What's Wrong with Cartels?
| Author | Jonathan Crowe,Barbora Jedličková |
| Date | 01 September 2016 |
| DOI | 10.1177/0067205X1604400303 |
| Published date | 01 September 2016 |
| Subject Matter | Article |
WHAT’S WRONG WITH CARTELS?
Jonathan Crowe* and Barbora Jedličková**
ABSTRACT
Cartels have a significantly negative impa ct on economic welfare. Anti-cartel
competition law—such as the provisions of pt IV div 1 of the Com petition and Consumer
Act 2010 (Cth)—tries to tackle this negative impact throug h civil and criminal remedies.
The prohibition of cartels is mos t commonly justified on eco nomic grounds. However,
reference is also often made to broader moral grounds for proscribing cartels—for
example, it is commonly stated that cartels are deceptive, unfair or engaged in a form of
cheating. This article advances a unified a ccount of the moral status of cartels that
integrates both economic and moral factors. It doe s so by emphasising the relationship
of cartel behaviour to the moral duty to promote the common good. Cartels are wrong
because they undermine the role of open and competitive markets as a salient response
to an important social coor dination problem in a way t hat leads to seriously harmf ul
economic outcomes. This combina tion of factors supplies a robust ju stification for both
civil and criminal sanctions in appropriate cases, thereby affording a principled
foundation for the current framework of cartel regulation in Australia.
I INTRODUCTION
Cartels have been prohibited under Australian law for decades.1 Serious cartel conduct
now attracts criminal, as well as civil, sa nctions. 2 The Australian Comp etition and
Consumer Commission (ACCC) stresses the economic impact of cartels i n justifying
these prohibitions, citing bot h common forms of economic harm a rising from
* Professor of Law, Bond University.
** Lecturer and Fellow, Centre for Public, International and Comparative Law, T C Beirne
School of Law, University of Queensland.
The authors would like to thank Angus MacCulloch for helpful comments, Angela Allen for
research support and Xavier Goffinet for copyediting. An earlier version of this article was
presented at the Law and Society Association of Australia and New Zealand Conference in
Brisbane in December 2014. We are grateful to all who participated in the discussion.
1 Competition and Consumer Act 2010 (Cth) pt IV div 1 and s 45(2) (previously Trade Practices Act
1974 (Cth)). Provisions prohibiting cartels were also found in previous Commonwealth laws
that encountered constitutional difficulties. The Australian Industries Preservation Act 1906
(Cth) was struck down in Huddart, Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330, while
the Trade Practices Act 1965 (Cth) was read down in Strickland v Rocla Concrete Pipes Pty Ltd
(1971) 124 CLR 468 and subsequently repealed.
2 Competition and Consumer Act 2010 (Cth) ss 44ZZRF–44ZZRG.
402 Federal Law Review Volume 44
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cartelisation and further examples arising from different kinds of cartels.3 Competition
authorities internationall y also tend to highlight economic grounds as the main r easons
for proscribing cartels. The European Commission states that cartels reduce incentives
to innovate and lead to higher prices for lower quality products or services.4 The US
Department of Justice (DOJ), which deals with ‘hard-core’ cartel cases, notes the benefits
of ‘free and fair competition’ for consumers in the form of lower prices, better quality
and greater choice.5
The language used by regulators to describe cartels, however, often goes beyond
economic analysis. The ACCC states that cartels are ‘immoral’ because they ‘cheat
consumers and other businesses’.6 In Fed eral Trade Commission v Sperry and Hutchinson
Co,7 the US Supreme Court found that cartels prohibited by the Sherman Antitrust Act8
are also illegal under s 5 of the F ederal Trade Commission Act,9 prohibiting ‘unfair
methods of competition’. 10 The US Supreme Court expressed the view that cartels are
‘opposed to good morals’ because they are based on ‘deception, bad faith, fraud or
oppression’, as well as being ‘agains t public policy’.11 As mentioned above, the US DOJ
also refers to ‘fair competition’ when discussing antico mpetitive conduct. 12 Until
recently, the term ‘dishonestly’ was used to define the UK cartel offence.13
A recent empirical study conducted in Australia s hows that although the Australian
public agrees with both t he economic and moral gr ounds for proscribing cartels, it
prefers the moral grounds to the economic ones as a justification for criminalisation.
Around two-thirds of respondents strongly agreed with the following reasons: cartel
conduct ‘involves deceivin g consumers’ (65 per cent strongly agreed) and it is dishonest
(64 per cent strongly agreed). A majority of respondents (51 per cent) also strongly
agreed that one of the rea sons for criminalising cartels is that they harm competition and
the free market.14
3 ACCC, Cartels <ht tp://www.accc.gov.au/bu siness/anti-competitive-beha viour/cartels>.
For instance, the ACCC states that cartels decrease ‘infrastructure by rigging bids in public
infrastructure projects which inflates costs and ultimately reduces the public sector capacity
to invest in beneficial projects’.
4 European Commission, Cartels: Overview (16 August 2013)
<http://ec.europa.eu/competition/cartels/overview/index_en.html>.
5 US DOJ, Mission (20 July 2015) <http://www.justice.gov/a tr/about/mission.html>.
6 ACCC, above n 3.
7 405 US 233 (1972).
8 15 USC §§ 1–7 (1890).
9 15 USC §§ 41–58 (1914).
10 Ibid.
11 Federal Trade Commission v Sperry & Hutchinson Co 405 US 233, 241 (1972).
12 US DOJ, above n 5.
13 The Enterprise Act 2002 (UK) c 40, s 188(1) used to include the dishonesty requirement. This
requirement was removed by the Enterprise and Regulatory Reform Act 2013 (UK) c 24, s 47,
which entered into force in April 2014. See Peter Whelan, ‘Section 47 of the Enterprise and
Regulatory Reform Act 2013: A Flawed Reform of the UK Cartel Offence’ (2015) 78 Modern Law
Review 493.
14 Caron Beaton-Wells et al, ‘The Cartel Project: Report on a Survey of the Australian Public
Regarding Anti-Cartel Law and Enforcement’ (Research Paper No 519, University of
Melbourne Legal Studies, 18 January 2011) 102 –18. See also Caron Beaton-Wells and
Christine Parker, ‘Justifying Criminal Sanctions for Cartel Conduct: A Hard Case’ (2013) 1
Journal of Antitrust Enforcement 198, 213.
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