cartels revisited - cairn

CARTELS REVISITED

An Overview on Fresh Questions, New Methods, and Surprising Results

Harm G. Schröter

Presses de Sciences Po | « Revue économique »

2013/6 Vol. 64 | pages 989 à 1010 ISSN 0035-2764ISBN 9782724633030DOI 10.3917/reco.646.0989

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Revue économique – vol. 64, n° 6, novembre 2013, p. 989-1010

cartels Revisited

An overview on Fresh questions, new methods, and Surprising Results

Harm G. Schröter*

The common agreement of the advantages of competition is usually supple-mented by a similar one on the destructive characteristic of cartels. Starting from this verdict the contribution looks into various assumptions –and finds considerable practical evidence contradicting the verdict. While there surely are many negative examples, there are as many other ones. In a first systematic overview the contri-bution presents cases, where historical evidence contradicts the traditional nega-tive perception. A second systematic overview suggests fields of future research which would considerably enlarge our practical knowledge of cartelization. Cartels and m&a (mergers & acquisitions) are the two possibilities of external growth of enterprise. While competitive behaviour can be monitored in the case of cartels, merged enterprise cannot. A fresh view on state-controlled cooperative behaviour may in the end open new possibilities for economic decision making with the aim to enhance competition.

LeS cARTeLS ReviSiTéS : un SuRvoL De queSTionS neuveS, De méTHoDeS nouveLLeS eT De RéSuLTATS SuRPRenAnTS

L’accord général concernant les avantages de la concurrence s’accompagne d’un consensus similaire autour du caractère destructeur des cartels. Partant de ce verdict, la présente contribution analyse diverses hypothèses et met en lumière une réalité pratique qui contredit ce jugement. De même que des exemples négatifs existent à coup sûr, on peut en trouver beaucoup de positifs. Dans une première étape, l’article présente des cas dans lesquels l’évidence historique contredit la perception négative traditionnelle. Une seconde traite des champs de recherche nouveaux pour une recherche future qui pourrait accroître beaucoup notre connais-sance pratique de la cartellisation. Les cartels d’une part, les fusions-acquisitions de l’autre constituent les deux voies dans lesquelles une entreprise peut s’engager du point de vue de sa croissance externe. Alors qu’un comportement concurrentiel peut être impulsé au sein des cartels, il ne peut l’être dans les entreprises fusion-nées. Une analyse récente du comportement coopératif contrôlée par l’État ouvre, en fin de compte, de nouvelles possibilités pour la décision économique prise dans le but de relancer la concurrence.

JEL Codes: L4, L5, D42, F53, K21

* Department of Archaeology, History, cultural Studies and Religion, university of Ber-gen. Address: Department of ahkr, university of Bergen, Postboks 7805, 5020 Bergen, nor-way. Email Address: [email protected].

i want to thank all the discussants of conferences in Geneva, Bergen, neuchâtel, utrecht, and Paris, and in particular Dominique Barjot, Jeffrey Fear, and margrit müller for their comments on earlier versions of this paper (+ all errors are mine, etc.).

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INTRODUCTION

Since a couple of years interest in cartelization and its history has been renewed in europe, and indeed even beyond especially in the Anglo-Saxon world.1 While during the 1990s few contributions appeared, their number grew increasingly since the millennium. We can observe an interesting paral-lel: during the period when international influence of the American model of competitive-oriented capitalism was at its peak, little research on cartels was published. Together with growing critique at it, augmented research on coope-rative behaviour to conferences, journals and books indicated a renewed inte-rest into the question of how the balance between both should be. in many cases this renewed interest also generated new points of views, new questions or suggested new methods; in short it was based on various new insights. our contribution tries to provide an overview on these new approaches. of course, not all publications challenged traditional views; several important ones under-lined established perceptions. We, of course, do not claim traditional research to be wrong or obsolete! However, the task of our contribution is to focus on new approaches.

By citing Arthur Sullivan and Steven m. Sheffrin, Wikipedia, the most read source of orientation at arm’s length, defines: “A cartel is a formal (explicit) agreement among competing firms. it is a formal organization of producers that agree to coordinate prices, marketing, and production… The aim of such collusion (also called the cartel agreement) is to increase individual members’ profits by reducing competition.”2 We think this definition is insufficient for several reasons: 1) cartels neither need an organization (in fact only few owned one) nor a written agreement; 2) not only firms but also states took part in car-telization; and 3) many cartels aimed not primarily at profits but at security for its members. Therefore we define cartels as arrangements between inde-pendent organisations of the same industry that, by directing competition, aim to influence the conditions of their own business and/or market environments to their advantage. This definition is much wider than traditional ones; it compre-hends organizations such as the imperial marketing Boards (imB) in the uk in the interwar period. But because these imBs influenced prices and distribution, and, with government backing, even included and excluded member firms –in what way did they differ from cartels?3

indeed, the clear-cut picture of the bad cartels preventing the good competi-tion becomes quite blurred when we remind ourselves that all countries allow(ed) cartels in banking, in insurance, in exports, or in agriculture. consequently, in key-sectors cartels were not forbidden. indeed, the unanimous condemnation of cartelization becomes questionable when cartelization is reduced to its core: it is just one form of economic concentration. The other form is mergers and acquisitions (m&a). m&a is often seen as a sign of success.

1. For instance, in 2007 Levenstein and Salant published a reader of contributions the cartel question (Levenstein and Salant (eds.) [2007]). in the same year, i was invited to provide the key-note speech to the 11th congress of the european Business History Association in Geneva on cartels.

2. Sullivan and Sheffrin [2003], 171.3. As Dominique Barjot already presented, there are many variations of understanding cartels:

syndicates, ententes, consortia, communities of interest, etc. (Barjot [1994]).

