‘The Economic Impact of Cartels and Anti-Cartel Enforcement’
January 23, 2015 Leave a comment
The Spring Seminar Series is well under way and you can check out the list of speakers on our website. On Friday 23rd January the ever-enthralling Peter Ormosi (CCP & NBS) presents his paper on ‘The Economic Impact of Cartels and Anti-Cartel Enforcement‘, which he has been undertaking with Stephen Davies (CCP & ECO). Peter is a Lecturer in Competition Policy at the Norwich Business School at the University of East Anglia and has published many notable works on the effects and detection of cartels, as well as on merger control. Among other highlights, his research has recently been cited in evidence submitted to the US Court of Appeals in the Motorola v AU Optronics case. An abstract for Peter and Steve’s paper can be found below and the full working paper can be downloaded here.
Evaluations of the consumer harm caused by cartels are typically partial because they do not attempt to quantify the impact of deterrence, or acknowledge that the CA does not root out all anti-competitive cases. This paper proposes a broader framework for evaluation which encompasses these unobserved impacts. Calibration of this framework is challenging because one cannot rely on estimates for cases which have been observed to make deductions about those that have not – an example of the classic sample selection problem which is endemic across much of the empirical Industrial Organisation literature.
However, we show how empirical findings, already available in the existing literature, can be plugged into a Monte Carlo experiment to establish bound estimates on the magnitudes of cartel-induced consumer harm. Lower bound (i.e. cautious) estimates suggest that (i) the harm detected by the CA really is only the tip of the iceberg, accounting for only a small fraction (at most one sixth) of total potential harm; (ii) deterrence is at least twice as effective as detection as a means for removing harm; and (iii) undetected harm is at least twice as large as detected harm. Under less cautious, but very plausible, assumptions, all three effects could be much greater than this.
The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03.