Blog
Yet another airline cartel story.....
9th November 2010
Just in case you wanted one more example of price fixing, cartels, collusion and whistle blowing, here it is. The EU has boosted its revenue for the year by fining 11 airlines almost 800m euros for fixing cargo prices between 1999 and 2006. AirFrance-KLM are hit the hardest, at 340m, followed by BA at 104m - but Lufthansa, who blew the whistle on the other airlines involved, are not fined at all.
This gives yet another example of game theory, and the mind-games that colluding companies must engage in as they try to second-guess which fellow cartel member is most likely to alert the authorities in order to escape a fine, and exactly when that will happen.
The maximum possible fine, of 10% of a companies world-wide revenues for the year, sounds as it is enough to deter businesses from entering into cartels. Yet a look through a number of examples that we have used in class this week to investigate the practice, makes me wonder if the potential benefits to the colluding firm, over the years that they manage to get away with it, are greater than the fine that they risk when, or if, they are found out.
Do they see the potential fine as a legitimate expense of running the business, which is unfortunate but worth the risk? The BBC report that “BA said it had already made a £350m provision for any possible fines over the cargo price fixing. A BA spokesman said the airline’s fine fell “within the provision made by the company in its 2006/7 report and accounts”.” - almost as if it was depreciation. Should the fines be higher?
In case you want more on a similar theme, you might want to try some of the links below - I usually find that my students are scandalised by the way that the firm that betrays other cartel members to the authorities gets away without a fine!
BA and Virgin fuel price fixing - Q&A
Sotheby’s fined £13million for price fixing
Billionaire in cardboard cartel
Hasbro fined for toy price fixing
Firms tried to fix price ‘by text’
Probe into chocolate price fixing
Fine for cigarette price fixing
LCD manufacturers are screened for price fixing
Hotels under investigation for price fixing
BBC news video on cartels