The cartels are out to get you

When I was young, American opinion was strongly anti-cartel, both abroad (OPEC) and at home. Slowly, though, economists lost interest in the subject, arguing that globalization made it increasingly difficult for firms to collude. I mean, to meet up, executives from different countries would have to take steamships across oceans. And then they'd have to hash out details using sign language and grunts. So the feasibility of international cartels was just crazy talk.

But, it turns out, retired Purdue economist John Connor is making a bundle for himself battling Skynet testifying as an expert witness in lawsuits against individual cartels. Economists used to be obsessed with anti-trust, but now there is so little academic interest in the evils of cartels that Connor has largely cornered the market. Unfortunately, he keeps his huge database of episodes of international collusion proprietary to maintain his monopoly, so economists in general can go on blithely paying little attention to the subject.

From the Chronicle of Higher Education, via Marginal Revolution, a highly informative article about a topic that has dropped off the radar in recent decades:

An Economist Corners the Market on Global Cartels 

By Paul Voosen 

Shaded under a blue umbrella at a Cape Cod beach club, a beer in hand and his banana-yellow Porsche convertible parked nearby, John M. Connor, an emeritus economics professor at Purdue University, had a confession to make: The cartels have been very good for him. 

It started nearly two decades ago, with an FBI raid in Illinois that uncovered a global conspiracy to raise prices on animal-feed supplements. At the time, Mr. Connor had spent his days probing, say, the efficiency of the U.S. butter market. (It's good, by the way.) Yet somehow this international cartel had sat in his academic and geographic backyard, and he had had no idea it was even possible. 

"How did I not know about that?" he said as he read front-page coverage of the scandal at Archer-Daniels-Midland, the U.S. company that colluded with several Asian firms. ...

"The Informant!" with Matt Damon and directed by Steven Soderbergh is an odd, interesting 2009 movie about this ADM lysine cartel. Here's my review of the film that recounts Connor's history of the ADM case in his book "Global Price Fixing: Our Customers Are the Enemy." (It's standard practice in the film critic business to read academic works on the economics of lysine price-fixing before writing movie reviews.)

That fascination reshaped Mr. Connor's career and led to a second act as the "King of Cartels," a status recognized this month by a lifetime-achievement award from the American Antitrust Institute, a bipartisan center where he serves as a senior fellow. Mr. Connor's work, including his book Global Price Fixing, is influential. His private database, where he has recorded nearly 900 international price-fixing scandals, has no known parallel. He has become a courtroom fixture, consulting for cases against putative cartels. (That explains the car.) And he's a government gadfly, arguing that the country hasn't done nearly enough to protect its consumers. 

For cartels, he says, the evidence is clear. Crime does still pay. 

Often business-on-business offenses, international cartels rarely rise to public notice, but they are a pervasive, costly phenomenon. Since the 1990s, they have accrued more than $80-billion in U.S. government fines. 

More cases go undetected; generous estimates suggest only a third come to light. 

These cartels thrive, then fail, in the hidden abysses of the market, but not before they've garnished profits from the budgets of everyday shoppers out to buy meat, computer monitors, or cars. 

"It's the dark side of globalization," Mr. Connor said. Communication costs are low; cultural differences are eroding. The M.B.A. is ascendant. "They all speak the same language. Use the same spreadsheets." 

... Either the number of global cartels is rising, or more are now being fished out.
"I used to add 30 or 40 a year just a few years ago," he said. "Now it's 90, 100 a year"—and that's only counting international cartels. 

... How do [cartels] work in the real world? That's what Mr. Connor has explored, assisted by reams of internal documents. Much of that knowledge is locked behind legal deals—he'll tell you he worked on the LCD-monitor cartel for Dell and on the vitamins "supercartel," and that's about it—but it's been a boon for his research, as well. 

"I get to see what executives are saying to each other," he said. E-mails, planning documents. "All their dirty laundry." 

Before Mr. Connor, cartel scholars would scrounge up a few cases and generalize from there, said Robert H. Lande, a law professor at the University of Baltimore. 

"John has taken the opposite approach. And the reason nobody else did it is it's such a pain," Mr. Lande said. "Boring doesn't even begin to describe it," he added. 

"The Informant!" was a challenge to even Soderbergh's skills as an entertainer (e.g., Ocean's Eleven) to keep the audience interested.

Armed with these data, Mr. Connor is comfortable espousing some truths about global cartels. They require a limited number of market players, homogenous products, few individual conspirators, and the opportunity for face-to-face meetings every three months or so, possibly to deal with currency changes. 

They rarely last longer than a decade, often torn apart by internal instability, as one firm tries to cheat the others. (The Justice Department banks on that suspicion, granting leniency to the first company to defect from a cartel.) The government also punishes price-fixing against itself more severely than such offenses against the private sector, he has found, and its sanctions result in a net benefit to national accounts. 

... What he can show, however, in a study published last year in the Cardozo Law Review with Mr. Lande, is that given existing U.S. sanctions, including prison time, cartels remain a rational business strategy. Sanctions are one-fifth of where they should be, they found. 

"My numbers tend to show that the fines that have been imposed historically have been too low to deter cartels," Mr. Connor said. "And the fact that more and more cartels are popping up every year would seem to reinforce the point."