During recent decades European antitrust authorities have increasingly focused on the fight against cartels within the European market. Numerous alterations in European competition law, such as leniency programs or extensions of the fine spectrum, have been implemented with the objective to destabilize existing cartels and to deter potential future cartel agreements. In this context, cartel overcharges constitute one important indicator for the success and effectiveness of price-fixing. They are defined as the difference between the collusion price and an artificial competitive benchmark price and capture the mark-up for purchasers due to cartelization. The price overcharge transfers income from purchasers towards cartel members and thereby crucially determines the size of the deadweight loss. For competition authorities it is therefore of primary interest to have a clear understanding of the price setting behavior of cartels and overcharge analysis can provide valuable insights in this respect.

Using a sample of 191 overcharge estimates and several parametric and semiparametric estimation procedures, this paper analyzes in its first part the impact of different cartel characteristics and the market environment on the magnitude of overcharges for the European market. The second part of the paper then focuses on the question whether the fine level according to the current EU Guidelines is sufficient for effective cartel deterrence.

We find that the mean and median overcharge rates are 20.70 percent and 18.37 percent of the selling price and an average cartel duration of 8.35 years. The analysis reveals further that overcharges attained in Western and Northern Europe are significantly lower, and overcharges attained in Southern Europe, Eastern Europe and the UK are not significantly different from reference group overcharges. Regarding different cartel characteristics, empirical evidence suggests that international cartels impose higher overcharges than domestic cartels and that cartel experience in terms of repeated attempts to collude influences the magnitude of overcharges negatively. Estimation results further indicate that bid-rigging cartels obtain higher overcharges than non bid-rigging cartels. In addition, we do not find changes in the overcharge level over time, implying that adjustments in EU competition law during recent decades did not lead to reservation in the price-setting behavior of cartels. Last but not least, a comparison between cartel overcharges and the existing fine level according to the current EU Guidelines shows that collusion has been a lucrative business for most firms from an ex-post perspective. In 67 percent of the cases the gain from price fixing outweighs expected punishments although the calculations are based on maximum values for cartel detection and upper limits of penalty levels. We therefore conclude that further adjustments of the EU Guidelines are indispensable in order to achieve optimal deterrence.

Keywords

cartels, overcharges, Europe, fines, deterrence, damages