Assessing the effectiveness of Brazilian anti-cartel policy deterrence or promotion?

Abstract

Contextualization: Antitrust legislation, like any institution, requires improvements from time to time; as experience accumulates, strengths and weaknesses become evident. In Brazil, the legislation was reformed several times, the last one being the enactment of 12,529/2011 Act. Since the promulgation of the former act (8.884/1994 Act), it was clear the need for better instruments to combat cartels. In 2000, two instruments were included in the legislation: search and seizure actions and leniency agreements. The current legislation has changed conditions for the adoption of this second instrument.

Goal: The point to be explored is the unanticipated consequences of prioritizing the anti-cartel program instead of a more attentive and severe policy, both preventive and repressive, against the abuse of a dominant position. The analysis is based on the most recent industrial organization theory, so as to reveal the effects of a wider use of leniency agreements over the organization, maintenance or dismantling cartels.

Methodology: We present an economic analysis of the law based on the review of the anti-cartel policy and an empirical survey of condemnation and leniency and collaboration agreements. The economic logic of collusion as detailed by the modern theory of industrial organization is the background for verifying the effects of antitrust law enforcement as an incentive to deter decisions to form and maintain cartels.

Results: The analysis of leniency and cooperation agreements reveals the prevalence of a pattern of a hard core of dominant firms in the market and a fringe of smaller firms potentially subjected practices of coercion and retaliation by the dominant ones. The possibility of recurring to leniency enhances the ability of dominant firms for monitoring and threatening retaliation, generating additional incentives to maintain collusive practices.

Conclusion: The enforcement of the anti-cartel policy in Brazil deserves review, so that the result of successive leniency agreements signed by leading firms does not result in less competition, stimulating the organization and perpetuation of cartels. Economic analysis reveals that the current cost-benefit calculation induces leading firms to act as whistle-blowers in exchange for full or partial immunity. The small firms, caught in the investigation triggered by the whistle-blowers, may even be forced out the market, as their financial survival is challenged. The dominant firms, by obtaining antitrust immunity, increase their market power and weaken the fringe of firms that once were an obstacle to maintain the profits of collusion.