''Cartel Damages to the Economy: An Assessment for Developing Countries

Abstract

To date, whether competition law enforcement is indeed beneficial for the economy still remains a questionable topic. In the majority of jurisdiction collusive practices that aim at fixing either prices or market shares are considered as damaging per se as firms get an opportunity to block the entry of new rivals or to overcharge for their products or services without adapting the quality. Nevertheless, developing countries still struggle to find the supportive evidence that would help them to create or reinforce their antitrust divisions - research on the topic appears not to be not only limited, but also mainly of a qualitative nature. The principal goal of the preset study is to provide the missing evidence by assessing the potential economic harm caused by cartels in developing countries. For this purpose we have created a dataset that contains information on more than 200 major ‘hard-core’ cartels prosecuted in more than 20 developing countries from 1995 to 2013. We have also developed an original and relatively simple methodology that we employed to estimate the cartel’s economic harm - in terms of price overcharges and consumers’ welfare losses - when sufficient data were available. Obtained results confirm that cartels` economic impact can indeed be substantial. For example, in terms of affected sales related to GDP the maximal rate reaches up to 6.38%. The actual harm in terms of cartels’ excess profits resulting from price overcharges can also significant - with the maximal rate reaching almost 1% when those profits are related to GDP. Furthermore, as we estimate the maximal annual probability of uncovering an existing cartel to be around 24%, we suggest that the actual damage could appear at least 4 times bigger. (with Frédéric JENNY and Aleksandra KHIMICH).