Quantifying Duration of EC Prosecuted Cartels (Work in Progress) By Oindrila De Centre for Competition Policy CLEEN Workshop, CCP June, 2008

Structure of This Presentation Objective Some Remarks on EC Cartel Database Duration of EC Cartels Survival Analysis and Cox proportional Hazard Model Preliminary Evidence Concluding Remarks and Way Forward

Objective of this Study Why Duration? - It is considered as a measurement of cartel success in recent empirical literature. Addressing the difficulties in determining duration of a cartel. Determinants of cartel duration – Market structure (number of firms, type of industry etc) and external shocks (demand, leniency etc).

EC Cartel Database Database contains EC Cartel Cases from Data Source: Competition Commissions decisions from EC Official Journals and CFI and ECJ judgements Included cases under Article 81 (1), re-adoptions, exemptions under 81 (3) and negative clearance, their renewals and cases under ECSC treaty 98 total cases in the database (3 re-adopted cases).

EU Cartel Duration Duration is defined –Commissions declared starting date till the detection date/leniency application. –Commissions mentioned starting date till the decision date (where no information available from parties about the breakdown of cartels) –Starting of an agreement to the last date of negative clearance (where negative clearance approved)

Duration: Duration of EC Cartels

Duration: Information on Suspected Duration CategoryNumber of Cases Suspected Duration date mentioned21 Suspected Duration date not mentioned68 Suspected but exact date not mentioned9

Duration: Proven vis-à-vis Suspected Duration

Duration: Different Dimensions of Duration DurationNumber of Cases Different members with different duration36 Different sub-agreements with different duration6 Different sub-product markets with different duration3 Different geographic markets with different duration1

Literature Theoretical Model- Jacquemin et al (1981), also empirically tested by Marquez (1992). Theoretical models with leniency- Miller (2007), Harrington and Chang (2007) Survival analysis US- Dick (1996, Web-Pomerene Export Cartels); Suslow (2001, inter-war international cartel); Zimmerman and Connor (2005, international private cartels from Jan 1990 to July 2004); Levenstein and Suslow (2006, private international cartels from 1970 to 2002) EU cartel duration- correlation analysis of duration and number of firms, professional organization involvement, Market definition and industrial classification (Combe and Monnier, 2007)

Survival Function The probability of a cartel episode continuing to time t is given by the survivor function Where T i is the ith cartel episodes length and f() and F() are probability and cumulative distribution functions of T i respectively

Hazard Rate The probability that the cartel episode ends at time t given that it has survived until that time is defined by hazard rate An estimated hazard ratio greater than one indicates that the covariate is associated with an increased hazard of cartel break up.

Survival Curve

Cumulative Hazard Function

Variable Description DUR: Duration (in years) NUM: Number of firms COVER: Coverage of cartel COI: Commission's own investigation LEN: Leniency NOT: Notification COM: Complain AGREE: Number of agreements PF: Price fixing MS: Market sharing IE: Information exchange RING: Ringleader/ Price leader ASSO: Association involved ENTRY: Late entry into cartel EXIT: Early exit from the cartel FBT: Food, Beverage and tobacco CHEM: Chemical COMMU: Communication EGW: Electricity, gas and water supply FIN: Financial services MACH: Machinery MET: Metals NMM: Non-metallic mineral products OTHER: Others PAPER: Paper and paper products PLGL: Plastic and glass products RERBUSI: Real estate, renting and business activities CSPSER: Community, social and personal services TEXT: Textiles TRANS: Transport

Results

Concluding Remarks Existence of ringleader and association of undertakings have positive and significant effect on duration. Number of firms, price fixing conspiracies (weak), entry of new firms in the cartel and firms in chemical sector have significant negative effect on duration.