AAI Working Paper 04-01: How High Do Cartels Raise Prices? Implications for Reform of Sentencing Guidelines

Aug 11 2004
Working Papers

 

By John M. Connor, Professor of Industrial Economics, Purdue University, AAI Advisory Board, and Robert H. Lande, Venable Professor of Law, University of Baltimore School of Law, AAI Board of Directors and Senior Fellow.

AAI Working Paper 04-01.

ABSTRACT The current U.S. Sentencing Guidelines for criminal price fixing violations begin with an assumption that cartels raise prices by an average of 10% of the affected commerce, and use this estimate to calculate recommended fines to achieve optimal deterrence. Some have suggested that this figure might be too high, and a recent Supreme Court decision has called into question the constitutionality of the Guidelines. For these reasons the Guidelines might well be re-formulated. This article re-examines the Sentencing Commission's assumption using 2 data sources: every available economic study of cartels, and every final verdict in a U.S. cartel case that reported the overcharge percentage. The results from the different data sources and periods, show median and average cartel overcharges that are between 15% and 36%, with most of the median and average results between 20% and 30%. Based upon this finding the authors recommend that the Sentencing Commission raise the current level of cartel penalties.

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