The Impact of Cartels on National Economy

and Competitiveness
ThiS is a FM Blank Page
Jurgita Bruneckienė • Irena Pekarskienė •
Andrius Guzavičius • Oksana Palekienė •
J
uratė Šovienė

The Impact of Cartels on

National Economy
and Competitiveness
A Lithuanian Case Study
Jurgita Bruneckienė Irena Pekarskienė
Department of Economics Department of Economics
Kaunas University of Technology Kaunas University of Technology
Kaunas, Lithuania Kaunas, Lithuania

Andrius Guzavičius Oksana Palekienė

Department of Finance Department of Economics
Kaunas University of Technology Kaunas University of Technology
Kaunas, Lithuania Kaunas, Lithuania

J

uratė Šovienė
Lithuanian Competition Council
Vilnius, Lithuania

ISBN 978-3-319-17286-6 ISBN 978-3-319-17287-3 (eBook)

DOI 10.1007/978-3-319-17287-3

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Preface

Many countries of the world recognise the pivotal role of competition in promoting
productivity and innovation—the driving forces of economic growth and national
competitiveness. Companies are encouraged to implement innovations and increase
productivity, collaborate with scientific research institutions, and invest in scientific
research and technological development in order to enhance competition in the
market and make the competition policy efficient. That means that the competition
policy, which protects, appreciates, and strengthens competition, promotes the
country’s economic growth and directly contributes to its increased competitive-
ness. Besides, identification of competition as a value and establishment of the
principle of fair competition on the strategic as well as operational level play an
important role in the implementation of the Europe 2020 strategy and the progress
strategies of Member States.
The ultimate goal of competition policy is to protect free competition and create
conditions for competing in order to ensure the effective and fair competition
among undertakings, providing the greatest possible benefits to consumers, improv-
ing the business environment, and stimulating economic growth. All that correlates
with the public interest. In a broad sense, a cartel is a collusive agreement between
competing companies which may be designed to fix prices or outputs, share
markets, coordination of the conditions for the sale, etc. Such agreements reduce
competition between/among cartel members. Cartels are found to be some of the
most severe competition restrictions causing great harm to other undertakings in the
market, consumers, as well as national economic development and competitive-
ness. For example, the success of national companies in European or other inter-
national markets is highly dependent on competitive prices. However, unfair
competition, artificially inflated prices or production costs, or changed operational
conditions in the market diminish the competitiveness of the companies, hinder
their development, and affect the necessity and timeliness of continuous adaptation
to changing market conditions. The outcomes of such actions have a direct effect on
the growth of the country’s economy and at the same time on national