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Probably everybody would agree that competition is best for the economy. However, in capitalist economies enterprises are designed to grow, and growth leads to concentration. Besides normal expansion firms can grow externally through m&a; a path very much suggested by banks and consultants. While cartels are co-notated to negative semantics, m&a are positive, including consoli-dation (in contrast to concentration), win-win situations, synergies, rationalization, cuts in costs and so on. is it a contradiction that m&a are generally allowed while cartels are generally forbidden?4

This contribution is organized in five section of different length. The first one describes briefly two traditional types of research, the second one points out to cases where traditional perceptions of cartels do not meet reality; thus inspired, the third tries to challenge conventional wisdom, while the fourth part provides an overview on new questions, methods and possibilities by which our knowledge on the characteristics of cartels and cooperative behaviour may be decisively enhanced. The conclusion provides the fifth and last part.

TYPES OF HISTORIC CARTEL RESEARCH

it seems there are at least two main types of traditional cartel research, an Ame-rican and a european one. Japanese and Australian research tended to be nearer to the european than to the uS-type. We find also a distinction between uk and uS-research, meaning there is no common Anglo-Saxon-model in this case. Both types are related to the respective practical experiences in cartelization. in the uS-tradition cartels are not just “bad,” they are a crime. consequently co-notations are for instance: collusion, price-fixing, conspiracy, cooperation, corporate de-linquency, crimination, fraud, cheat, deceit, or control. The meaning of the word is so negative that even other items, which have nothing to do with cartels, are called so (drug-cartels, spam-cartels). most research was devoted to search for more examples of collusion, looking for measurement of size of price-increases, longevity, success, and so on. Research was very often theory-lead and based on only one or a few practical examples, which in most cases represented exclusively American ones.5 The prevailing view was from the consumer’s interests. in contrast, non-American historical research often looked into the arguments or interests of the part-taking enterprises, the organization of the cartel or respective government and national economies. By concentrating more on the supply-side, research tended to be more cartel-friendly. more important is the historical tra-dition of practical cartelization in europe, which economic historians did not consider as an entirely negative phase of development. even some of today’s economists maintain that the historical phase of cartelization was a chance for

4. There is the exception in the eu that small firms are allowed to form a cartel governing up to 30% in case larger shares of the market are in the hands of one or several large enterprises. of course, m&A is also interdicted when a certain limit of a defined market, for instance 30%, would afterwards be governed by the respective firm. But there are too many exceptions tolerated (e.g. Google, microsoft).

5. A representative collection provide the two volumes edited in 2007 by Levenstein and Salant (eds.) [2007]; norman (ed.) [2008].

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development and in some cases provided “a road to prosperity”.6 The european (and Asian) way how to pursue business was deeply rooted in cooperative beha-viour on various levels at the same time. This had repercussions not only on how profits were pursued in the uS and in europe, but also on what items historical cartel-research had focussed. While it uS researchers emphasized so called hard core cartels (on prices, exclusive regions and so on), europeans underlined more aspects of rationalization, impact on economic swings or politics. indeed the first book ever on cartels (which was a european one) claimed cartels to dampen the swings of the economy.7 However, even Americans agree that there are some types of cartels which are beneficial, for instance on norms or specialization. uS-politics also consented to some international cartels in the form of buffer-stocks of commodities, which were intended to help developing states.

CASES OF MISMATCH OF TRADITIONAL PERCEPTION AND REALITY

Few Standard-Cartels?

in 2004 the American economists Peter Grossman, after evaluating recent source-based research, discovered: “There is a standard model of a cartel that still dominates the literature, but when collusive agreements are examined in detail as they are in this book it is clear there are few standard cartels.”8 Janice Rye Kinghorn and Randall nielsen assisted “The effects of German carteliza-tion on price call into question the applicability of standard monopoly-based cartel theory to non-uS institutional settings.”9 –We all know that meaning and content of organizations such as governments, churches or enterprise vary over time and space. Though these organizations are in principle comparable, their functions, organizations, and values vary considerably between Asia, America, Africa, and europe. important scholars have pointed out to several varieties of capitalism.10 This leads to the question: why should the characteristics of cartels be identical all over the world, regardless their environment?

Question of Definition

questionable is also what used to be considered as a cartel. in case of the lead-cartel American jurisdiction was quite practical in dealing with this: “Whe-ther the form of association they created be called a cartel, an international cartel, a patent pool, or ‘a technical and commercial cooperation’, is of little signi-ficance. it is a combination and a conspiracy in restraint of trade.”11 in this

6. ojala and Petri [2006].7. cartels as children of distress (“Kinder der not…,” Kleinwächter [1883], 143).8. Grossman [2004], 7; see also Schröter [2011].9. Kinghorn and nielsen [2004].10. Berger and Dore (eds.) [1996]; Hall and Soskice (eds.) [2001]; Whitley (ed.) [2002].11. District Judge Rifkind in uSa v. national Lead, cit. after: Ziegler [1991], 27.

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case the legal form did not play a role for the concerned Judge Rifkind, but the purpose: a restraint of trade. We agree to Rifkind that the rigid definition of a cartel, as mentioned above, is insufficient. on the other hand such an opening, a wider definition of restraints of trade, may entail the inclusion of a substantial part of cooperative behaviour. Restraints of trade can take on many organiza-tional forms, for instance, joint ventures, strategic partnerships or combinations in r&D.

Jeroen Hinloopen and Stephen martin investigated even more radical, depar-ting from the “interest of society”: “What is intriguing is that an agreement between agents that is mutual beneficial –a concept that lies in the heart of the economic profession– can be detrimental to society as a whole.”12 indeed, but all professional organization try to promote their special interests, which in nearly all cases aim at acquiring some privileges. economic privileges exist by definition at the expense of the rest of society. However, the quotation, meant to aim at cartels only, targets in fact the majority of professional organizations such as trade associations and others. Whatever cartel-definition is used: why are, for instance, pressure-groups, which are set up by a certain branch of in-dustry for lobbying for less taxes or lower environment-standards and so on, not called “cartels”? Why are organizations such as opodo or Amadeus not banned?13 Price announcing rings are interdicted (organisation which receive data on prices and disclose it on demand to members), but parallel behaviour, even if conscious, is allowed.14 Are tacit understandings cartels? The expert ervin Hexner even defined: A cartel [. . .] includes all sorts of common understandings whether enforceable, expressed or tacit about future facts and performances of forbearances.”15 Agreements, even if they are impossible to be tracked down, still are agreements! For decades the German chemical enterprises refrained from snatching each other’s experts. According to a tacit understanding, a che-mist, coming from a competing enterprise, would not be employed with the same task he worked at before, for at least one year. Was this not a cartel to the detriment of employees, reducing their ability to change jobs? The same non-compete-habit is reported even in the uS with radio stations or in the it-sector. it was because of such inconsistencies that edwin Rockefeller exclaimed: “Anti-trust is a religion!”16 in contrast to a coherent policy or even law.

