Relationship between Cartel and Corporate Governance

By

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.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

DECLARATION3

CHAPTER 2: LITERATURE REVIEW5

Definition of Cartel5

Cartels operating in an Extractive Industry6

Economic theory of cartel6

Cartels in European Countries9

Major International Cartels10

Difficulties in Statistical Analysis of Cartels13

Lack of Information14

Lack of Official Statistics14

Lack of Agreement on Cartel Definitions15

Gain for Firms from Cartels18

Behavior of Cartel19

Market Characteristic Aiding Cartel Crime21

Negative Impact of Cartels22

Accountability in Cartel Legal enforcement in US23

Accountability in Cartel Legal enforcement in EU24

Settlements and Leniency Program26

Effects of Leniency Program29

Model for Leniency Program32

BIBLIOGRAPHY34

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.

At times, cartels operate only within a single country, but often they are organized to function internationally; for example, the quinine cartel in the early 1960s or the Continental Steel cartel, formed by the producers of Germany, France, Belgium, and Luxemburg." They operate widely in fields of international commerce which are not regulated by any single nation. International airlines and fares, for example, are determined by the International Air Transport Association (IATA), a nongovernmental organization. Its more than one hundred members are airlines operating scheduled international air services whose representatives meet and negotiate international air rates and fares.

Cartels operating in an Extractive Industry

The literature of the economics of depletable resources is growing fast. The last few decades, particularly the 1970s, witnessed a growing interest in the exploitation of extractive resources and the cartel operations in that area. In the case of exhaustible resources, the objective of the cartel may be to maximize the present value of export earnings over the period before the deposits are exhausted. Raising export prices in this case would reduce the volume of exports, prolonging the life of the cartel's stocks, so the present value of export earnings could conceivably increase even if current export earnings declined.

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 ...