v
vi Preface

competitiveness. Obviously, higher prices bring lower benefits to consumers and

restrict their opportunities.
This monograph expresses the attempt of the authors not only to lessen, by
methodological tools, the harm caused by cartels to the national economy and
competitiveness but also to foster the culture of competition in the country and
help the general public and economic subjects recognise competition as a value.
Therefore, this monograph, reflecting the ambitious goals of the authors, together
with the raising of awareness of the results of the assessment of cartel impact on the
economy can be regarded as one of the means for preventing cartels.
The insights, observations, and discussions of the authors and the results of the
assessment of cartel impact on the country’s economy are reflected in ten chapters
of the monograph. Chapter 1 contains an extensive introduction of the concept of
cartels: presents the concept and a diversity of cartels and different attitudes to
cartels in the theories of economic thought, defines the main features of cartels,
analyses statistics in the European Union and in Lithuania, and identifies the basic
features of cartels in Lithuania. Chapter 2 extensively discusses the peculiarities of
cartel formation and operation in the market: identifies the reasons for cartel
formation and the main principles, defines the structure of a cartel, analyses a cartel
operation mechanism in the economic system of the market, covers the problem of
cartel emergence in producer associations, and analyses cartel stability. Chapter 3
contains an in-depth analysis of cartel market features: identifies the relationship
between business cycles and cartels, defines the main factors indicating higher risks
of market exposure to cartelisation as compared to other markets, identifies eco-
nomic factors evidencing cartel existence, identifies and describes cartel markets in
Lithuania, and surveys the possibilities of cartel detection by economic methods.
Chapter 4 comprehensively introduces legal regulation of cartels: identifies the
reasons for and aims of regulation, reviews and compares regulation in the
European Union and in Lithuania, analyses the cartel detection mechanism and
preventive measures, identifies the main problems concerning the enforcement of
competition policy in respect of cartels in Lithuania, and presents methods used in
foreign countries to deal with them. Chapter 5 reveals the impact of cartels on the
national economy and competitiveness: analyses the relationship between cartels
and deadweight loss and thoroughly analyses cartel’s negative and positive impacts
on the economy and competitiveness nationally and internationally. Chapter 6
makes an in-depth analysis of the economic efficiency of fines imposed on cartels:
examines the impact of antitrust policy on cartels, presents an overview of the
theoretical concept of optimal fines, and describes the compensatory, deterrent, and
punitive character of fines. Chapter 7 thoroughly introduces the main methodolog-
ical aspects of assessment of the impact of cartels on the national economy:
identifies the main parties affected by cartels, reviews the possibilities of quantita-
tive assessment of the impact of cartels, singles out the phases of harm assessment,
presents an overview of the assessment of damage made by cartels, identifies
practical difficulties in the impact assessment, and suggests how to increase its
precision. Chapter 8 composes a model for an integrated assessment of a cartel’s
impact on the national economy consisting of the models of cartel components
Preface vii

(CartEc) and assessment stages (CartSt). Chapter 9 contains an empirical study on

the model for an integrated assessment of a cartel’s impact on the economy on the
example of three different cartels of Lithuania—Paper, Orthopaedic, and Milk—
and identifies the main problems encountered during the empirical study.
Chapter 10 contains recommended measures to neutralise the adverse impact of
cartels on the national economy. Conclusions are submitted at the end of the
monograph.
The authors of the monograph have studied the issues of cartel economics for
many years. The attempts to reveal the accumulated knowledge, insights, observa-
tions, calculations, and conclusions in the monograph were driven by the long-term
institutional economic science research programme “Long-term Competitiveness
Challenges of Lithuanian Economy” implemented together with the Research
Council of Lithuania, Kaunas University of Technology, and other universities of
Lithuania.
The authors would like to thank the Lithuanian Competition Council for pro-
viding important information used in the empirical research and also colleagues
from the Kaunas University of Technology School of Economics and Business for
constructive remarks and proposals. Special thanks go to the Head of Department of
Finance and the leader of the programme “Long-term Competitiveness Challenges
of Lithuanian Economy,” Prof. Dr. Rytis Krušinskas, for the valuable methodolog-
ical recommendations. We also wish to thank the reviewers of the monograph for
their helpful insights and comments, which strengthened and enriched this mono-
graph. Specifically, we should mention our deep gratitude to our family members
and friends for their patience while we were working on the monograph so that the
readers could familiarise themselves with contemporary discussions, new insights,
and evaluations of cartel impact on the economy. The monograph is intended for all
readers interested in the theory and practice of cartel economics and competition
policy at national level.

Kaunas, Lithuania Jurgita Bruneckienė

February 2015 Irena Pekarskienė
Andrius Guzavičius
Oksana Palekienė
J
uratė Šovienė
ThiS is a FM Blank Page
Introduction

As a consequence, when it comes to providing practical policy advice, this asymmetry

[between Scientists and Engineers] might create substantial problems and intensifies the
desire for a class of Scienteers, which internalises both views and is therefore able to give
applicable scientific-based policy advice.
Hüschelrath (2009a)