For Debora Spar “the defining aspect of a cartel is the cooperative behaviour that surrounds and sustains it.”17 When this view is taken seriously, we need to include strategic alliances as well, because “Alliances are intended to help firms to cooperate better and to also to help them compete better.”18 –one may comment: compete yes, but not against alliance-members!– Where are the dif-ferences between cartels and alliances?

Some kind of franchise-agreements would be also candidates for to be label-led as cartels. in franchise the relation between supplier and distributor is not

12. Hinloopen and martin [2006], 1079.13. They were owned by competing airlines and acted as booking-systems exclusively for their

owners –not perfect cartels?14. martin [1993], 7.15. Hexner [1945], 20.16. Rockefeller [2007], 1.17. Spar [1994], 36.18. Gomes-casseres [2006], 39–54, 40.

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problematic, but the relation between distributors may be. often franchise-ta-kers are advised to a certain region in order to avoid competition. in such cases the franchise-taker acts as a certain type of cartel called syndicates, where dis-tribution is centrally directed. –Practice showed that allowed and interdicted behaviour in cooperative exchanges is far from clear-cut. Last not least, there is quite an amount of legal cartels, for instance on norms and types.19

The idea cartelization excludes competition is short sighted; one has to ask what the respective cartel includes and excludes. cartelization in fact excludes competition solely in the defined fields, and also on these only for the defined period. even if a “hard-core” cartel was signed for a division of markets and unification of prices, competition is still on-going at for instance product-quality, production-cost or recruitment of personnel. After the cartel-period had expi-red competition is opened again. For cartelizing enterprises it is important to stay competitive, because the majority of cartels expired between one and three years. After that period competition at all fields is opened again. consequent-ly, cartelization restricts, but does not exclude, competition. in contrast m&a terminates competition altogether. of course, non-cartelized enterprise is no guarantee for competition. Theoretically oligopolistic competition is sharp, however especially large firms might as easily embark on a policy to live and let live. multiple-contact-theory suggests this behaviour as logic and pro-bable. Large firms compete on several markets at the same time. According to nicholas vonortas and Yongsuk Jang this fact may lead to mutual cautiousness in competition, esp. when cases of strategic cooperation is involved in other markets, for instance alliances for r&D, distribution and so on.20

CONVENTIONAL WISDOM –CHALLENGED AND SUSTAINED

As mentioned, the first research on cartels ever (Kleinwächter) related car-telization to downswings in the economy. He suggested cartels as a reaction of enterprise on crises (“Kinder der Not”). Since then many authors have related their case studies to this thesis and found evidence for and against it. However, more robust evidence on a large number of cases was unable to relate carteliza-tion swings of the economy. elmar Dönnebrink’s research found no empirical link between cartelisation and crises in Germany during an 18-years period from 1957 to 1975.21 The same impression provides the research by martin Shana-han, David Round and Kerrie Round in this volume covering Australia between 1900 and 1940. However, a rough account for Switzerland indicates something into the direction of Kleinwächter’s idea.22 it seems that this question needs to be settled on the basis of solid international data. We also have to face the possibility that the result may vary according to periods, countries or even a combination of both.

19. overview by Schrader [2009].20. vonortas and Jang [2004], 279–308, 279ff.21. Dönnebrink [1995], 24.22. Tissot [2010].

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When relating cartels to time, i suggest proceeding into another direction: a cartel is not just like a buying-contract on a commodity, a cartel-contract needs considerable trust on both sides, because cartel-partners vow for the future to abstain from potential steps and/or to carry out cost-generating others in order to receive a larger reward later. Trust needs time to emerge and grow, as well as a predictable environment. exogenous shocks, such as war or revolution, create new realities after which trust needs to grow anew. This is why we have few cartels right after such external shocks. usually time is needed on two levels, at the negotiation-table between decisive managers and on the market between the enterprises as organizations. it consequently requires a period of time to watch and test each other. Several international cartels, where managers did not know each other, singed pre-cartels for limited markets and periods as a test, before a comprehensive one was agreed upon (e.g. potash). negotiations and test often consumed about two years. This span of time decoupled cartel-building from economic swings, even if the initial impulse was triggered by a crisis.

many commodity-cartels were constructed with just the purpose to dampen economic swings. The focus was on stabilizing demand, production, prices and employment. Therefore governments often supported such cartels. in the inte-rwar period several of such cartels functioned to the satisfaction of both, sup-pliers and customers (e.g. timber, paper). Though cartels can hardly be directly related to economic swings in the sense: more cartels in downturns, less during upswings, they still represent defensive instruments which are better remembe-red in times of depression than of booms. Thus the notion “Kinder der Not” is not totally wrong, but to be understood in a more abstract and long-term way.

one standard argument against cartels claims they obstruct innovation. in-deed, logic asks: why should a cartelized firm invest into r&D when competition is absent? There are also cases confirming this theory. However, in contrast to such assumptions John A. cantwell and Pilar Barrera found: “cooperative learning [. . .] does seem to have increased innovative activity.”23 most euro-pean cartels included organized transfer of innovation24 while with others no measurable impact could be detected. A third group definitely excluded trans-fer of knowledge (e.g. dyestuffs). However, a cartel member refraining from innovation would endanger its market share: during the periodic re-negotia-tion of one to three years cartel-members evaluate each other’s potential mar-ket share at an open market. A less than average innovative firm would run danger of receiving a reduced cartel-share. Furthermore, innovation cycles are often longer than these one to three years of cartel’s contracts. consequently a non-innovative enterprise gambling on its cartel-share would undermine its own future. Because cartels exclude competition only on a defined field, the suggested behaviour of reduced investment into r&D is not found widespread in practical behaviour. There are, of course, within long-term cartels exceptional cases where smaller participants slowed their efforts (e.g. dyestuffs-cartel, which was signed for several decades). But any firm participating in an average cartel was badly advised not to be abreast with technologic development.

