Unit 3 Micro: Cartels and their Ringleaders

Price fixing and bid rigging by groups of firms in Europe are not solely the preserve of highly concentrated industries. According to research by Professor Stephan Davies and Dr Oindrila De, even industries with relatively large numbers of firms feature such anti-competitive practices – and they typically have a ‘ringleader’, which organises and enforces the cartel. Their study, published in the November 2013 issue of the Economic Journal, finds that roughly a quarter of the 89 cartels detected by the European Commission over the past two decades have a ringleader or ringleaders. In cartels with relatively large numbers of firms, the ringleader tends to be the dominant firm, acting aggressively to set prices and ensure that smaller firms fall in line.

The researchers note that although it appears that cartels do not always have ringleaders, the European Commission’s findings may be only the tip of an iceberg. Given that ringleaders are fined more heavily than the other members of a conspiracy, they have a particular incentive to conceal their activities, and the antitrust authority must be certain before identifying a ringleader for fear of appeal and judicial review.

Professor Davies comments: ‘It is interesting to note that the European Commission had an increasing propensity to name ringleaders in the 1990s, but this has been reversed since 2000. This could be consistent with an increasing deterrent effect of the ringleader law. But it could also be consistent with an increasing sophistication of ringleaders in concealing their special role within the cartel.’