Historical studies have shown that at all times competitors tried to get involved
in conspiracy against consumers in order to derive higher profits. Cartels occur in
current economies too, despite the development of laws on competition policy and
the activities of respective authorities. Statistics also confirm that the number of
detected cartels is growing every year (which can be related to both increasing
effort by market actors to form cartels and the performance efficiency of competi-
tion authorities), which justifies the relevance and timeliness of the problems
addressed.
The academic literature provides diverse evaluations of the concept of cartels.
On the one hand, it is recognised that cartels do a great deal of harm to all market
players, particularly to consumers, and adversely affect national economies
(according to the European Commission and the Organisation for Economic
Co-operation and Development, every year Europe suffers harm between 13 and
36 billion euros due to cartels); on the other hand, it is emphasised that the process
of cartel formation is complicated, cartels are unstable, and sometimes they destroy
themselves as a result of the possibility of cheating by their members. The fact that
cartels are inclined to self-destruction but in practice they exist and pursue activities
for several and dozens of years is in the focus of discussions among scientists and
practitioners, which shows that the theory of cartels has not been fully revealed and
requires additional theoretical and empirical research and new conclusions.
In spite of the fact that it is universally accepted that cartels inflict considerable
damage on the economy, there are occasional attempts in the academic literature to
justify, at least partially, a cartel and highlight its positive impact. An integrated
assessment of a cartel’s impact by measuring the net economic effect created by its
operation in the market is extremely important for the national economy as a whole.
If a net cartel impact is not identified and evaluated, it will be impossible to make
ix
x Introduction

strategic decisions, important for the economy as a whole instead of only individual
affected parties, and to establish the optimum baseline for compensating damages
done to the economy. Thus, the integrated cartel impact assessment helps more
intensely the fight against cartels in the market and improves economic welfare of
the country.
In the recent decade, scientists and practitioners have particularly focused on the
problems of cartels. This can be explained by two reasons. First, formerly most
cartels were considered legal and their formation was initiated and encouraged by
governments themselves. Second, the impact of cartels on consumers, markets, and
the economy as a whole was scarcely known and analysed, even though their
adverse impact was unquestioned. The lack of research chiefly resulted from the
insufficiency of required data. An increasing amount of data in connection with
cartels became available from various sources (e.g. Extracts from court records,
historical data of cartels, and various public sources) over time as a result of the
development of laws on competition policy, the activities of competition authori-
ties, leniency systems, and technological progress. The availability of information
and the employment of new technologies in economic analysis encouraged scholars
to more widely analyse cartel operations and assess their impact on consumers,
markets, and the economy as a whole. Research done in the past decade made an
especially significant contribution to the analysis of the conception of cartels and
revealed their multifaceted character.
The scientific and applied literature contains a number of fundamental papers
analysing the problems of cartels which were mainly written by United States and
European Union scientists and practitioners. The spectrum of research by the most
prominent authors (Marshall and Marx 2012; Connor 2008a, b, 2010, 2011;
Veljanovski 2009, 2011; Utton 2011; Allain et al. 2011; Davies and Ormosi
2010; Hüschelrath 2009a, b; Bolotova et al. 2007, 2008; Connor and Lande 2006,
2008; Connor and Bolotova 2006; Levenstein and Suslow 2004a, b, 2006; Harring-
ton 2004, 2006) is wide, covering the economic and managerial aspects of cartel
practices as well as the efficiency of enforcement of competition policy against
cartels. The major focus of both scientists and practitioners (Maier-Rigaud and
Schwalbe 2013; EC 2011; Günster et al. 2011; Davis and Garces 2009;
Friederiszick and R€oller 2008, 2010; Verboven and Dijk 2009; Oxera 2009; Paha
2012; van Bergeijk 2009; Connor 2008a, b; Clark et al. 2004, Page 1980) was on
cartel-caused damage assessment problems, the popularity of which stemmed from
their practical applicability in court procedures for compensation for damage
suffered through cartel existence. The scientific and practical literature (EC 2011,
2013a, b; OFT 2007, 2011; London Economics 2011; Hüschelrath and Weigand
2010; Oxera 2009; Stanik
unas 2009; Bolotova 2006, 2009; Connor 2005, 2008a, b;
Miller 2009; Stangle 2007; Connor and Bolotova 2006; Veljanovski 2006; Ashurst
2004; Clark et al. 2004) particularly concentrated on the methodological principles
of cartel-induced harm assessment which provided grounds, together with the
peculiarities of cartel’s negative and positive impacts on the economy, for the
formulation of the model for an integrated cartel impact assessment.
Introduction xi

