Antitrust Law Daily Wrap Up, ANTITRUST NEWS: AAI urges Sentencing Commission to double cartel overcharge presumption, (Jul 20, 2015)

The American Antitrust Institute (AAI) has sent a letter to the U.S. Sentencing Commission (USSC), pursuant to its request for public comment on possible priority policy issues, urging that it: (1) retain the general approach of utilizing presumption when it calculates fines for price fixing; and (2) re-evaluate the current level of the cartel overcharge presumption and increase it from 10 percent to 20 percent. This increase, according to the AAI, “would move the [U.S. Sentencing Guidelines] in the direction of both recent and historical evidence on average overcharges likely to result from collusion, yet still be a conservative resolution of the issues.”

The AAI’s letter, which was in response to the USSC’s request for public comment on possible priority issues for the amendment cycle ending May 1, 2016, raised three points about the U.S. Sentencing Guidelines’ (USSG) cartel overcharge presumption:

1. “the evidence demonstrates there currently is significant underdeterrence of price fixing and other anticompetitive forms of horizontal collusion”;

2. “the general approach to calculating cartel fines embodied in the USSGs, which utilize a specific presumed overcharge, is sound and in the public interest”; and

3. “the 10 percent cartel overcharge presumption in the Guidelines is much too low to achieve deterrence.”

Employing a “standard optional deterrence” approach, which assumes deterrence only if expected rewards are less than expected costs, adjusted by the probability that illegal activity will be detected and sanctioned, the AAI determined that U.S. cartel sanctions are probably only 9 to 21 percent as large as they should be to protect potential victims. Based on this determination, it suggested that existing sanctions do not provide a significant deterrence.

The AAI recommended that the USSC continue to employee a presumption as to size of cartel overcharges in favor of an alternative case-by-case analysis. However, it suggested that the presumption that price fixing raises prices by 10 percent is too low and cited studies finding that median cartel overcharges have been 22 to 23 percent, while mean overcharges range from 31 to 49 percent. The AAI concluded that its recommendation the USSC increase the presumption to 20 percent is actually conservative. However, it also suggested that if the USSC felt that this increase would be too sharp a departure from the existing practice, it could raise the presumption to 15 percent or raise it to 20 percent only for international cartels.

Companies: American Antitrust Institute

News: Antitrust