• ◦ The case study of the liquid crystal display (LCD) cartel underscores the strong incentives that arise in an oligopoly to limit competition but also the practical difficulties in doing so when there are many products and varieties involved.

• ◦ The breadth of the cartel is impressive in that it encompassed all uses of LCD panels and did so for at least a decade. It is partly that breadth that posed a challenge for there were hundreds of different products and a dozen manufacturers. Rather than trying to coordinate the prices of the entire product line, the cartel focused only on the highest selling products, and at a degree of aggregation which did not fully take account of quality differences.

• ◦ The lack of collusion over all products’ prices could result in less effective collusion which the case study finds as the estimated overcharge is no higher than 2 percent. But even a 2 percent overcharge would have resulted in incremental revenues to the conspirators exceeding $3 billion. The takeaway is that even a highly imprecise collusive arrangement can be profitable to firms and harmful to buyers.

• ◦ The Spanish raw tobacco market offers a story of two cartels that operated simultaneously. The first cartel operated on the seller side of the market. It was set up by the three agricultural unions that managed contract negotiations for the tobacco producers (“the producer representatives’ cartel”). The second cartel, on the buyer side, was formed by the purchasers of raw tobacco (“the processors cartel”).

• ◦ The case study tells a rich story of cartel formation. Government regulation sought to establish fair prices for tobacco producers through a system of production quotas. This led those producers to form a cartel to collectively negotiate with downstream tobacco processors. The processors formed their own cartel to counterbalance the one upstream. We then have regulation inducing one cartel which then inspires a second cartel.

• ◦ The processors’ cartel exemplifies some of the challenges in achieving effective collusion as well as the critical complementary role of monitoring and punishing mechanisms. The cartel was ineffective in its first two years in spite of a high level of market concentration and effective monitoring. Only when an internal compensation mechanism was put in place did firms comply with the collusive outcome.

• ◦ In this case of a bread cartel in Israel, the bakeries’ executives agreed to raise the price of sliced dark bread and challah in some stores and to stop competing in each other’s local markets. Overall, the bakeries complied with these agreements. Although the executives admitted to most of the charges, their interpretation of the events differed from those of the Israeli Competition Authority (ICA) and that is where the case becomes interesting.

• ◦ The market power of retail chains caused bakeries to sell sliced dark bread and challah at a loss in order to be able to sell other bread products to retailers. From that normal state of affairs, in response to entry into its home market, one of the bakeries started offering stores a special deal of "3 loaves for 10 shekels NIS (Israeli new shekel)". A few months later, the bakeries entered into an unlawful agreement to stop the "3 for 10" deals (along with raising some other prices).

• ◦ The ICA argued that, prior to the agreement, the bakeries had fiercely competed and the intent of the cartel was to raise prices to supracompetitive levels. The ICA also claimed that, but for the cartel, this level of competition would have continued indefinitely. In contrast, the bakeries claimed the motivation for the agreements was to stop a price war from spreading to other stores. They saw their conduct as intended to raise prices to competitive levels from subcompetitive levels, and that the fierce competition was an aberration that would not have lasted long even without collusion.

• ◦ It is not clear whether the “normal” conduct that the agreement restored was one of genuine competition or of a tacit agreement involving an allocation of geographic markets (which the aggressive conduct preceding the agreement may have violated).

• ◦ All collusion is, in effect, semi-collusion as coordinating on some dimensions intensifies competition on uncoordinated dimensions, of which some are always remaining, and that reduces the profitability of collusion. In this case of the Swedish market for gasoline and diesel, collusion occurred on pump prices which intensified competition on rebates and consequently induced firms to also collude on rebates.

• ◦ There are two crucial features of this market relevant to the cartel episode, First, while many consumers pay the pump price, large corporate customers, such as transport and taxi companies, received a negotiated rebate on the pump price. Second, at the time of the particular incident being examined, the normal mode of market conduct was for firms to collude on pump prices. The resulting supracompetitive price-cost margin on pump prices caused firms to compete aggressively for larger consumers through rebates.

• ◦ The cartel episode of interest pertained to firms coordinating to remove these rebates. In the legal case, the firms claimed the coordinated removal of rebates was exactly offset by a reduction in pump prices, so there was no net effect on their corporate customers’ prices and those customers who paid pump prices were better off.

• ◦ The case study’s analysis does not support this claim for there is found to be a return of the pump price margin to its initial level. Large customers who lost their rebates were worse off, while small customers experienced only a brief period of lower pump prices, before prices returned to their initial higher level.

• ◦ In this case study of collusion in the market for air cargo services, coordinating exclusively on surcharges is found to be sufficient to result in supracompetitive final prices, even though the surcharge is only one component of price.

• ◦ The striking feature of the case is not that suppliers coordinated fuel surcharges but they did not coordinate the full freight rates. Since what matters to a customer should be the total price (which is the sum of the freight rate, fuel surcharges, and other items on the invoice), colluding only on surcharges would seem futile for raising the total price because the higher surcharges could simply be offset by lowering the freight rates as airlines compete for customers. This preliminary assessment raises the question: How could this collusive practice have a significant impact on the actual price paid for cargo services?