The problematic of cartels and impact assessment on the national economy and
competitiveness is especially actual to Lithuania, as in this small economy country,
the culture of competition is still developing: the Law on Competition became
effective in 1999 and the competition has not been treated as a value yet. Despite
the relevance of the scientific problem, the Lithuanian academic community still
lacks working experience in conducting research into cartel economics or compe-
tition policy enforcement. Lithuanian authors mainly analysed the relevant prob-
lems in the legal rather than in the economic aspect. The issue of an integrated
assessment of cartel impact on the economy has never been analysed. Separate
questions related to cartel economics or competition policy were addressed in the
monograph by R. Stanik
unas (2009) Konkurencijos politika: teorija ir praktika
[Competition Policy: Theory and Practice], several academic articles (Novosad
2012; Klimašauskienė 2006, 2010, 2011; Klimašauskienė and Giedraitis 2010,
2011; Degutis 2010), and a practical study (Lithuanian Free Market Institute 2006).
Despite an increasing interest in the problems of cartels, the scientific and
applied literature of the world mainly analysed cartel harm to individual affected
parties. The methodological aspects of an integrated cartel impact assessment have
been scarcely analysed. There is lack of methodologically justified methodology for
the integrated cartel impact assessment helping to assess, according to the identified
impact components and phases, the adverse and the positive impact as well as the
net impact of cartels on the national economy, which justifies the relevance and
timeliness of the problems addressed. That particular aspect relates to the novelty of
the problem analysed. The absence of an instrument for an integrated cartel impact
assessment is an obstacle to the assessment of a true cartel impact on the economy,
to the formation of strategic decisions important for the economy as a whole instead
of only individual affected parties, and to help the fight against cartels in the market
and enhance national economic welfare.
Problem of the monograph—how to conduct an integrated assessment of a
cartel’s impact on the national economy.
Object of the monograph—integrated assessment of a cartel’s impact on the
national economy.
Aim of the monograph—to develop a model for an integrated assessment of a
cartel’s impact on the national economy enabling measurement of cartel’s negative,
positive, and net impacts on the economy on the basis of the identified cartel impact
components and assessment phases.
To achieve the set aim the following tasks are set:
1. To formulate the concept of a cartel and identify the peculiarities of its
operation in the market which are important for the process of assessment of
the cartel’s impact on the economy.
2. To survey the practice of Lithuanian cartels and identify their main features.
3. To single out the basic features of the cartel market showing that it is more
sensitive to cartelisation than other markets.
xii Introduction

