Relationship between Cartel and Corporate Governance

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ACKNOWLEDGEMENT

I would like to thank my supervisor for supporting me throughout my project and giving his valuable suggestions. Finally thanks to all my friends and family for their utmost support and inspiration.

DECLARATION

I, (Your name), would like to declare that all contents included in this dissertation stand for my individual work without any aid, & this dissertation has not been submitted for any examination at academic as well as professional level previously. It also represents my own views & not essentially the ones associated with university.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTii

DECLARATIONiii

CHAPTER 2: LITERATURE REVIEW1

Definition of Cartel1

Economic theory of cartel1

Tools for Implementing Legal Cartel Standards2

Market Characteristic Aiding Cartel Crime3

Negative Impact of Cartels5

Accountability in Cartel Legal enforcement in US6

Accountability in Cartel Legal enforcement in EU7

Corporate and Individual Fines8

Settlements and Leniency Program9

BIBLIOGRAPHY10

CHAPTER 2: LITERATURE REVIEW

Definition of Cartel

Cartel usually occurs in oligopolistic industries, involving homogeneous products. As cartel members may agree on matters such as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, or allocation of profits, this kind of agreements lead to increased market power and give rise to expressive prices, inefficient quantities, inefficient reallocation of economic surplus (from consumers to producers), and reduced incentives to produce efficiently.

Economic theory of cartel

From the literature it is known that non-cooperative collusion can occur in an economy with uncertainty on the demand side. Using a trigger strategy mechanism, Green and Porter (1984) derive the Nash condition for trigger strategy equilibrium outputs. In their model, a price below some commonly known trigger will result in a return for T-l periods to Cournot outputs by every firm in the industry. Given this knowledge, as well as the information concerning the distribution of the uncertain demand parameter, firms choose an output that will maximize the present value of their profits over an infinite time horizon. It is then possible to reach an equilibrium in which output is lower than the Cournot output.

This trigger strategy mechanism brings agents expected profits greater than those attainable in the absence of collusion. Although outright quantity collusion would offer higher profits, such policies are not always enforceable. If monitoring and enforcement present problems as they do for the coffee cartel, a trigger strategy can provide profits higher than would otherwise be attainable through competition. In addition to higher profits, a trigger strategy can lead consumers to believe that they are paying competitive prices since no outright collusion needs to occur except the initial spread of knowledge of the trigger and length of punishment, cartel behavior might be not be recognized by individuals outside the industry.

Gain for Firms from Cartels

The paper addresses the issue of cartel stability in the absence of monitoring or enforcement mechanisms. When there is uncertainty on the supply side, the static game analysis reveals that agents will only share private information concerning their supply capacity if the degree of uncertainty is large relative to demand. This result differs from those in the ...