• ◦ This case study offers an explanation for how supracompetitive surcharges can result in a supracompetitive total (= base + surcharge) price. A critical feature is the division of pricing authority between a firm’s head office and its local offices. By delegating the decision on base prices to each local office and tying the latter’s performance measure exclusively to this price component, a firm weakens the local office’s incentive to reduce the base price in response to an increase in the surcharge. This gives the firm’s head office a way to raise the full price via a higher surcharge.

• ◦ In essence, senior executives agreeing to higher surcharges is effective because they do not control other components of price, having delegated it to lower-level personnel, and they do not have the incentive to fully offset the higher surcharges with lower base prices.

• ◦ This case study of generic drug markets illustrates the importance of interpersonal relationships in forming a cartel.

• ◦ Price fixing began in 2013 when Teva Pharmaceuticals, the world’s leading generic drugmaker, hired Nisha Patel to be the Director of Strategic Customer Marketing. Ms. Patel was tasked with “price increase implementation” and her approach to raising prices was to form an unlawful agreement with competitors to raise prices. She was well placed to engage in this activity as she had close ties to key salespeople at the major generic drugmakers due to having served as Director of Global Generic Sourcing for one of the largest US drug distributors.

• ◦ Cartels formed in about 90 percent of markets where she had close ties to all market participants, but only about 20 percent of markets where she lacked such relationships.

• ◦ The effects of collusive behavior persisted long after the cartel’s discovery. Though the conspirators discontinued direct communications after learning about the investigation, the evidence is that collusive prices persisted for many years afterwards.

• ◦ Collusion did induce some entry but its impact proved limited in these regulated markets. Many cartelized markets did not attract any entry, and the markets with entry saw a delay of two to four years before production started.

• ◦ This case study illustrates the difficulties a cartel can face in getting out of a price war and identifies some of the obstacles to doing so related to market circumstances. It does so by closely examining a price war that upset collusion in Québec City in 2000.

• ◦ The episode started when an independent retailer chose to defect from the collusive agreement by lowering its price so as to increase sales volume and benefit from a price-support clause it had with an upstream supplier. This act triggered a price war that caused margins to go from five cents per liter to nearly zero and which lasted almost a full year.

• ◦ Using daily station-level price data, the case study shows the price war lasted so long because it was very costly for any firm to take the lead to return to collusive prices. The root of the problem was the high price elasticity of firm demand. Raising price by only two cents per liter above neighboring prices could result in a 36 percent loss of volume. Thus, a firm raising the price to get out of the price war would experience a significant drop in sales as it waited for other firms to match its increase. This deterrent to raising price was compounded by one of the leading firms having a low-price guarantee which tied its price to the lowest price in the market.

Artisan fishers broke the early medieval pattern of subsistence fishing. Participants in Europe’s medieval ‘Commercial Revolution’, artisans made their living by catching fish to sell on a local market. Evidence of such people appears around 1000 CE in commercially precocious northern Italy but also in England, France, the Rhineland, and elsewhere. Commonly they arose at or near emerging towns, where skilled subsistence fishers might offer a surplus catch to other non-agricultural specialists. The chapter examines the social position of these household-based fishers, their traditional small-scale technologies, and the collective organizations (guilds) used to manage their human and environmental relations. It then turns to the urban markets where these men and their wives provided fresh fish from nearby waters. In larger towns professional fishmongers consolidated catches from various regional habitats, while communal concern for a safe and abundant supply caused municipal authorities to regulate market dealings. By the late twelfth century the interplay of seasonal demand (Lent) and supply (runs of migratory fish) coupled with cultural criteria of taste and quality shaped fish prices. Whether in great cities like Venice or Paris or small towns on the Castilian plateau or English coast, local markets offered consumers the regional fish they ate.

In The Wealth of Nations, Adam Smith observed that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” As we will see, Smith’s warning has stood the test of time. Over 240 years later, we find such conspiracies among physicians, hospitals, pharmaceutical manufacturers, medical device producers, and health insurers. Their contrivances to raise prices add billions of dollars to our expenditures on health care. In this chapter, we introduce an economic model of a price-fixing cartel and discuss the deleterious effects on price, quantity, and social welfare. Using health care examples, we discuss collusion among physicians to deny staff privileges, noncompete agreements among hospitals, and market division schemes in the health insurance sector.

Chaptr 25 offers a survey of the many ways in which antitrust and competition law affect IP licensing transactions. It begins with a brief overview of US antitrust law and enforcement and distinguishes between per se liability and liability under the rule of reason. It then considers how antitrust authorities have viewed IP transations, beginning with the Nine No-Nos (1970) and more recent agency pronouncements. The chapter then describes specific antitrust doctrines that impact IP transactions: price fixing, market allocation (US v. Topco), resale price maintenance (Leegin v PSKS), tying (Siegel v. Chicken Delight), monopolization (Illinois Tool Works v. Indep. Ink), refusals to deal (The Movie 1 & 2), standard setting (Allied Tube v. Indian Head), reverse payment settlements (FTC v. Actavis).