Can somebody explain cartels to me?

floorpie · 16-07-2014 6:11pm #1

I'm not sure that this is the place to ask this, but similar questions have been asked here, so:

I think I get what a cartel is, and what anti competitive practice is, but I have scenarios in my head and i'm wondering if they count. Let's say we're talking about the Ferry industry, and let's say that 95% of the organisations in the industry came together and said "let's take all bookings through one central channel, and let's divide customers and profits equally", that'd be a cartel, and would be illegal, right?

What if the sales channel was run by an organisation from outside of the industry who divided the market on behalf of the industry, but the industry players aren't explicitly colluding? They're just colluding with the distributor. Is that still illegal?

What if 95% of the industry divides, let's say, 50% of sales evenly, but competes for the other 50%? Is that legal? Would it be a stable arrangement, or would organisations have too much of an incentive to withdraw from the agreement and compete wholly?

EU laws seem to say that collusion may be acceptable if it improves production or distribution, and the consumer receives benefits. What if the centralised ferry sales channel helped the industry grow through, let's say, a strong marketing campaign taking sales from the airline industry, or through an improved online presence or something, would this mean that collusion within the industry, or with a distributor, is acceptable?

Apologies if these are silly questions.

Geuze · 17-07-2014 9:08am

They aren't silly questions.

The first scenario sounds illegal.

Your further queries, I'm not sure about.

One single sales channel for a whole sector/industry sounds monopolistic...............

"Centralised ferry sales channel".............there are brokers/intermediaries that sell ferry services, aren't there?

Example: http://www.directferries.co.uk/cross_channel_ferries.htm

But you seem to be suggesting that the industry themselves should organise a new centralised selling channel, with all routes from all lines available in one website?

If that was owned/managed by the firms themselves, people would suspect a cartel, even if there wasn't one.

floorpie · 17-07-2014 9:29am

Geuze wrote: »

They aren't silly questions.

The first scenario sounds illegal.

Your further queries, I'm not sure about.

One single sales channel for a whole sector/industry sounds monopolistic...............

"Centralised ferry sales channel".............there are brokers/intermediaries that sell ferry services, aren't there?

Example: http://www.directferries.co.uk/cross_channel_ferries.htm

But you seem to be suggesting that the industry themselves should organise a new centralised selling channel, with all routes from all lines available in one website?

If that was owned/managed by the firms themselves, people would suspect a cartel, even if there wasn't one.

Thanks for the reply. This is why i'm confused: if the industry colludes to share the market/profits, it's anti competitive I think. But what if some intermediary (as you say) decides to market share on behalf of the industry, without their knowledge, because (for example) it leads to more profits for themselves through happy and healthy organisations upstream giving better wholesale rates. Or, what if each organisation says to the intermediary "ok thanks, we'll take 5% of sales if that's what everybody else is getting", but doesn't actively collude with other organisations horizontally. Each case may lead to less competition, but don't involve collusion.

I guess fundamentally what i'm asking is, is anti competitiveness illegal only if it involves active collusion, or can it occur as side effect of an industry's development. And secondly, does it depend on the size of the industry, and percent of the industry that's involved.

DenisOakley · 24-07-2014 1:34am

Being anti-competitive is illegal. What that generally means is that you abuse market power to stop new entrants or existing competitors.

So for example in the US standard Oil was anti-competitive because it made secret price agreements with many towns and railroads to ensure that its transport costs were lower than the competition. In other cases such as the LIBOR fixing scandal an exchange of information about bid prices was sufficient for collusion to exist. Given that commercially information was shared other parties could then adjust their pricing in order to rig the price. Fine Art auction houses also colluded a few years ago to maximise commissions and minimise price wars.

Natural competition is ok. So for example Microsoft benefitted hugely from building 'effective' software and marketing it exceptionally well. That gave it monopoly positions in 2 industries: Operating Systems and Desktop Software. Where it got into trouble was when it abused its market dominance ian these sectors in order to achieve dominance in a 3rd - Browsers.

Some industries are natural monopolies. So for example economies of scale mean that power distribution, railways and fixed line telecoms are best as regulated monopolies. The huge capex investment required for the infrastructure means a huge amount of lost value if you have several competing networks. Struct regulation is tolerated because both the consumer and the business benefits from better pricing.

twogunkid · 14-08-2014 10:40pm

Picture the scenario.
A Kerry town with over a dozen pubs refuse to sell the most popular lager in the country for a 3 day festivel period in August each year . Customers asking for a pint of H....... are told there is none but you can have a pint of B........ instead.
The distrubitors of B........ lager are sponsoring the festivel

Is that a Cartel ?

Geuze · 16-08-2014 2:38pm

No.

A cartel implies a number of producers/suppliers coming together to fix prices.

What you describe is common in Ireland.

I'm not sure if it's legal or not.

twogunkid · 19-08-2014 12:19pm

So if a group of publicians came together to regulate what beer to sell for a specific 3 day period each August during the festivel and removing the other beer for that period isnt that regulating supply ?

floorpie · 19-08-2014 12:46pm

Well from what I can tell, buyer cartels are just as illegal, but are less commonly caught because they're less noticeable. But your pub example demonstrates why I asked my original question though: at what point does it become anti-competitive? So if every pub in Ireland did what you're saying, and actively colluded to exclude suppliers (probably for better rates from their preferred supplier), then it'd be a buying cartel and would be illegal. Right? If a few pubs in Kerry do it during a festival, then it's just normal competition, and normal tendering for an event's suppliers. But at what point is it not allowed?

If it ultimately benefits the consumer in some demonstrable fashion, does it get past EU anti-competition laws?

twogunkid · 19-08-2014 2:08pm

Well it is not allowed because the market is being manulipated .
One publican is said to be keeping the rest in line if they attempt to sell the no1 lager.
Punters have to drink a pint of Pi!! instead when they order the no1 selling lager.

Some of the publicans want to supply their customers but are being bullied by peer pressure.
How can you say its normal competition if they are being coersed into doing stuff they are not comfortable with ?
And yes its against the law but someone needs to put their hands up and spill the beans.

Check out
www.tca.ie

floorpie wrote: »

Well from what I can tell, buyer cartels are just as illegal, but are less commonly caught because they're less noticeable. But your pub example demonstrates why I asked my original question though: at what point does it become anti-competitive? So if every pub in Ireland did what you're saying, and actively colluded to exclude suppliers (probably for better rates from their preferred supplier), then it'd be a buying cartel and would be illegal. Right? If a few pubs in Kerry do it during a festival, then it's just normal competition, and normal tendering for an event's suppliers. But at what point is it not allowed?

If it ultimately benefits the consumer in some demonstrable fashion, does it get past EU anti-competition laws?

floorpie · 19-08-2014 2:17pm

twogunkid wrote: »

Some of the publicans want to supply their customers but are being bullied by peer pressure.

Bullied by who? There's nothing wrong with having preferred suppliers...every business does this. The issue arises when businesses collude in some manner.

twogunkid · 19-08-2014 2:26pm

The businesses collude by switch selling as in I order a pint of a and they offer a pint of b cause you know what---were fresh out of A
Some of the pubs feel bullied by the guy who heads up the arrangement. The guy who runs the arrangement dictates to the other pubs ( well some of them ) He is the bully .

Can somebody explain cartels to me?

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