Impacto sociocultural

Antitrust authority investigations can be self-initiated, result from the application of a le- niency programme or from buyers reporting a cartel to the antitrust authority. Self-initiated investigations are generated by either the buyers’ (consumers) complaints of high prices or even of suppliers’ suspicious behavior (trade tactics). In a recent case the Office of Fair Trade (OFT), UK’s antitrust authority, initiated an investigation in to the UK’s construction indus- try after a buyer’s report and found a bid-rigging operation. The OFT found more than 100 companies involved. The cartel members had managed to co-ordinate without being detected for 7 consecutive years, from 1999 to 2006. The cartel members were fined with 129.2 UK million pounds in total, since the cartel had affected projects in excess of 200mn. Further- more, OFT states with respect to reporting on cartels: “In addition to our own research and market intelligence, the OFT relies on complaints to help us in enforcing competition law. If you suspect that a competitor, supplier, customer or any other business is infringing the law, you may contact us with your concerns.” 1_{. Hence, understanding the driving forces of}

reporting and the strategic interplay of players is not only of academic importance. In this topic some further research questions are need to be answered. Research questions such as: What tools can a cartel use to control for reporting? What will be the social cost? and Should the antitrust authority target buyers’ cost of reporting?

Though there is a large literature on public enforcement policy, the research on private enforcement has been developed relatively more recently. This literature has focused to private lawsuits and leniency programmes but has surprisingly failed to account for the choice of buyers to report a cartel to the antitrust authority 2_{. In this topic I assume that buyers are}

more likely to trace the existence of a cartel (or misbehavior) than an antitrust authority (regulator). Given the existence of a cartel, the buyers choose whether to report. The cartel’s

1_{http://www.of t.gov.uk/about−the−of t/legal−powers/legal/competition−act−1998/complaints} 2_{With only one exemption a paper by McAfee, Mialon and Mialon in (2008).}

members will need to tackle this threat by satisfying the buyers’ Incentive Compatibility Constraint (ICC) and by making the buyers just indifferent from reporting and not reporting. I show that at equilibrium there will be no reporting3 _{which means that the results are not}

driven by the actual act of reporting but from the mere fact that the threat of reporting exists. A cartel’s commitment to satisfy the ICC of the buyers decreases its profit and increases stability, since deviation is relatively less profitable. Interestingly, being informed on suppliers’ competitiveness is both a blessing and a curse. The threat of reporting forces the cartel members to set lower prices than the benchmark case, with the buyers being uninformed, and as a result implicitly compensating the buyers. However, at the same time the likelihood of collusion increases and as a result it is more likely for the buyers to be faced with collusive prices.

An alternative mechanism, to control reporting, is presented. The threat of exclusion, foreclosure, is a robust strategy to deter reporting. However, I show that as the size of the buyers increases or the size of suppliers decreases or even the number of buyers decreases it becomes more difficult to sustain such a strategy. The size of the buyers matters because it corresponds to a higher profit per buyer for a given supplier. The driving force of this result is the trade-off between foregoing profits in one period (by punishing a buyer) and enjoying higher profits in the future. The number of buyers matters because a smaller number of buyers corresponds to a higher per buyer profit for the suppliers and as a result a greater cost for the implementation of the threat of exclusion. Hence, the last result suggests that buyers’ associations reduce the credibility of the threat of exclusion since these associations increase the number of buyers that need to be excluded by a cartel. The number of suppliers approximates the intensity of competition, since I assume competition `a la Cournot, and as a result more intense competition reduces the per buyer profit of the suppliers and decreases

3_{The simple case, mentioned above, naively predicts that reporting will not be observed. However, when}

I relax the assumption of successful antitrust authority investigation, probability being less than one, then reporting is an equilibrium action.

the cost of the threat. Finally, the number of buyers matters since it decreases the per buyer profit. Therefore, anonymity for the reporting buyer and monitoring cartel members’ behaviour after prosecution is essential to protect the buyers from the cartel’s retaliation tactics.

As for social welfare, it is shown that two main forces are working in opposite directions. First of all, if the antitrust authority decreases the cost of reporting then the Consumer Surplus (CS) increases, given that a cartel has been formed. Mainly, the ICC will bind the collusive profits at a lower level thus enforcing the cartel to lower its price4 _{and as a result increasing}

the CS of the buyers and decreasing the Dead Weight Loss (DWL). The second driving force is the likelihood of collusion. The antitrust authority by reducing the cost of reporting, increases the likelihood of cartel formation and generates more stable cartels. This means that it increases the number of potential cartels that can be created. The stability increases because the relative decrease on the deviation profits is higher than the relative decrease of the collusive profits. However, it is shown that the first effect dominates the second.

When compared to another private enforcement policy, treble damages5_{, I show that the}

most efficient policy is reporting. Hence, policy makers should aim to reduce reporting costs rather than promoting private lawsuits. This comparison identifies boundaries for buyers’ optimal response, between three possible alternatives6_{, given the existence of a cartel. In}

this way this topic identifies factors that can explain why in EU private lawsuits are less frequent than in USA7_{. Furthermore, conditions for reporting to be observed (cartel chooses}

the benchmark quantity and takes the risk of being reported) are presented in the relevant

4_{The buyers become more willing to report and as a result the cartel will need to lower its price in order}

to make the buyers indifferent from reporting again.

5_{Treble damages refer to buyers suing cartel members for anti-competitive damages and receiving triple}

their damages.

6_{Reporting or reporting and taking a legal action or just taking legal action}

7_{This problem has been identified by EU and measures to increase private engagement on the}

control of cartels have been suggested through a White Paper (see EU website, http : //eur −

lex.europa.eu/LexU riServ/LexU riServ.do?uri = COM : 2008 : 0165 : F IN : EN : P DF. However, investigating reporting as a deterrence mechanism has been ignored.

chapter.