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TECoL: Tools for enforcement of competition law

Publicly available online platform allows citizens to detect financial cartels

The end of April marked the official conclusion of the implementation phase of the project TECoL: Tools for enforcement of competition law, funded by the European Commission and promoted by not-for-profit organisations from 4 EU MSs.

The main objective of the project is the development of tools for the detection and identification of cartels and other suspicious market strategies.

Organised crime is changing and becoming increasingly diverse in its methods, and its impact on society is getting heavier yet increasingly difficult to spot. Secret cartels are the most serious criminal infringements of the EU competition rules since they invariably result in higher prices and less competitiveness. They harm industry, consumers in the EU and the whole society. Often-times, criminal organisations are involved in cartels or draw benefits from them in various ways.

In economics, a cartel is an agreement between competing firms to control prices or exclude entry of a new competitor in a market. It is a formal organisation of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics. Cartels usually arise in an oligopolistic industry, where the number of sellers is small or sales are highly concentrated and the products being traded are usually commodities. Cartel members may agree on such matters as setting minimum or target prices (price fixing), reducing total industry output, fixing market shares, allocating customers, allocating territories, bid rigging, establishment of common sales agencies, altering the conditions of sale, or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members’ profits by reducing competition.

Several economic studies and legal decisions of antitrust authorities have found that the median price increase achieved by cartels in the last 200 years is around 25%. Private international cartels (those with participants from two or more nations) had an average price increase of 28%, whereas domestic cartels averaged 18%.

International competition authorities forbid cartels, but the effectiveness of cartel regulation and antitrust law in general is disputed. The EU’s competition law explicitly forbids cartels and related practices in its article 81 of the Treaty of Rome. Since the Treaty of Lisbon came into effect, the 81 EC is replaced by 101 TFEU. Identifying and breaking up cartels is an important part of the competition policy in most countries, although proving the existence of a cartel is rarely easy, as firms are usually not so careless as to put collusion agreements on paper.

The European Commission itself says that “In recent years, most cartels have been detected by the European Commission after one cartel member confessed and asked for leniency.”

The law enforcement and consumer protection organisations do their best to counter this phenomenon then, but still, it is very difficult to find the symptoms. The most effective thing to do would be to enable the civic society to control the phenomenon, or at least to contribute by means of watchdog activities. Incidentally, the EU Regulation 1/2003 encourages private entities to launch complaints with competition authorities, courts or the Commission should they suspect price fixing or market disruption.

TECoL is the first attempt to provide the civil society with a tool to give this contribution.

In short, TECoL helps the user collect elements in support of the suspect that a cartel could be in action.

The project’s theoretical base is the anti-trust application of the Nobel-prize winning mathematical theory – it is a model that predicts the probable market behaviour of one or several companies in a free market environment, and reacts if there is a huge discrepancy between the theoretical likely behaviour of the market participants and the actual one. If there is a huge discrepancy in the behaviour of the market participants there are basis to assume that the participants in the market have illegally formed a cartel.

TECoL will ask the user to provide information about the market being investigated, and it will compare such information with the expected shape of a normal, free market.

The theory predicts how a normal, free market evolves and what to expect concerning every economic indicator used. TECoL’s theoretical basis is developed mainly on the Structural Approach as defined by Paul Grout (“Structural Approaches to Cartel Detection”) and on the Coordinated Failure Diagnostics model developed by Christian Lorenz (“Screening Markets for Cartel Detection: Collusive Marker in CFD Cartel Audit”.) The TECoL website features comprehensive explanations of these models and the reference papers.

TECoL uses ‘processes’ to help you understand if there is a cartel in action. Every process implies that the user shall find information about the market being investigated – economic indicators and such.

Most of this information and freely available in public databases, such as Eurostat, OECD, or the national statistical institutes. The source of our information is very important, as it shows how reliable is our analysis to anyone we show it to.

Finding the right information is therefore the most important task to perform.

TECoL will help the user find the data by means of hints, examples, explanatory texts, and tutorial videos.

After finding the data, the user simply inputs them in the forms; TECoL elaborates the information in real time.

Also, it allows the user to write where the data come from, so everything important is included in one document.

TECoL provides real-time graphs based upon the input and compares them with example, theoretical graphs that show the “ideal” situation of a free, non-biased market. It is therefore very easy to spot any discrepancies between the theory and the factual situation of the market under analysis. TECoL cannot demonstrate that a given market suffers from the effects of a cartel, but it can give us the elements to understand if there are solid reasons to suspect it.

Every process included in TECoL allows the user to generate a report, that will include all the information the process is based upon, as well as the generated graphs, the example graphs, and the explanations drawn from the theory.

The user can generate one single report for every process, or a comprehensive report for multiple processes by selecting them. The more processes are included in the analysis, the more reliable the evaluation will be.

From the first reports, that is, from the initial graphs, the user can easily understand if the “cartel hypothesis” is worth investigating further, or not. If it is, the user will simply dig deeper, generating more reports and/or searching for more detailed information to refine the analysis.

The reports generated by TECoL are intended for distribution - one might choose to address a consumer protection organisation, or law enforcement, bringing to them tangible elements in support in their hypothesis.

The platform is publicly available online at www.tecol.eu; registration and use are free of charge. The software itself is currently available in English only, but the description of the project and the platform, and all the relevant documentation, are also available in Italian, Romanian, and Bulgarian.