4. To analyse the peculiarities of legal regulation of cartels in the EU and in

Lithuania that are important in terms of harm compensation and ensuring the
detection and prevention of cartels.
5. To identify the negative and the positive impact of cartels on the economy and
competitiveness nationally and internationally.
6. To analyse the economic efficiency of fines levied on cartels from the view-
points of deterrence from other competition law infringements and punishment
of violators.
7. To determine the main methodological framework for calculating harm
inflicted by cartels that can be applied for an integrated cartel impact
assessment.
8. To compose a model for an integrated assessment of a cartel’s impact on the
national economy consisting of cartel impact components and assessment
phase patterns.
9. To conduct research on the applicability of models for an integrated assessment
of a cartel’s impact on the national economy based on the examples of
Lithuanian cartels.
10. To present recommended measures helping minimise a cartel’s adverse impact
on the national economy.
The structure of the monograph is determined by its aim and tasks which are
dealt with in ten chapters.
The monograph mainly analysed scientific and applied papers by foreign
authors. Since the problems examined in the monograph have been scarcely
analysed in Lithuania, the monograph gives an overview of Lithuanian scientists’
papers analysing both cartel economics and competition policy. Foreign (mainly
European Union and United States) and Lithuanian legal acts governing competi-
tion policy and cartels, court judgments, the guidelines of the International Com-
petition Network (ICN), resolutions passed by the Lithuanian Competition Council,
and the subordinate legislation on competition policy adopted by Lithuanian min-
istries and institutions were analysed for legal interpretation of cartels.
Systematic and comparative analyses of the concepts, methodologies, and con-
clusions published in the scientific and applied literature and logical generation of
conclusions were used to analyse the concept and regulation of cartels and the
problems of cartel impact assessment as well as to compose the models cartec and
cartst. Mathematical and statistical processing techniques using the software pack-
age Microsoft Excel and the software package for statistical analysis SPSS were
employed for the empirical calculations of cartel impact and the robustness and
sensitivity analyses.
The monograph was prepared by the scientists from the Kaunas University of
Technology School of Economics and Business: Assoc. Prof. Dr. Jurgita
Bruneckienė (Sects. 1.1–1.3, Chap. 2, Sects. 3.2.1 and 3.2.3, Chaps. 5 and 6,
Sects. 7.2–7.7, Chap. 8, Sects. 9.1, 9.2, and 9.4), Prof. Dr. Irena Pekarskienė
(Sects. 1.4, 2.6, 2.7, 3.2.2, and 9.3, Annexes), and Prof. Dr. Andrius Guzavičius
(Sect. 3.1), Doctoral Student Oksana Palekienė (Sect. 7.1) and invited expert from
Introduction xiii

the Lithuanian Competition Council J
uratė Šovienė (Chap. 4). Introduction was
prepared by Assoc. Prof. Dr. Jurgita Bruneckienė and Prof. Dr. Irena Pekarskienė.
Chapter 10 was prepared by Assoc. Prof. Dr. Jurgita Bruneckienė, J
uratė Šovienė,
and Prof. Dr. Irena Pekarskienė.
The research was funded by a grant (No IEP-01/2012) from the Research
Council of Lithuania.

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Journal of Industrial Economics, 7(3), 457–491.
Contents

1 Conception of Cartels: Definition and Diversity . . . . . . . . . . . . . . . 1

1.1 Conception of Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.1 Concepts of Collusion . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.2 Concept of Cartel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1.3 Cartel: Is It a Combination of Independent Firms
or a Single Corporation? . . . . . . . . . . . . . . . . . . . . . . . . 7
1.1.4 Variety of Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 Cartels in the Theories of Economic Thought: Two Different
Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.3 Key Characteristics of Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.3.1 Cartel Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3.2 Cartel Overcharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
1.3.3 Cartel Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.4 Cartel Statistics in the European Union and Lithuania . . . . . . . . 32
1.4.1 Cartels in the European Union . . . . . . . . . . . . . . . . . . . . 33
1.4.2 Lithuanian Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1.4.3 Fines for Cartels in Lithuania . . . . . . . . . . . . . . . . . . . . . 38
1.4.4 Basic Features of Cartels in Lithuania . . . . . . . . . . . . . . . 39
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2 Cartel Occurrence and Operation in Market . . . . . . . . . . . . . . . . . 49
2.1 Cartels and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
2.2 Cartel Formation Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
2.3 Principles of Cartel Formation . . . . . . . . . . . . . . . . . . . . . . . . . . 54
2.4 Cartel Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
2.5 Cartel in the Market Economic System . . . . . . . . . . . . . . . . . . . 57
2.6 Cartels and Producer Associations . . . . . . . . . . . . . . . . . . . . . . . 60
2.7 Cartel Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

