Cartels, Markets and Crime: A Normative Justification for the Criminalisation of Economic Collusion - Bruce Wardhaugh
2014, 384 pages, ISBN: 978-1107036307
Cambridge University Press
Review by: Sebastian Peyer 
The criminalisation of cartels is an ongoing policy issue that has been subject to an intense debate in the UK, culminating in the recent reform of the UK cartel offence. Wardhaugh's book on Cartels, Markets and Crime is a timely contribution to this discussion. He explores different aspects of criminalisation covering a broad range of topics, including the normative justification for criminalising anticompetitive agreements, the origins of cartel prohibitions and the underpinning values in the USA, Europe and the UK. Wardhaugh provides an informative, well-written and though-provoking text that enriches the debate and adds nicely to recent publications in this field.
The first section of the book explains the normative justification for criminalising cartels. Wardhaugh criticises the common justification for imposing criminal sanctions on cartels as insufficient. Neither effective deterrence nor the harm cartels cause to society by overcharging consumers justify criminalisation. The authors rejects the notion that cartel overcharges are a harm from which society must be protected. The appropriation of consumer surplus does not amount to property harm and, thus, does qualify as a (severe) harm that would justify the restriction of freedom through criminal sanctions. Instead, the criminalisation of cartels must be based on the harm cartels cause to the market as an institution. Building on the thinking of John Stuart Mill and John Rawls, he claims that in a liberal society markets are the means by which society distributes goods and services. Undermining the market exchange, cartel activity erodes confidence in the fairness of the market as a system of transfer and distribution. The damage to the institution justifies criminal sanctions imposed on cartels.
Having established the normative justification for cartel criminalisation, Wardhaugh explores how criminal law should be focused to address cartels. He suggests that criminal sanctions should apply to both companies and individuals. With regards to companies' liability, he suggests a model of vicarious liability according to which a criminal act of an employee is attributed to the legal entity to which he belongs. Vicarious liability for violations of competition law will incentivise compliance with the law and align the incentives of companies and their employees through corporate governance. However, he notes that a deterrence gap exists despite ever-increasing fines for cartels. Legal and factual limits prevent competition authorities from meting out optimal fines (according to Becker's model of punishment).  Thus, the fines actually imposed on companies are most likely to be below the optimal deterrent fine. Wardhaugh argues that individual sanctions are required to fix the well-known deterrence issue. He claims that criminal individual sanctions would also be useful to reduce recidivism, a problem he thinks particularly prominent in Europe and less so in the US where individual criminal sanctions have existed for many years. According to his analysis, criminal fines are likely to destabilise cartels and help to align the interests of the company owner with the interests' of managers and employees.
Whereas the first three chapters offer a focused discussion of cartel criminalisation, the subsequent chapters appear to be more diverse in their scope and analysis. The subsequent sections offer a comparative analysis of the origins of the cartel prohibitions in the United States, the EU and the UK. Wardhaugh finds that the American system has always pursued consumer welfare as its goal. Monopolies were understood to be a threat to the natural order whereas competition ensures a fair return on capital and an appropriate wage for labour. He claims that the US courts have rejected non-economic considerations in antitrust cases rather early. Consumer welfare plays a central position as a value protected by the Sherman Act. Despite the evolution of judicial interpretation the core value of the Sherman Act has not changed since the early Sherman Act Bills. Wardhaugh finds that the Sherman Act assigns a quasi-property right of the consumer surplus to consumers which, in turn, provides the justification for criminalising cartels. Given that he rejected harm to the consumer surplus as a justification for the criminalisation of cartels in his earlier chapters, the justification in the context of US antitrust law leaves the reader puzzled. The statement that the Sherman Act has always supported consumer welfare, as Wardhaugh claims, is also not compelling. Some commentators have answered this contentious question differently.  Although the chapter explores the philosophical underpinnings of US antitrust legislation, it remains rather brief on the motivation for introducing a criminal sanction in the Sherman Act at a time when cartels where not even prohibited in other jurisdictions.
The subsequent analysis of the European system of cartel control is rather controversial too. Wardhaugh posits that EU competition law only recently shifted focus from market integration and other socio-economic goals to a consumer welfare approach. In his view, the European cartel prohibition was shaped by two movements: the ordoliberal school and the US deconcentration efforts after WWII. While one can argue about the extent to which there has been some actual shaping of the provisions by ordoliberal thinking, he rightly concludes that EU competition law has never followed a pure consumer welfare standard, identifying other values such as employment, environment and market integration. Wardhaugh asserts that EU competition law is not apt to adopt a criminal sanction cartels due to the diversity of values and ambiguity of competition rules.
The comparison of cartel prohibitions is rounded off by a chapter on cartels in the UK and the UK cartel offence. It offers an interesting analysis of the dysfunctional competition regime that existed in the UK prior to the enactment of the Competition Act 1998. Wardhaugh notes that the lack of enforcement and effective legislation reflects the Victorian laissez-faire approach to markets. The judiciary was reluctant to draw the line between illegal and legitimate market behaviour and so was Parliament until late in the 20th century. The chapter also critically reflects on the flawed UK cartel offence and the proposals to remedy the 'dishonesty' requirement. Interestingly, the chapter remains silent on the reasons for the drastic change of the UK competition law framework. Within a decade the UK switched from an ineffective cartel prohibition with almost no enforcement to potential imprisonment, the most severe individual sanction for anticompetitive behaviour. This would have been a nice addition to this interesting chapter.
Wardhaugh completes his book with a chapter on the internationalisation of competition law and cartel prohibitions. He considers the potential for convergence of antitrust regimes. The author points out that the differing values that underpin antitrust regimes hamper convergence. Societies are based on different values and cartels must not be criminalised if this does not reflect society's values.
This book is a good addition to the literature on cartels with thought-provoking hypotheses. While I find the first chapters convincing, I struggle to agree with Wardhaugh's analysis of values in the US and EU antitrust rules and the conclusion he draws. The last chapters in the book appear to be somewhat remote to the book's subtitle "A Normative Justification for the Criminalisation of Economic Collusion". Finally, the discussion about criminal sanctions for companies should have been clearer on the difference between administrative fines as they are imposed by competition authorities and criminal sanctions.
Overall, Wardhaugh's Cartels, Markets and Crime is an enjoyable read and provides ample 'food for thought'. The variety of approaches, including comparative law, law and economics, and philosophy, challenge and stimulate the reader. Although I disagree with some of Wardhaugh's assumption and conclusions, this is certainly a good book on the criminalisation of cartels.