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BREXIT: Big Business, Cartels and the Single Market

By       Message Gary Busch       (Page 1 of 3 pages)     Permalink

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David Cameron has been trotting out his favourite leaders of British business to say how valuable the EU is to their economic health as a subset of Project Fear. The big business avowal of the value of the EU and the Single Market to their respective businesses is genuinely felt and their fear moving away from the cosy shelter of the EU is real. Their problem is not that they will lose business as a result of the BREXIT; they are afraid that the cosy club of interlocking cartels and price-fixing mechanisms of the EU might be exposed to the European citizens if Britain leaves.

Capitalism is rooted in the belief that free and open competition will create the "hidden hand of the market" to promote efficiency and competitive pricing; a sort of economic Darwinism. The only problem is that these promoters of capitalism want this competition to take place in somebody else's business. For their own businesses they would prefer a situation where free competition is controlled and a small band of producers join together to fix prices, restrain trade by preventing the new entry into the market of non-cartel manufacturers, and establishing a cozy relationship with the political regulators whose job it is to control them and promote free competition.

EU Fines Imposed on Cartels 1990-2016

Fines on Cartels
Fines on Cartels
(Image by Cartel Commission EU)
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That is twenty-three billion Euros so far from a Commission that is slow, unreliable and pressured to keep the barriers on competition in place. A recent study at Oxford reports "One of the most contentious and high-profile aspects of EU competition law and policy has been the regulation of those serious competition or antitrust violations now often referred to as 'hard core cartels'. Such cartel activity typically involves large and powerful corporate producers and traders operating across Europe and beyond, and comprise practices such as price fixing, bid rigging, market sharing, and limiting production in order to ensure 'market stability' and maintain and increase profits."

What Is A Cartel or "Ring"

A cartel is an agreement between competing firms in a market to control prices or exclude entry of a new competitor in a market. It is a formal organization of manufacturers or providers of a service that agrees to fix selling prices, purchase prices, or reduce production, maintaining their control of their market sector; a restraint on competitive trade.

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In some cases, companies producing similar goods meet together and agree a minimum price for the products among them; avoiding competition on price. In similar cases these producers agree to keep competitors out of their markets by insisting on delaying the acceptance of the new company's designs or improvements in their restrictive markets. In other cases, the cartel forms a 'ring' of similar companies to agree a minimum price for each member to quote on a local or international tender. They then agree on which member should get to make the lowest bid at that price on the artificially raised and agreed price. They take turns winning inflated tenders. These are common practices in many economies but they are supposed to be regulated by antitrust law. There are several European Directives which promise to enforce the EU antitrust legislation. There is even a Commission to investigate complaints.

Antitrust violations are very common within the EU. Most EU citizens have no idea how widespread and pernicious these cartels can be. A key defining principle of doing business within the EU is that many, if not most, European industries operate outside the rules of free competition. Most operate as cartels; groups of businesses in the same industry which meet together and establish prices and working relationships. They don't call this operating a cartel; the polite euphemism is "operating an orderly market". They set high prices for the goods they produce, sure in the knowledge that their cartel will prevent any other company underbidding them on price. There are EU cartels for steel, sugar, milk, transport, cement, food production, pharmaceuticals, electrical goods, paper and paper products, computers, cars, construction, mobile phones, vacuum cleaners and many others. This both raises prices and inhibits innovation. The EU competition authorities are notoriously slow in prosecuting cartels but have been able to proceed against some

Cartels of All Kinds
Cartels of All Kinds
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These are some of the ones who were caught and prosecuted. The damage they have done to the EU economy was estimated by the Commission

The Costs of Collusion
The Costs of Collusion
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These are fines paid by some of the EU's largest companies.

Major Firms Fined
Major Firms Fined
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As an initial guide It will be clearer if some specific cases are looked at, using the EU Commission's own descriptions.

Some Recent Convictions (using the Commission's own words

Steel Abrasives

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Dr. Gary K. Busch has had a varied career-as an international trades unionist, an academic, a businessman and a political intelligence consultant. He was a professor and Head of Department at the University of Hawaii and has been a visiting (more...)
 

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