Introduction
In times of worldwide globalisation, customers receive more and more power on the market as they can choose more and more freely from where they like to buy their product or services. This leads to more balanced markets and a higher economic welfare as producers become price takers instead of price setters and can therefore barely ask exorbitant prices. Sometimes, however, several competing producers join into a cartel, in order to maximise their profits at the expense of the consumers and the total welfare.
In July 2015, the European Commission fined three major cargo train operators 49€ Million Euro for forming such a price fixing and customer allocating cartel.
This purpose of this paper is to investigate how and how cartels …show more content…
Therefore, this paper first introduces the reader to the cargo train case. Section 2 will then continue with a theoretical analysis on how economic efficiency is decreased by cartels. Section 3 explains, by introducing game theoretical models, how the leniency program destabilizes cartels. Section 4 concludes by evaluating the findings.
Case
In June 2013, the European Commission carried out first inspections on the three cargo train operators Kühne + Nagel (K+N) Express Interfracht (EXIF) and Schenker after they received an immunity application under the leniency program by Kühne + Nagel. From July 2nd 2004 until June 30th, 2012 the three train operators operated in a cartel to allocate customers of blocktrain services. Blocktrain services, also called Unit trains, refer to trains, which carry only one commodity, typically bulk goods and where each train is "not split or stored on …show more content…
With its strict policy and the serious fines the European Commission imposes on cartel members, the European Commission plays a major role in punishing firms performing illegal price fixing agreement and therefore also decrease the willingness of firms to join a cartel in the future. Undoubtedly this leads to a more effective, competitive market in the long run and therefore also to an increase in total welfare compared to a market controlled by a cartel. The Leniency Program acts as a stimulus for companies to confess their illegal activities before other cartel members do so. However, the Leniency Programm is only effective if there is already distrust between the cartel members. Cartels, where members trust each other (mostly caused by high cartel profits) and do not fear future investigations are likely to resist than to confess, would lead to millions of forgone profits in the long run. Hence, the Leniency Programm can be seen as a useful tool in order to fight cartels and reduce the costs of legal enforcement but not as perfect solution for detecting unknown stable
In times of worldwide globalisation, customers receive more and more power on the market as they can choose more and more freely from where they like to buy their product or services. This leads to more balanced markets and a higher economic welfare as producers become price takers instead of price setters and can therefore barely ask exorbitant prices. Sometimes, however, several competing producers join into a cartel, in order to maximise their profits at the expense of the consumers and the total welfare.
In July 2015, the European Commission fined three major cargo train operators 49€ Million Euro for forming such a price fixing and customer allocating cartel.
This purpose of this paper is to investigate how and how cartels …show more content…
Therefore, this paper first introduces the reader to the cargo train case. Section 2 will then continue with a theoretical analysis on how economic efficiency is decreased by cartels. Section 3 explains, by introducing game theoretical models, how the leniency program destabilizes cartels. Section 4 concludes by evaluating the findings.
Case
In June 2013, the European Commission carried out first inspections on the three cargo train operators Kühne + Nagel (K+N) Express Interfracht (EXIF) and Schenker after they received an immunity application under the leniency program by Kühne + Nagel. From July 2nd 2004 until June 30th, 2012 the three train operators operated in a cartel to allocate customers of blocktrain services. Blocktrain services, also called Unit trains, refer to trains, which carry only one commodity, typically bulk goods and where each train is "not split or stored on …show more content…
With its strict policy and the serious fines the European Commission imposes on cartel members, the European Commission plays a major role in punishing firms performing illegal price fixing agreement and therefore also decrease the willingness of firms to join a cartel in the future. Undoubtedly this leads to a more effective, competitive market in the long run and therefore also to an increase in total welfare compared to a market controlled by a cartel. The Leniency Program acts as a stimulus for companies to confess their illegal activities before other cartel members do so. However, the Leniency Programm is only effective if there is already distrust between the cartel members. Cartels, where members trust each other (mostly caused by high cartel profits) and do not fear future investigations are likely to resist than to confess, would lead to millions of forgone profits in the long run. Hence, the Leniency Programm can be seen as a useful tool in order to fight cartels and reduce the costs of legal enforcement but not as perfect solution for detecting unknown stable