23. cantwell and Barrera [1998]. innovative cartels included for example the light-bulb one (Phoebus) or in cables (icDc); German collieries showed no impact (Burhop and Lübbers [2009]).

24. cerretano [2012], [2011].

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margrit müller detected another effect. cartelized sectors used to be esta-blished ones with no high rates of growth. Participation in such cartels stimu-lated Swiss enterprise to invest in new innovative sectors which lay outside the cartelized field. consequently cartelization could lead not to less but to more innovation!25

The question of misuse of economic power: Large firms represent a potential threat to small ones. Did large international cartels exploited small countries more easily than larger states? A first evaluation suggested: no, there was no difference to be found between the dimension of less and more powerful states.26 The question can be re-addressed to large, international cartels and car-tel-members situated in small countries: Did such international cartels exploit their members in small nations more easy than large in large states?27 A more detailed evaluation could find no evidence for this thesis. it seems there was no discrimination according to the size of a member’s home-land.28

cartels shelter from competition on the defined fields of the contract. This can make life easier for small enterprise. evidence shows that cartels did not only safeguard small and medium enterprise (Sme), but often Sme received a larger share than in open competition.29 Large cartel-players valued order in the market higher than a small share allocated additionally to Sme. Knowing this, many Sme asked aggressively for a larger share and often received it. Accor-ding to George Symeonidis, cartels allowed an increased share and/or expan-sion of small members. These findings show cartels rather foster Sme (and consequently potential competition). However, in the case of Swiss watch ma-king the cartel prevented the industry from concentration and expansion abroad, which, according to Pierre-Yves Donzé, undermined the industry’s competitive-ness.30 indeed, cartels “freeze” the structure of their industry fore their defined time. From the general point of competition it is appreciated to have as many part-takers in the market as possible. However, from a perspective of a nations’s competitiveness more concentration and less national competition may be asked for. in order to strike a balance, several countries allow in certain cases Sme forming a cartel, if their combined market-share does not exceed a certain mar-gin.31 it is acknowledged that a cartel of Sme is different from a cartel made of giant firms. But more important than firm-size is the share in the respective market.

A recent evaluation of cartels versus small states showed surprisingly no ne-gative results concerning the latter.32 cartels did not exploit customers in small countries more than in large ones. As small members the respective firms en-joyed preferential treatment not only as small firms, but often played the role of supervisor or arbitrator of the cartel. cartel-partners from small countries were more trusted than from large states. in case large cartel-firms came from small states they did not behave differently from those based in large countries. Finally

25. müller [2007].26. Schröter [2010].27. Some authors indicated ideas in this direction, such as Karlsson [2010], 190; Sandvik and

Storli [2010].28. Schröter [2012].29. Sandberg [2006]; Schröter [1993]; Symeonidis [2002].30. Donzé [2013].31. oecD [1997].32. Sandvik and Storlien [2011].

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small states considered in many cases cartels as an indispensable tool for their economy. This is shown by niklas Jensen-eriksen in this volume, but applied also to many commodity-cartels (coffee, rubber, tin and so on) of developing countries.33 it seems that being small was not detrimental, neither for firms nor for countries, as long as they were included as independent cartel-members.

First rank economic power is executed by government; states define legal rules and often also a frame of behaviour. it has been claimed that all types of administration, from governments to municipalities supported cartels during crises in order to maintain employment. That is passive politics. Active politics was to use them to prevent radicalization of workers (in Germany, see below), or governments used similar organizations, such as marketing boards, to pur-sue their ends. Why have governments permitted cartelization without asking for compensation from the cartel-members? Already Friedrich Kleinwächter suggested for to obtain a licence for a cartel, industry should guarantee social security to its workers.34

it has been claimed that cartels create barriers to entry into the respective industry and thus lower potential competition.35 True, many cartels not only fought outsiders, but paid compensation for not using production facilities, thus easing competition. Several cartels had as one main aim to discourage as many potential competitors as possible (nitrogen, dyes). But is the accusation of creating barriers aimed exclusively at cartels? no, it is general practice in business. All firms try to safeguard their interest through technology, patents, know-how, amount of investment, etc. They also buy up and close down com-petitors and discourage newcomers with all possible means. As long as it has not been shown in comparative and representative research that cartels create more effective barriers than large enterprise it makes little sense accusing specially cartels for this practise.

Based on theoretical considerations, manfred neumann advocates anti-cartel policy: “Therefore, even if the per se rule against cartels may, in the short-run, yield losses, in the long-run it is the only appropriate policy to keep the com-petitive process going.”36 George Symeonidis confronted this statement with practical research and came to a devastating conclusion on anti-cartel policy. in evaluating the result of uk anti-cartel legislation, he systematically compared the fate of cartelized and non-cartelized industries over two decades (mid 1950s to mid–1970s). According to him, anti-cartel policy caused prices to go up, the number of firms to decline, as well as a decrease in innovation. With other words, the theory-led political opening for more competition lead in reality to less competition. Furthermore, on profits the decision had no measurable ef-fect. With other words anti-cartel policy achieved the opposite of its intentions, it undermined British competitiveness. can any verdict be worse?37 indeed, if cartels had such a negative effect at the economy as assumed, one may ask why cartel-friendly countries such as Japan, Spain or Finland could point out to remarkable growth rates? These countries count into that group which not only

33. ojala and Petri [2006]; espeli [1993], Kuorelahti [2010]; nordvik [1996].34. For admission of a cartel, he suggested, firms should guarantee among others employment

of their workers and minimum-pay (Kleinwächter [1883], 195).35. evenett, Levenstein and Suslow [2001].36. neumann [1998], 51.37. Symeonidis.

