.
But having a oral contract is uncorrelated with both cartel
duration and number of cartel members.
The maintenance variables are of dierent types and therefore the correlation
among them is much weaker than for the detection and punishment variables.
26
One can however note that there is a positive and signicant correlation
between cartels mentioning outside competition, and the average number of
contract changes per year and the number of meetings per year. This suggests
that cartels in distress needed more exibility and contact, than did cartels
in more protected industries.
Table 19: Correlation of maintenance variables
Variables
Repur
Repur
Sidepay
Comp
Meet
Vote
IndOrg
JSales
Oral
Changes
Mem
1.00
Sidepay
0.28*
1.00
Comp
0.10*
0.11*
1.00
Meet
0.00
0.09
0.17*
1.00
Vote
-0.00
0.07
-0.06
0.44*
1.00
IndOrg
-0.03
-0.10
0.01
0.24*
0.28*
1.00
JSales
0.02
0.25*
0.07
-0.05
-0.00
-0.17*
1.00
Oral
-0.05
-0.12*
-0.07
-0.13*
-0.18*
-0.26*
-0.03
1.00
Changes
-0.02
-0.02
0.23*
-0.01
-0.02
-0.05
0.20*
-0.02
1.00
Member
-0.03
-0.06
0.00
0.03
0.04
0.15*
-0.05
-0.05
-0.01
Duration
-0.02
-0.11*
-0.05
0.11*
0.10*
0.22*
0.10*
0.00
0.06
The positive correlation among the meeting, voting and industry organisation
variables comes from the statutes of the industry organisations since these
often were very clear on voting rules and since there needed to be at least one
meeting per year. Meetings are also correlated to longer duration, suggesting
that well organised cartels survived longer.
Several of the variables indicating cartel organisation, such as having meetings, voting rules, an industry organisation present, and even forming a joint
sales organisation have a signicant positive correlation with the duration of
the cartel. This suggests that better organised cartels also last longer. Interestingly having side-payment provisions is signicantly negatively correlated
with cartel duration. Possible explanations for this are that the side-payment
system in practice is hard to organise, or that the cartels exist in industries
where demand is hard to predict. The only maintenance variable correlated
with the number of members is the industry organisation variable.
Hence
also in this case inclusion of industry organisations makes the cartel more
manageable.
27
1.0
0.1
4.6 Technology and eciency
In the analysis of the agreements, variables for coding eciency aspects of
cartels, such as cooperation in research and development, technology transfers between the members, increased standardisation and improved quality,
were also included. But with a few exceptions
42
, the cartels were not set up
to create eciency gains.
Table 20:
Technology and eciency
Improvement
Number
Technology transfer
12
Eciency improvement
4
Innovation
3
Quality
2
Standardisation
5
Source:
5
Conclusion
This rst profound analysis of the Swedish cartel register reveals that the
register contains important information for the economic understanding of
cartels and their behaviour.
Without legal prevention, price cartels seems
to have been common, both at a local and national level and the cartels
employed sophisticated strategies to keep the cartels running.
The information in the register opens up for a wide range of important applications related to modern cartel analysis, such as estimating hidden cartels,
assessing the eects of cartels and analysing what cause and break cartels.
42 Some
specialisation agreements were set up to create
28
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A
Appendix
A.1 Publication of registered agreements
The following information is taken from Konkurrensverket (2004).
30
A.2 Graphs
0
5
Frequency
10
15
20
Figure 3: Distribution of duration
0
20
40
60
Cartel lifetime
31
80
100