Proceso de seguimiento de la puesta en marcha de las acciones preventivas. 54

3.6.1.1 The change in the tone of literature: 1945 to 1950

The study that transformed the theme of the literature on cartels after the Second World War was the book, Cartels or Competition, written by George W. Stocking and Myron W. Watkins in 1948, as a part of the post-war project to study the consequence of cartels on the economy led by the US government. To be specific, Stocking and Watkins (1948) strengthened the

"detrimental" view of cartels by concluding that cartels deterred investment, fostered the misallocation of resources, and protected uneconomic producers against competition. The study recommended the effective preservation of free competitive enterprise in the domestic market and thus prohibition of cartels.

Stocking and Watkins (1948) criticised the government approach towards cartels that, in practice, "government rarely follow a pure and universal gospel", i.e., the US government at that time was quite lenient in its approach towards cartels, especially export cartels. They therefore called for an unforgiving policy against cartels, which was widely adopted in the subsequent period.

In 1947, Don Patinkin was among the first authors who used a mathematical model to portray a cartel as a multi-plant firm. A cartel was viewed as a multi-plant monopoly firm,

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with a central decision-making unit, which considered the industry’s benefits over those of each individual firm. Members were assigned output quotas along with the system ofside payment, by which those who violated their quotas needed to pay those whose quotas were affected, i.e., a redistribution system of revenues to compensate any misallocation in quotas.

He raised concern over the problems of excess capacity and over-investment due to the race to gain a higher quota (Patinkin, 1947). These problems were, later on, emphasised by Bain (1948), who argued that, in the absence of the side-payment system, Patinkin’s multi-plant model of cartels could not explain how the quotas system worked. Bain (1948) argued that the quotas system worked because firms within a cartel were far different from plants within the same firm because, unlike plants, firms had "antagonistic ownership interests"

and would definitely race for quotas. Therefore, the dynamic within a cartel was more of a power-politics negotiation among members than that of a multi-plant firm. The fact that a cartel was based on negotiation and re-negotiation plays a key role in the argument in Chapter 4 that an export cartel agreement does not necessarily eliminate the incentive of firms to improve their productive capabilities.

Subsequently, mathematical models have been used to derive various conditions under which cartels are more likely to be formed and sustained. However, it was not until the 1960s before Game Theory started to be used to study cartels. It took less than two decades for Game Theory to become the main tool which academics adopted to study cartels. The increasing influence of Game Theory in the studies on cartels was partly because Game Theory was substantially advanced in terms of its applicability and theoretical concepts during the period, e.g., the introduction of Nash equilibrium by John F. Nash in 1950 and the expected utility theorem by John VonNeumann and Oskar Morgenstern in 1947. Therefore, most of the advancements in the knowledge on cartels in the past few decades have been largely concerned with the characteristics of the industries which influence the formation and stability of cartels, as analysed through Game Theoretical models.

3.6.1.2 The rise and the dominance of Game Theory and Industrial Economics: 1960 to present day

One caveat of the underlying assumption of research over the last few decades is the fact that cartels were usually defined narrowly as "price-fixing" or "hard-core" cartels, the definitions which were discussed in the previous chapter. Moreover, the studies on cartels were mostly based on the ability of firms to fix prices and/or their commitment to the agreement (cartel formation and stability). Having been introduced in the field of economics between 1950 and 1960, it was not until the 1970s before industrial economists started to use Game Theory to analyse the behaviour of firms in various settings. Since then, Game Theory has become the main tool by which economists study cartels.

In his seminal 1964 work, George J. Stigler argued that a collusive agreement may lead to a price war because of the free-riding effect, by which firms have incentives to deviate from the cartel agreement and attract as many customers as possible. That is, he argued that the cartel was unstable because of the free-riding problem (Osborne, 1976). Later in 1971, James W. Friedman developed a solution to this problem in non-cooperative indefinitely repeated games (i.e., the game is played repeatedly and indefinitely) or supergames. Given that cartels resemble the prisoner’s dilemma, he argued that cartels could be stable in the supergames.

One of the strategies by which players (firms) may adopt to sustain cartels is the so-called trigger strategy, under which each firm keeps cooperating until the other player defects and, upon defection, the firm defects forever too (Friedman, 1971). The conclusion that cartels could be stable is also applicable in a game with an unknown end or even a finite-but-long period game (Porter, 1983). Subsequent research mainly focused on how cartels could be stable under different circumstances. One of the most complete reviews in the literature on cartel formation and stability is the work by Magaret C. Levenstein and Valerie Y. Suslow, What Determines Cartel Success?, which was published in 2006 in the Journal of Economic Literature.

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The most recent theme of studies on cartel stability has turned towards the cartel-deterrence policy called the "Leniency program" (Bigoni et al., 2008; Harrington, 2013;

Leniency, 2010; Spagnolo, 2006). The policy aims to provide amnesty/leniency to the players who come forward (i.e., the firstcomers) and provide information regarding a cartel to the authority. This policy reflects how cartels are theoretically treated nowadays: an illegal per se practice which should be deterred by all means.