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allowed many forms of co-operation, including cartels, but considered them as normal or even indispensable.38

With so much contradiction between traditional anti-cartel assumption and practical evidence, one might consider if the whole question is even more twisted? charles Rowley and Anne Rathbone maintained: “ [. . .] the primary objective of uS antitrust policy never was, and is not now, the achievement of economic efficiency.”39 But if not a better economic efficiency provides the reason for anti-cartel-policy, what else will do, and why have it at all? To this Rowley and Rathbone have another devastation answer: “Rather the uS antitrust laws should be viewed as the highly successful application of policy in response to the politically effective preference of individuals who coalesce into powerful interest groups that dominate the market place in regulatory policy.” Did The International Handbook of Competition really reflect its claim that there is no justifiable reason for uS-anti-trust policy?

There is, of course, the crucial question of monopoly profits: margaret Le-venstein and Stephen Salant have re-produced much evidence on American car-tels which have been set up to generate monopoly-profits. of course, many european ones can be added. For instance, the potash-syndicate was indeed designed to “milk the rest of the world” (Herbert Hoover [1925]). in contrast, many other cartels were rather for to safeguard the cartelized enterprises, higher prices were not their most important aim. For instance, quite the reverse was laid down as official cartel-policy in several cases (e.g. nitrogen, dyes, alumi-nium). of course, low prices provided no stimulus for new-comers but were intended to create barriers to entry. However, cartels shared this intention with big business. in any case, the standard accusation of cartels raising prices has to be reconsidered and adjusted. mark Furse’s and Susan nash’s notion: “The features that are necessary for a price-setting cartel to exist are as follows: (1) the cartel must be able to raise a price”40 is not convincing –at least from a european perspective!

Last not least practical matters: politically speaking, cartels have proven potential of for solving crises with much less negative consequences than other instruments. indeed, when the uS-sub-prime crisis of 2008 became a world financial crisis, european governments tried to shield their real economy by giving incentives to buy new cars. The subvention of about €2,000 –per car stimulated demand and helped the car industry to bridge a threatening slump in demand. These national programs cost each of the respective governments several milliards of euros of taxpayers’ money. At the same time the subvention did not solve the long-term structural crisis of european car industry which was caused by too large capacities. 30 years earlier under similar conditions the task was taken over successfully by industry itself.41 overcapacities in artificial fibres were reduced by a so called crisis-cartel under eu-observation. over a pe-riod of several years industry reduced its capacities by about 30 per cent. Firms often concentrated on a few specialities and enhanced by this their competitive-ness. Prices were not raised and workers not dismissed. But best of all, the res-pective enterprises received no state-fund but paid all expenses themselves. The

38. Fear [2009].39. For this and the next quotations: Rowley and Rathbone [2004], 206.40. Furse and nash [2004], 11.41. Schröter [2012].

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case has shown through cooperation it is possible to re-launch an entire branch of industry without state-funds, while in the end all sides were happy. Why is this example forgotten in today’s decision-making? The juridical framework still exists, but decision-makers do not think in no-cost, co-operative solutions any more.

FRESH IDEAS ON CARTEL RESEARCH AND NEW RESULTS

The european union has re-adjusted its policy on competition in a process which started in 2002, following the lines of the more economic Approach (mea). While the traditional approach was a strict interdiction of cartels and si-milar co-operations, mea is more flexible. Applying latest theories and analysis, it is oriented to enhance welfare-effects: if enterprises can show positive welfare-effects for all market participants, co-operation can be allowed.42 Though this looks more flexible, it is hard for enterprise to show convincingly positive effects for all.43 While mea indicates a new approach of thinking, more ideas are requi-red on how to implement this approach. –our forth section does not provide a ready-to-use tool-kit for this purpose, but rather a collection of ideas which might be useful when thinking on and evaluating co-operation and competi-tion especially from a historical point of view. of course, we cannot provide a full overview on what is going on at the moment in all research centres and groups. instead, we want to provide a couple of issues and questions, which are worthwhile of closer attention. Therefore the following it is rather some kind of ware-house of theses and thoughts, an enumeration where students of carteliza-tion can look and shop for free on ideas, methods, stimulation, and possibilities.

Perhaps the potentially most radical challenge of traditional views of carte-lization is to apply transaction-cost theory. Recently ulrich nocken combined his research on cartels in Germany with transaction-cost theory. He applied oli-ver Williamson‘s transaction-cost approach for to analyse cartels in heavy in-dustry. According to Williamson, firms can make use of three possibilities in order to carry out transactions: markets, hybrids, and hierarchies. nocken suggested cartels to be understood as institutions between markets and hierarchies. They primarily represented attempts to save transaction costs.44 consequently they were not mainly intended to raise prices, but to reduce costs. The idea could be extended: also firms represent not exclusively hierarchies; for their functioning they heavily rely on co-operation between single employees as well as between departments. only in case such departments are floated and sold, the question of cartelization may arise. is on the market forbidden what is allowed and normal within enterprise?

martin Shanahan, Kerrie Round and David Round present a similar chal-lenging result in this volume: They argue the view on cartelization needs to be changed from an economist’s to a business one in order to understand its forces. While markets exist or emerge quite naturally at the macro-economic

42. Schmidtchen, Albert and voigt (eds.) [2007].43. Theurl and Kolloge [2008].44. nocken [2008].

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level, cartels do not. For creation of cartels targeted action from microecono-mic actors is needed. consequently it is for principal reasons difficult to follow the micro-economic logic of cartelization with macroeconomic tools. However, that is the standard approach to the question up to today.

A similar approach, likewise radical, is put forward by Bram Bowens and Joost Dankers in this volume. They look at organizational behaviour of busi-ness: “ […] there is a sequence in the way businessmen colluded and that busi-ness interest associations, cartels and mergers and acquisitions are related and can be seen as a chain.”45 This view would broaden our research and compare cartels not only to m&a but also to business associations. Both approaches put cartels in a wider framework, and both entail in fact a whole lot of consequences: a profound change in the perception of cartels. While tradition understood car-tels as dyed in their wool negative, Bouwens and Dankers de-demonizes car-tels by allocating them in a continuum between (“good”) markets and (likewise “good”) hierarchies. From this point of view cartels can be related to positively co-notated institutions such as m&a. it is, of course, intellectually challenging to do away with the sticky labels of “bad” (cartels) and “good” (m&a). But why not have a try and understand cartels and m&a just as two forms of economic concentration?46 in this case the usual black-and-white distinction between car-tels and enterprise does not apply.