xvii
xviii Contents

3 Cartel Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.1 Cartel During Different Business Cycle Stages . . . . . . . . . . . . . . 69
3.1.1 Cartel During the Boom Phase of Business Cycle . . . . . . 71
3.1.2 Cartel During the Decline Phase of Business Cycle . . . . . 72
3.1.3 Cartel During the Depression Phase of Business Cycle . . . 73
3.1.4 Cartel During the Recovery Phase of Business Cycle . . . . 75
3.2 Characteristic Features of Industries with Increased Cartelisation
Risks and Identification Thereof in Lithuania . . . . . . . . . . . . . . . 78
3.2.1 Key Indications of Cartel Markets . . . . . . . . . . . . . . . . . 79
3.2.2 Cartel Markets in Lithuania: Identification and Features . . . 83
3.2.3 Economic Methods in Cartel Detection . . . . . . . . . . . . . . 91
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4 Legal Regulation of Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
4.1 Reasons and Objectives of Cartels Regulation . . . . . . . . . . . . . . 97
4.2 Regulation of Cartels in the EU and in Lithuania . . . . . . . . . . . . 101
4.3 Detection of Cartels: Authorities and Measures
in the EU and in Lithuania: System of Fines . . . . . . . . . . . . . . . 106
4.3.1 EU Network of Competition Authorities . . . . . . . . . . . . . 106
4.3.2 EU Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
4.3.3 Lithuanian Competition Council . . . . . . . . . . . . . . . . . . . 108
4.3.4 Cartel Fining System . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
4.4 Measures to Prevent Cartels: Peculiarities and Problems
of Their Application in the EU and in Lithuania . . . . . . . . . . . . . 115
4.4.1 Leniency Programmes . . . . . . . . . . . . . . . . . . . . . . . . . . 115
4.4.2 Private Actions for Damages Caused by Cartels . . . . . . . 119
4.4.3 Problems Concerning Imposition of Individual
Liability for Cartel Activity . . . . . . . . . . . . . . . . . . . . . . 122
4.4.4 Restrictions on Participation in Public Procurement
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
4.4.5 Rewards to Natural Persons for the Provision of
Information About a Cartel . . . . . . . . . . . . . . . . . . . . . . 124
4.4.6 Competition Law Compliance Programme . . . . . . . . . . . 125
4.5 Main Problems of Implementing Competition Policy
in Respect of Cartels in Lithuania and Solutions to them . . . . . . 126
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
5 Analysis of the Impact of Cartels on National Economy and
Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5.1 Cartel and Market Inefficiency (Deadweight Loss) . . . . . . . . . . . 135
5.2 Cartel Adverse Impact on Economy and Competitiveness . . . . . . 138
5.2.1 Cartel Adverse Impact at National Level . . . . . . . . . . . . . 138
5.2.2 Cartel Adverse Impact at International Level . . . . . . . . . 143
5.3 Cartel Positive Impact on Economy and Competitiveness . . . . . . 148
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Contents xix

