This paper – which can be found here – looks into whether cartel enforcement in the EU and the US is protectionist or neutral.
With globalization, individual authorities decide with increasing frequency whether to proceed with actions against foreign firms, and what penalties to impose when they are found liable. In principle, individual authorities should exhibit a neutral approach to the origin of an investigated entity – i.e. the national identities of firms should not influence enforcement actions. This paper seeks to confirm whether this is indeed the case, and is structured as follows:
Section 2 discusses three potential hypotheses concerning the behaviour of antitrust authorities in a global context. First, authorities may follow a neutral approach according to which the national identities of firms play no role in enforcement decisions to impose a fine or its amount. Second, they may treat foreign firms more harshly than domestic firms. Third, they may focus their enforcement efforts on domestic firms and treat them more harshly than foreign firms.
There are a number of mechanisms that favour neutrality. Various bilateral and multilateral organisations and agreements encourage authorities to share information and consult on actual and potential investigations. Furthermore. enforcement actions that benefit domestic firms at the expense of foreign firms may prompt retaliatory enforcement actions with similar effects by foreign authorities.
However, the retaliatory potential may differ depending on the intensity of cross-border economic activities. Furthermore, while potential retaliation may deter protectionist-oriented actions, the political benefits from helping particular domestic firms may outweigh the diffuse and uncertain costs of possible future retaliations.
On the other hand, enforcement can be domestically focused as a result of comparative advantages for competition authorities when investigating and prosecuting domestic entities. Authorities encounter a range of practical problems in dealing with foreign firms, including accessing witnesses, forcing discovery responses, translating information, and collecting penalties. The incentives to pursue domestic firms are more salient when an authority’s budget depends on the aggregate fines collected. Given the more visible roles of domestic firms in the economy and their greater collective share of GDP, authorities may also focus on prosecutions of domestic companies to the extent that they yield greater deterrent benefits than prosecuting foreign firms.
Section 3 describes the empirical methods used to estimate the likelihood of fines and their size. For each enforcement action against a firm for a horizontal cartel activity in the EU and the US between 1994 and 2014, the authors identified the fine imposed, the location of the firm’s parent company, the infringement period, the relevant product market, and affected sales. They categorized firms as EU firms, US firms, or rest of the world (ROW) firms on the basis of the location of their parent companies. For each enforcement action, the authors collected information about the product market and affected sales from the records of the European Commission and the US Department of Justice (US DOJ), as well as other sources; and determined from public sources whether a firm fined in one jurisdiction made relevant sales in the other jurisdiction.
The methods to estimate the likelihood that the European Union or the US will fine an EU, US or ROW firm, and the size of the fines, rely on atemporal conditional probabilities that correspond to whether cartel activity punished in one jurisdiction was punished in the other, irrespective of timing. In doing this, the authors evaluate the aggregate data and estimate a probit regression using the set of firms that were fined by at least one jurisdiction and had sales in both EU and the US. To evaluate the influence of national identity on the size of fine, they sampled the firms with affected sales volumes and nonzero fines in the European Union or in the United States.
Section 4 describes the results.
First, the European Union imposed 627 fines and the United States imposed 267 fines on firms for violations of anti-collusion laws during the period of study. While aggregate fines imposed by the European Union (€18.0 billion) exceed those imposed by the United States ($9.6 billion), the average fines imposed by the two authorities are of similar magnitude. Of the 627 firms fined by the European Union, 442 firms (70 percent) were EU firms. Of the 267 firms fined by the United States, 106 firms (40 percent) were US firms. Of the 463 firms with sales in both the United States and the European Union that were fined in at least one jurisdiction, 82 firms (18 percent) were fined in both the European Union and the United States. ROW firms accounted for 145 (23 percent) of fines imposed by the EU authorities and 115 (43 percent) of fines imposed by the US authorities.
he pattern of EU results seems to indicate that EU enforcement actions has a domestic focus and that ROW firms may be treated more strictly than US firms. In turn, the US seems to be fairly neutral as regards enforcement against US and EU firms; yet, like the European Union, the United States appears to target ROW firms at a much higher rate than the EU does. Lastly, the United States is statistically less likely to target any firm conditional on the firm being fined by the European Union as compared with the likelihood of action by the European Union, which could point either towards the existence of a potentially lower evidentiary standard in the European Union, or towards the US having a more deterrent systems that may result in cartel behaviour being more common in the European Union and the rest of the world than in the United States even among firms with sales in both countries.
In short, the authors see no evidence of a foreign focus on enforcement by either the European Union or the US.
Regarding the size of fines, the European Union seems to be neutral as regards the origin of the infringing undertaking. On the other hand, it seems that the United States imposes higher fines on both ROW and EU firms as compared to US firms (subject to the caveat that, as is common in many empirical inquiries into enforcement, the authors cannot control for the severity of the alleged activity). This bias in the US seems not be explained by increased exposure by US firms to treble damages’ actions, or by US firms benefitting from leniency programs more than foreign companies.
All in all, this is a very interesting study – it would be interesting to know how its results would change if more jurisdictions were studied.