Cross-Border Cartel Enforcement in Africa

Cartelist Theories

From the undertaking’s perspective, businesses have an inducement to form cartels because coordinating their economic activities would yield greater profits than if they were acting independently. The general rationale for this assertion is based on the internalization of a negative externality. In competitive markets, businesses are only interested in how their reduction of output would benefit them, ignoring the positive effect that the reduction in output has on the profits of others through reduction of total market output and the consequent increase in prices. A cartel incorporates these effects by considering how change in output of each firm affects joint profits. Consequently, through reduction of total output below competitive levels, joint profits increase.

Unsatisfactory performance may also incentivize firms to collude. This mainly happens during hard economic times in an industry or in the entire economy which is mainly characterized by undesirable performance, high risk and uncertainties. This is reflected in price warfare and cut-throat competition. In such instances, collusion is used as a tool to ease competition pressures. However, these agreements kick out or minimize new entrants or products which could destabilize existing firms (Hüschelrath & Weigand, 2010).

Adding in to the profit maximization and tough times reasoning, which have been the major focus of academic research on the motivations to form cartels, an alternative approach to motivation for cartel formation is looking at the arguments presented by busted cartels. Albeit, it is fairly obvious that these arguments do not necessarily reflect the true motivation for cartel formation but might in fact have been developed ex post as a defense strategy in court. They however still have to make logical economic reasoning. The four commonly used arguments are: the industry cannot function with competition; quality and safety will decline without the cartel; the industry competes in service and quality; and the cartel is necessary to stop unconscionable or unfair competition. The one thing in common in these arguments is that competition is not working (according to the undertakings) and therefore acting in a coordinated manner could be beneficial to consumers (Hüschelrath & Weigand, 2010). A disarming counterargument against this preposition is that it is not upto the industry to determine whether competition is unworkable (World Bank, 1999). Practical experiences and economic research indicates that competition is socially desirable and it is up to competition regulators to decide whether some level of regulation is needed, for instance, to promote safety or make ineffective impacts of unfair competition.

Another challenge to cross-border cartel enforcement in Africa is jurisdictional conflict due to lack of uniform laws. The law to be applied in international anti-competitive conduct has been subject to debate since the 90s when the EU proposed for a universal competition regime but developing countries and the US opposed this and recommended bilateral cooperation based on non-bidding rules. Jurisdictional conflict in competition law in Africa mainly arises from application of domestic and regional law. The overall effect is a dual competition regime.