An Analysis of Repeated Cartel Behavior and the Sanctions of EU Competition Law

Reno Puvanendran Thambirajah & Minel Kahrimanovic

Student thesis: Master thesis


This thesis addresses the possibility of cartels applying for leniency, thereby avoiding the fines which the cartel would otherwise have been imposed. Applying for leniency, companies repeating cartel behavior, i.e. recidivists potentially avoid the fines and the deterrent effect which the fines intend. This issue is addressed by a legal, economic, and interdisciplinary analysis. The legal analysis presents the existing rules of the fines and the rules regarding the leniency notice. Besides the aforementioned presentation of the rules, an analysis of the case law has revealed that the European Commission has created an opportunity that allows recidivists to apply for leniency and thereby avoid potential fines. The economic analysis illustrates which factors facilitate the creation of a cartel and how the fines and the possibility of leniency affect the cartels. This is illustrated by a game theoretical approach. It appears that the current level of fines is not sufficient enough to have a deterrent effect. With the current level of fines, the firms, therefore, have an incentive to form cartels, rather than compete with each other. The leniency notice weakens cartel stability but is not a deterrent to cartel formation. The analysis shows that when there is distrust among the cartelists, the optimal strategy would be to seek leniency. If a cartel participant applies for leniency, the optimal strategy for the other participants would be applying for leniency as well. This will ensure that the other participants reduce their expected costs from the fines. The leniency scheme is therefore seen to be effective, however, companies are not sufficiently deterred from cartel formation. As a cartelist, one can exploit leniency to avoid the fines and then establish a new cartel. The economic impact of cartel behavior shows that the industry is affected by deadweight loss and a reduction in consumer surplus. Therefore, when EU case law gives rise to the exploitation of the leniency scheme, deadweight loss, and the reduced consumer surplus will result in a lasting effect on the industry. The interdisciplinary analysis seeks to make changes to the existing fines and leniency rules, contributing to the increase in the deterrent effect and weakened cartel stability. The analysis shows that a fine equal to the cartel profit combined with a prison sentence is preferable in order for the fines and leniency notice to have a more deterrent and weakening effect on the cartel stability.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2020
Number of pages120