But when the traditional dichotomy between good and bad is not upheld, it is questionable to interdict one and support the other form of external concen-tration. At a closer look, cartels may even be the preferred form of concen-tration, because it is less solid. cartels can, and indeed had been, externally monitored through their period of existence by state institutions. in contrast, m&a cannot, because enterprise is protected by private ownership. it was this imbalance between the two forms of concentration which caused the econo-mists ingo Schmidt and Annette Fritz to ask for reversing the traditional rule: interdict m&a and allow cartels!47 indeed, why should a consolidated concen-tration, protected by private property and lacking all potential of further com-petition, should be preferred to other forms of economic concentration without such advantages? especially since modern economic research thinks mergers to have a negative effect on social welfare?48 maybe the idea, not to interdict a certain form of concentration, but the abuse of it, is more appropriate to capitalist society and the idea of free markets? in any case, there is little research-based literature, which took up this important question. The same applies to the other idea, to an investigation into the differences and similarities of cartels and busi-ness organizations. The idea to understand industrial organizations, cartels and m&a are explored in more detail in the contribution by Bouwens and Dankers in this volume.

of course, cartels are a topic of their own, but from a firm’s point of view they are not; for management a cartel was simply a common instrument among

45. Bouwens and Dankers [2009].46. Schröter [1993].47. Schmidt and Fritz [1996], 119.48. “These Results imply in turn that competition policy towards mergers should rest on a

strong presumption against allowing mergers to take place, rather than what has been the case until now, a presumption in their favour.” (mueller [2004], 82).

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others.49 This is a clear result also from marco Bertilorenzi’s contribution in this volume. However, the question remains: when and why do enterprises prefer cartels –and for what purpose? The most widespread instruments firms apply for external relations are m&a, cartels, contracts and networks. The enumera-tion goes from more to less secure relations, and also from more to less binding engagements. enterprises prefer this or that instrument according to necessities and opportunities. more research is needed from the firm’s point of view under which circumstances enterprises prefer the instrument of cartelization in compa-rison to others. For instance, during the interwar period German industry wanted to strengthen its position in Scandinavia, at that time one of the few growing markets. Because the firms lacked the financial means for fDi they tried substi-tuting fDi by the next best instruments, cartels. Where cartels did not work, for instance in the supply of raw-material, very long-term contract were sought after as third best solution. under the given constraints enterprises tried to optimize their strategy by employing all instruments at the same time.50

Another suggestion, not yet enough explored, tries to understand cartels as an alternative path of growth within the history of an enterprise. While a “normal” path of growth from family –over entrepreneurial– to managerial enterprise had been suggested by Alfred chandler, there are several cases where a couple of firms formed a cartel first before they merged (for instance in Swiss and German chemical industry). We have no evaluation on the frequency of this path of growth, or on periods where it was more used or less.51 is the history of growth of enterprise different between firms which did and others which did not partake in cartelization?

While we have quite some information on single cartels, we need to consi-der a lack of quantitative evidence on cartelization in general. Surely we need both. How disturbing a quantitative evaluation might be has Symeonidis shown in his dissertation. it evaluated British anti-cartel-policy as disastrous, because it did not strengthen but undermined the country’s competitiveness. His two decades comprehending evaluation was based on the official British register on cartels. comparable registers on national and international cartels are available partly for the interwar period, partly since the 1950s. We know of such material at least in Australia, the czech Republic, eu, Finland, Germany, Hungary, The netherlands, norway, Poland, Sweden, Switzerland, and the uk. We presume there are many more registers; probably all european states kept one since the 1950s. At the moment economists and economic historians in Australia, Swe-den, and in Switzerland are researching this valuable material.

What is the role of Banks in cartelization? usually the economic branches of manufacturing or transport are co-notated with cartelization; we have very little information on the sector of finance. Banking and even more insurance are heavily state-regulated industries. This entails both, a first step to self-regulation and a second one into cartelization, are easily imaginable. We simply have too little critical investigation on the topic. With banks we have three issues: banks as cartel partners, as communicators, and as cartel drivers. in banking-consortia

49. Barjot [2009].50. Schröter [1988].51. “erstens sind Kartelle nicht notwendigerweise vorgänger von Großunternehmen

oligopolistischen oder monopolistischen charakters, sondern mitläufer im Konzentrationsprozess” (Teichova [1988]).

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very often the same banks negotiate their respective share one year after ano-ther –what is the difference to some kind of revolving cartel– like a revolving credit? Banks also organized cartels in manufacturing industry. Friedrich Kleinwächter has shown how during the 1880s German and Austrian Banks, being afraid of losing their handed-out credits, forced their opposing(!) industrial clients into cartels. For more than 100 years the Paris Rothschild-Bank was a driver and later mediator for several cartels on non-ferrous metals.52 in Finland it were the banks which drove the timber cartel, even guaranteeing cartel-quotas to third parties.53 The research-field cartels and institutional finances is still unploughed.

cartels usually have been treated as a black box; we have almost no informa-tion on inside proceedings. many cartels went bust, and in most cases we pre-sume they did so, because of internal differences. But were there negotiations before, which failed? even for one of the most important and best researched cartels, the convention internationale de l’Acier, we have some suggestions and outlines, but no systematic and research-based study on its failure. other cartels managed to adjust to new circumstances or shifts in power. Also there we know of extremely high tensions which ended in a new allocation of resources.54 But we have very little information on how these negations actually proceeded. The least knowledge is on the day-today business of cartel administration, of how, where, and by whom information was collected, compared, selected, controlled, and handed over. it is not only a question of on what basis prices were alloca-tion but on organization on power of institutions. Likewise we have nothing on the activities of cartel-arbitration. if we presume the same business-mentality as present today, there must have been thousands of cases of disagreements concerning control and measurement of quantities, qualities, prices and so on.

