Abstract
This paper studies cartel deterrence and cartel stability. I use the cartel decision-making equation as a foundation to assess aspects of the South African cartel enforcement regime. It shows that cartel deterrence will only be achieved if the expected penalty from collusion exceeds the profits of collusion. The expected penalty is the probability of detection and the actual sanction likely to be imposed upon a cartel being detected and subsequently prosecuted. The probability of detection itself relies on a competition authorities’ procedural efficiency with regards to detecting cartels and other investigative tools such as a leniency policy. The profits of collusion are affected by the duration and stability of a cartel. The research specifically relies on the collection and analysis of primary data. Firstly, data were collected through a survey of competition attorneys and this is used to make inferences on the probability of detection in South Africa and well as the efficacy of the Competition Commission’s leniency policy. Secondly, data were collected on South African cartels that include data on the duration and other characteristics of each cartel prosecuted. The analysis conducted on the cartels database provides key insights into deterrence, the probability of detection and cartel stability. The results show that a cartel that will ultimately be detected is likely to be active in South Africa for around the same duration as cartels in the USA and Europe (between six and eight years). This suggests that the probability of detection in South Africa may be comparable to these jurisdictions (although they are considered to have a low probability of detection). This study moreover finds that South African cartels exhibit those characteristics that support cartel stability. More than half of the cartels prosecuted by the Commission involved five firms or less. Cartels with a large membership appear to rely on the presence of an industry association. Cartels involving homogenous products moreover appear to last longer than cartels with heterogeneous products. Unsurprisingly, both the results of the survey and the cartels database analysis show the very influential role played by the Commission’s leniency policy in detecting cartels and hence improving cartel deterrence.
M.Com. (Economics)