6 Critical Analysis of Economic Efficiency of Fines Imposed

on Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
6.1 Cartels and Antitrust Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
6.2 Theoretical Concept of Optimal Fines . . . . . . . . . . . . . . . . . . . . 158
6.3 Deterrent Effect of Fines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
6.4 Empirical Research on the Economic Efficiency of Fines . . . . . . 165
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
7 Methodological Principles of Assessing Cartel Harm (Effects) . . . . 173
7.1 Assessment of Harm in Social-Economic System: Role and
Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
7.2 Parties Affected by Cartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
7.3 Quantitative Assessment of Cartel Effects . . . . . . . . . . . . . . . . . 180
7.4 Phases of Effects Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
7.5 Methods for Estimating Harm Caused by Cartels . . . . . . . . . . . . 191
7.5.1 Overcharge Calculation . . . . . . . . . . . . . . . . . . . . . . . . . 193
7.5.2 Calculation of the Pass-On of Overcharges . . . . . . . . . . . 198
7.5.3 Evaluation of Lost Profit (Losses) . . . . . . . . . . . . . . . . . . 199
7.5.4 Methodology for Cartel Effects Assessment Applied
by Competition Supervisory Authorities . . . . . . . . . . . . . 200
7.6 Practical Difficulties in Harm Assessment . . . . . . . . . . . . . . . . . 203
7.7 Aspects of Increasing Harm Estimation Accuracy . . . . . . . . . . . 208
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
8 Assessment of Cartel Impact on the National Economy:
Integrated Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
9 Empirical Application of a Model for an Integrated Assessment
of Cartel Impact on the National Economy in the Case
of Lithuania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
9.1 Integrated Assessment of the Paper Cartel’s Impact on
the National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232
9.1.1 Description of Paper Cartel Products . . . . . . . . . . . . . . . 233
9.1.2 Paper Cartel Market Description . . . . . . . . . . . . . . . . . . . 233
9.1.3 Paper Cartel Performance Analysis . . . . . . . . . . . . . . . . . 233
9.1.4 Identification of Parties Affected by the Paper Cartel . . . . 234
9.1.5 Objects Affected by the Paper Cartel . . . . . . . . . . . . . . . 235
9.1.6 Modelling of a Counterfactual Scenario for the Paper
Cartel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
9.1.7 Evaluation of the Paper Cartel’s Economic Impact . . . . . 238
9.1.8 Robustness and Sensitivity Analysis of Paper Cartel
Assessment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
9.1.9 Interpretation of Paper Cartel Assessment Results:
Assessment of the Economic Efficiency of Fines . . . . . . . 249
xx Contents

9.2 Integrated Assessment of the Orthopaedic Cartel’s Impact

on the National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
9.2.1 Orthopaedic Cartel Product Description . . . . . . . . . . . . . 251
9.2.2 Orthopaedic Cartel Market Description . . . . . . . . . . . . . . 251
9.2.3 Orthopaedic Cartel Performance Analysis . . . . . . . . . . . . 251
9.2.4 Identification of Parties Affected by the Orthopaedic
Cartel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
9.2.5 Objects Affected by the Orthopaedic Cartel . . . . . . . . . . 252
9.2.6 Modelling of a Counterfactual Scenario for the
Orthopaedic Cartel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
9.2.7 Assessment of the Orthopaedic Cartel’s Economic
Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
9.2.8 Robustness and Sensitivity Analysis of Orthopaedic
Cartel Assessment Results . . . . . . . . . . . . . . . . . . . . . . . 259
9.2.9 Interpretation of Orthopaedic Cartel Assessment Results:
Estimation of the Economic Efficiency of Fines . . . . . . . 261
9.3 Integrated Assessment of the Milk Cartel’s Impact on the
National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
9.3.1 Milk Cartel Product Description . . . . . . . . . . . . . . . . . . . 263
9.3.2 Milk Cartel Market Description . . . . . . . . . . . . . . . . . . . 263
9.3.3 Milk Cartel Performance Analysis . . . . . . . . . . . . . . . . . 263
9.3.4 Identification of Parties Affected by the Milk Cartel . . . . 263
9.3.5 Objects Affected by the Milk Cartel . . . . . . . . . . . . . . . . 263
9.3.6 Modelling of a Counterfactual Scenario for the Milk
Cartel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
9.3.7 Assessment of the Milk Cartel’s Economic Impact . . . . . 267
9.3.8 Robustness and Sensitivity Analysis of Milk Cartel
Assessment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
9.3.9 Interpretation of Milk Cartel Assessment Results:
Evaluation of the Economic Efficiency of Fines . . . . . . . 273
9.4 Generalisation and the Main Problems of Empirical Cartel
Impact Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
10 Recommendations to Minimise an Adverse Impact of Cartels
on the National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Annex 1. Detailed Analysis of Fines Levied on Lithuanian Cartels
in 2011 and 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Annex 2. Main Data About Unclosed Cartels in 2000–2012 . . . . . . . . 306
Annex 3. Consumer Price Index in Lithuania . . . . . . . . . . . . . . . . . . . . . 313
Annex 4. Data Used in the Empirical Research . . . . . . . . . . . . . . . . . . 313