HOW DO CARTELS USE VERTICAL RESTRAINTS? HORIZONTAL AND VERTICAL WORKING IN TANDEM

• Published in: Antitrust law journal 2020-01, Vol.83 (1), p.15-40
• Main Authors: Levenstein, Margaret C, Suslow, Valerie Y
• Format: Article
• Language: English
• Subjects: Antitrust; Antitrust laws; Cartels; Case studies; Cheating; Collaboration; Competition; Sales; Vertical integration
• ISSN: 0003-6056; 2326-9774

There was, however, a span of years in the 1990s and early 2000s when the European Commission was providing detailed and publicly available cartel decisions. in these published decisions, the European Commission documented cartel organizational mechanisms in sufficient detail to reveal the continued existence of these behaviors and arrangements. [...]these decisions give us some insight into how vertical restraints can be used to support a dampening of competition. A separate strand of largely theoretical literature has demonstrated that vertical restraints can also support anticompetitive outcomes.8 Some of this theoretical work was motivated by fairly explicit anticompetitive behavior in the 20th century (e.g., joint sales agencies representing international cartels that shaped world trade in the inter-war period).9 In other cases, it is motivated by the increasing market power of retail chains or online platforms to direct customers to particular upstream producers.10 II. ideal types of vertical interaction that dampen competition In this Part, we characterize vertical relationships that we have observed when examining cartel cases. Upstream and Downstream Firms Collaborate to Facilitate Collusion Our research, and that of others, has identified cheating and entry as the primary challenges to cartel stability.12 In some cases, where the industry and information structure-and individual firm management-are amenable, cartels make use of vertical relationships to address both of these challenges.13 For example, uncertainty about demand makes cheating easier and can undermine collusion. where demand uncertainty is a serious problem for the cartel, perhaps because upstream producers cannot observe one another's actions, cartels try to prevent cheating by reducing uncertainty about demand.14 Monitoring competitors is a common technique for doing so. [...]downstream firms observe sales and may be in a position to make them visible to a cartel. [...]the inclusion of downstream firms in a collusive conspiracy can reduce the incentive for cartel members to cheat.