Likewise we have no special information on role of decisive personnel. For-tunately we have growing information on distinguished entrepreneurs, both ma-nagers and owners. comparably outstanding persons with a decisive influence acted as a kind of cartel-matadors. For instance William meinhardt shaped to a large extent the light-bulb cartel Phoebus and became its chief-executive; Hector Dieudonné from the Luxemburg steel-firm arBeD was even called “the embodi-ment of the spirit of the international steel cartel.” What did this mean? Some of those matadors were key-persons in shaping the cartel, and afterwards often ran its day-to-day business. We know from management-literature about the large power of executives. Though the power of cartel-matadors was probably not less, we have no research on their role.

A similar gap is to be found when it comes to politicians and cartels. We know from the uSa the views of decisive persons such as Herbert Hoover or Franklin D. Roosevelt. But little is known on europe. it is worthwhile to know more, for instance, one single person, Wilhelm Thagaard, was able to shaping norwegian policy on competition from the 1920s into the 1960s. in Switzerland, Fritz mar-bach had a similar decisive influence. A first step of research in this direction provides Dominique Barjot in this volume in his case study on Louis Loucheur and marco Bertilorenzi’s manuscript on the League of nations.55

52. López-morell and o’Kean [2010].53. Kuorelahti [2010], 13.54. Dammers [2003]; Roelevink and Schenk [2012].55. Bertilorenzi [2012].

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Like enterprise cartels were used as instruments by politics. This was never a secret –in both cases. Why should cartels have fared differently from big business? often politicians appreciated cartels, because they injected a bit of security into the market, which translated into security of employment and state revenue. A different aim was pursued in Germany in 1919. The introduction of state-enforced cartels was a strategic political step. it was designed to calm down revolutionary demands for socializing all enterprises. Thus policy and not managers created the syndicates on coal, nitrogen and potash. The policy worked. After the revolutionary situation was over, the cartels partly changed their character. While working in Germany as politically wished by keeping prices down inside the country, they used their market- and organizational power to achieve additional ends abroad. French-German reconciliation in the 1920s was preceded by signing the steel-cartel, the economic agreement on steel was perceived as a precondition for a political one. The League of nations, the predecessor of the un, launched a large international survey on cartels, which openly supported cartelization in several cases, for instance in timber exports.56 These activities can even be understood as predecessors of european unification, when we think of the european coal and Steel community. There are also cases where cartel-contracts paved the way for more comprehensive agreements: “Subsequently, the (cartel– H.G. Shröter) agreement became the basis for the reconstruction of German-Japanese economic as well as political relations. That is, for the conclusion of the Japanese-German commerce and navigation Treaty in July 1927.”57 –This dimension is widely overlooked by both, economic and diplomat historians.

During the 1930s several governments forced unwilling enterprises, or even whole branches of industry, into cartelization. in doing so British government “helped” its steel-industry to get organized, which was a precondition for the uk taking part in the international steel cartel; it also forced British cotton in-dustry into a cartel. A similar case was executed in Finland, perceived by the targeted timber-industry initially as a “dangerous attack of the state”58 on its own enterprises, while Swedish timber-firms tried and succeeded to exclude their state.59 Government was not always perceived to be helpful in cartel-ques-tions. During the 1940s uS-politicians and economists accused nazi-Germany of having used cartels as a tool of economic war-fare (Roosevelt, Stocking & Watkins). The european community for Steel and coal was partly perceived as a new edition of the steel-cartel of the interwar period. in 1973 during the Yom-Kippur-war oPec for the first time used its “oil-weapon” (boycott) for to weaken the supporters of israel.

There are cases where cartels now and again were used by politicians as instruments for to achieve political aims. on the other hand national cartels usually could count on support from their governments; in case of export-cartels often up to today. When cartels were allowed, they were used by government in their industrial policy. Traditionally France is accused for its state-backed industrial policy, but in fact it is the uSa and china which today provide the

56. Benni, Lammers, marlio and mayer [1930]; Karlsson [2010]. Kuorelahti [2011]; Segreto [2010].

57. Kudo [1998], 37.58. Kuorelahti [2010], 11.59. Karlsson [2010].

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worst examples of industrial policy (meaning: protection). if uS-standards of anti-trust would be applied, iBm, microsoft or Google should have been be split up. china was carefully enough to not even launch according and binding legis-lation. All over the world national industrial policies allowed strange cases of economic concentration –as long as the label did not read “cartel.” But even in the cartel-case, the latest comprehensive and general overviews on the rela-tionship between politics and cartels are more than two generations old. is it not time to revisit the relation between cartels and government on the basis of practical evidence?

As mentioned, the steel-cartel was used by France and Germany to construct mutual trust. cartels are pre-eminent creators of trust; they bind independent actors for a defined time. Trust is the precondition of any economic ex-change. countries with high levels of social trust enjoy considerable lower tran-saction costs. Alliances for technical innovation have been analyzed by looking at them as social networks.60 From this perspective it is only logic when Jef-frey Fear points out to analyzing cartels as constructions of trust.61 Are cartels consequently to be understood as some kind of islands of trust and stability in the sea of competition?62 Trust and low transaction costs count into the list of a country’s competitive advantages. Are the levels of trust and economic develop-ment related? can likewise, in the case of little state-intervention (for instance in europe before 1939), a high degree of cartelization be related to advanced economies? A first-view comparison of income per head and an overview on countries in favour of cartelization63 seem to support this impression. Surely this thesis needs much more and deeper going research!

Another broad attempt to re-formulate mainstream perception of cartels can be made by applying a theoretical approach used in sociology. cartels could be understood as part of the “socio-economic, cultural superstructure.” For this view the observation is important that cartelization as a form of behaviour survived all internal or external shocks: economic down- as well as upswings, political revolutions, wars, periods of interdiction and so on. The resilience as a species raises the question: is cooperative and collusive behaviour an inherent part of modern economic life, regardless of interdiction?

