Alternative means of Cartel detection: the use of screening in Brazil Carlos Ragazzo General Superintendent Brazilian Council for Economic Defense (CADE) ICN Cartel Working Group Workshop Cape Town, October

Summary 2 1.Past efforts i.Screens in the Brazilian Gas Retail Market 2.Diagnosis of current trends i.Leniency applications from international cartels ii.Need for alternative means for detection of domestic cartels 3.Looking forward i.Brainstorming ii.Benchmarking iii.Implementation

Gas Retail Market in Brazil 3 Prices were regulated until late 1990s With deregulation, large number of complaints became a problem : 15% of cartel cases prosecuted by CADE 2010: 23% of all antitrust investigations Until 2012: only 8 investigations resulted in convictions Equal prices do not always mean cartelized market

Gas Retail Market in Brazil 4 Use of available data to evaluate possible collusion National Petroleum Agency (price monitoring) Statistical tests were created to evaluate elements that indicated cartel formation Such as: retail margin relatively stable or on the rise Use of screens as grounds, together with other evidence, for judicial decisions granting dawn raids or wiretappings

Gas Retail Market in Brazil 5 Means to evaluate whether the cost of opportunity of pursuing an investigation was justifiable or not Fewer Cartel Complaints (complaints analyzed in less than a month) Faster dismissal of groundless cases Better allocation of governmental resources New tool for obtaining direct evidence

Diagnosis 6 Leniency applications from international cartels Lack of leniency applications from domestic cartels (i.e. bid-rigging) Seek of alternative methods to detect cartels: the use of screens

Looking forward: screening 7 Concept: statistical econometric studies based on available data in order to identify sectors or companies where competition problems exist. Goal: to identify abnormal or atypical patterns within the available data Relevant Data: prices, public bids, costs, market shares Cartel detection Case evidence Prioritization technique

Looking forward: organization chart General Superintendent Merger & Antitrust Regulated Markets Merger & Antitrust Industry Cartel Unit 2 Cartel Unit 3 Merger & Antitrust Services Merger & Antitrust Differentiat ed Goods and Farm related products Merger Screening Unit Cartel Unit 1 Hierarchy Cartel work flow Merger work flow Intelligenc e Division Prioritization Leniency 8 Deputy Superintendent 1 Deputy Superintendent 2 Unilateral conducts Screening Unit

Brainstorming: the search for Big Data 9 Circunstance or BehaviourDatabase - Subcontracts as reward for stepping-down of public bids; - Indirect evidence; - Abnormalities in prices; - Relation between group of bidders and prices; - Market division Public procurement databases - Producers Associations to restrain market entry; - Possible lenient beneficiaries or informants; - Agreements between competitors Judiciary - Markets with strong barriers to entry; - Expiration date of patents; - Agreements between competitors - Economic groups and common corporate control Regulatory agencies; Commercial registry and trade boards

Public procurement 10 Federal Government’s Electronic Procurement System - Subcontracts as reward for stepping-down of public bids - Market division - Indirect evidence (i.e. identical errors in bid offers) - Abnormalities in prices - Relation between group of bidders and prices # bid-rigging! #

Judiciary 11 Brazilian Judiciary Branch - Files are public (few exceptions) - Labor Courts: possible lenient beneficiaries or informants - Agreements between competitors - Producers Associations to restrain market entry # collusions! #

Regulatory Agencies and Commercial Registries 12 - Deadline for expiration of patents - Requests for commercialization of generic products - List of active ingredients - Economic players - Agreements between competitors Health Surveillance Agency National Industrial Property Institute Commercial Registries

International Benchmarking 13 1) Korea 2) Colombia 3) Mexico 4) Canada 5) USA 6) Netherlands 7) United Kingdom 8) Germany 9) Austria 10) Italy 11) European Union Most frequent  Fuel sector  Bid-rigging

National Benchmarking 14 Office of the Comtroler General (“CGU”) - Public Expenses Observatory Federal Court of Accounts (“TCU”) - Office for the Management of Strategic Information Department of Assets Recovery and International Legal Cooperation (“DRCI”) - Laboratory against Money Laundry. Parquet from the state of Paraíba (“MP”) Council for Financial Activities Control (“COAF”)

Implementation: the use of Big Data 15 Adaptation to Brazilian reality Differences of culture, legal framework, markets, etc. Screening as evidence of “good cases” Technique to open investigations Screening as evidence of “bad cases” Technique for closing cases Prioritization agenda Human and financial resources limitation Greater public spending Sectors with social impact (i.e. health and education)

Thank you! Carlos Ragazzo General Superintendent Brazilian Council for Economic Defense (CADE) 16