Similarly, international cartels could be analysed as “international regimes,” an approach applied in political theory. other such international regimes are for instance agreements like wto, the Kyoto Protocol, or the international Tele-phone union. With both of these approaches based on social theory to the car-tel-question it is not yet clear what such new points of view entail or may lead to. But in any case, new questions come up with new insights.

varieties of cartels? in their book Varieties of Capitalism Peter A. Hall and David Soskice made distinctions between “liberal market economies” and “coordinated market economies.” While the former specialize in radical inno-vation, the latter concentrate on incremental innovation. Though a quantitative

60. Lemmens [2004].61. Fear [2009].62. in contrast, m&a seem to destroy more trust than they create: 1. most m&a fail –destructing

trust between the firms involved; 2. such a failure destructs the trust banks enjoyed when helping with the m&a, and 3. firing many people and merging different enterprise cultures destructs trust before it may grow again.

63. Schröter [1996].

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evaluation suggested their thesis as untenable,64 the idea of cultural variation of capitalism is valid. it is only logic to apply such ideas on cartelization as well. in the beginning of this contribution we presented different semantic co-notations for cartels in the uSa and in europe. The difference can be explained be subjective as well as by objective factors, or both at the same time. one interpretation could be that American researchers have internalized a different value-system compared to europeans when cartels are concerned: “if you accept that the societal goal was not maximum growth –or low consumer prices as in the uSa–65 but stability and limitation of unemployment –as in europe–,66 it can be argued that business cooperation contributed to societal goals.”67 Another interpretation suggests the distinction between uS and european views lying not with the analysing historians and economist, but by a possible fact that cartels in the uSa indeed did behave different from cartels in europe. Also a mixture of both is imaginable. Since the 1970s Geert Hofstede and his school have shown that even in the same enterprise identical incentives creates different reactions in different cultural settings. We can well presume that outside a single orga-nization such deviations are even larger.68 Why should cartels be exempt from this rule? But they have been analysed under the pre-condition of identical beha-viour all over the world in spite of different cultures.

cartels and Americanization. While Americans after World War ii were convinced about the negative effects of cartelization, europeans (and Asians) did not share their views. it took decades to Americanize europe and the world in this respect. Legislation as late as the 1990s indicated that not before this time all europeans became convinced by the American point of view.69 What caused this change of mind? Why are economists, politicians and so on today convinced of exactly the opposite of what their grandfathers and –mothers said? Was it American pressure? or international jurisdiction? made the “Golden Age” (1950–1972) cartels as defensive instruments irrelevant? Was the change of view by social democratic parties (which up to 1939 supported concentration) decisive? or was it the sheer amount of financial means which offered enter-prise the means to now pursuing the safer strategy of m&a compared to relative unsafe cartelization? Was it the general acceptance in european universities and high-schools of American textbooks in the curricula of economics after World War ii which caused the change? The American practice to generally ban all cartels was not accepted within one or two years like other convincing econo-mic solutions such as rationalization or the M-form for internal organization of enterprise. instead with cartels it took more than one generation. This indicates that the change towards interdiction may rather rest on a cultural practice than on proof-fast evidence. it would be a task of economic and business historians to collect and evaluate the historic reasons brought forward during the discourse of interdiction of cartels in europe.

64. Akkermans, castaldi and Los [2007].65. Author’s note.66. Author’s note.67. Karlsson [2010], 206 –brackets and their content have been inserted by me– H.G.S.68. Hofstede [1978], [1980].69. For instance: Switzerland, as the “european cartel champion,” interdicted cartels not before

1995; Sweden, one of the fore-runners of de-cartelization, did away with the idea of prohibiting (price-) abuse only in 1993. in that year the monitoring institution changed its name from “national Price and competition office” to “office of Free competition.”

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Finally, how do we measure and classify cartels? We lack an accepted taxo-nomy. classifications according to economic branches have been suggested by Alice Teichova and Dominique Barjot. Another one, based to periods or to dif-ferences between states was presented by Harm Schröter. A third approach by Simon J. evenett, margaret c. Levenstein and valerie Y. Suslow suggests only three types of cartels: “hard core” ones (fixing prices, market-shares), private export cartels, and government export cartels.70 This simple approach is surely not enough for using classification as an instrument of analysis. A general taxo-nomy would be of great help in evaluating cartels.

CONCLUSION

We have collected several reasons why more research into the question of cartelization is important and would be fruitful. We started by pointing out to different traditions in cartel-research, which might be a reason not only for the different trends in this research but also for variables in results between the uSa and europe. indeed, also American scholars, such as Peter Grossman, when extending their research on europe find a mismatch between their theories and practical evidence.

Researchers demand a more flexible or wider definition of the problem. Ap-plied transaction cost theory defines cartels as parts of a continuum between totally free markets on the one hand and integrated enterprise on the other. other scholars understand cartels as just another form of enterprise-related organiza-tion, such as pressure groups, strategic alliances, or business associations. These approaches underline that cartels do not exclude competition but restrict it for a defined time to defined sectors. in any case they help to de-demonize cartels and thus open up brains and minds.

A couple of gaps have been pointed out to: there still is no clear result to even the oldest cartel-question ever researched, to cartels relation to swings of the economy! The shocking results of uk anti-cartel policy demands similar studies in other countries: Was this kind of policy detrimental to the economy el-sewhere too? Bachelor-students learn from textbooks how enterprises are orga-nized internally, but how cartels were run remains a “black box.” Similarly we have ample studies of outstanding entrepreneurs, but not a single one of famous cartel-matadors –could they influence those organizations to the same extent as Jack Welch (Ge), owen D. Young (rca), or Albert Ballin (Hapag)? can cartels be understood as engines of trust, an economic institution which lubri-cates any economy? What is the relation between cartels and politics? Here we have various single cases, but very little comparisons. –Generally we do not ask for any research on cartels. We have quite some evidence on national or well-known international single cartels. What is missed are comparisons and quantitative evidence.

new approaches may come up with new evidence and new insights. new insights may lead even to a new positioning of cartels in respect of the alternative

70. Teichova [1974], Barjot [1994], Schröter [1996], evenett, Levenstein and Suslow [2001].

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form of external growth: m&a! In any case, in order to break the dead-lock of traditional perception on cartels, which partly inhibited reconsiderations, our com-pilation points out to the provocation of Ingo Schmidt and Annette Fritz who for the sake of competition de manded interdict m&a and allow cartels! Though this might be a bit crass, a new start of thinking without prejudices is surely needed.

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