Picture a town with three bakeries. Each sets its own price for a loaf, and each worries the others will go cheaper. One evening the three owners meet and agree: £2 a loaf, all of us, from Monday. Nobody in town has a cheaper bakery to walk to any more. The price went up and the bread did not change.
Competition law, top fine10 in 100 of turnover
Data law, top fine4 in 100 of turnover
People call that a cartel: rivals agreeing instead of competing. It is against the law almost everywhere, because rivals are meant to be trying to be cheapest or best. The watcher can fine a company up to 10 in 100 of its worldwide sales, and a person who arranges one can go to prison for up to five years.
Picture the three bakeries. Move how many of them are in the agreement and watch the price of a loaf. Made up to show the shape.
Price of a loaf£1.50
Cost to make it£1
Bakeries in the agreement: None
None: a loaf is £1.50, because every bakery fears the others going cheaper.
Price of a loaf£1.60
Cost to make it£1
Bakeries in the agreement: Two of three
Two of three: a loaf is £1.60, because the third one undercuts them and takes the custom.
Price of a loaf£2
Cost to make it£1
Bakeries in the agreement: All three
All three: a loaf is £2.00, because nobody in town has a cheaper bakery to walk to.
Price of a loaf£1.60
Cost to make it£1
Bakeries in the agreement: All three, and a fourth opens
All three, and a fourth opens: a loaf is £1.60, because the new one is outside the deal, and the price is coming down.
What breaks the £2?
Any bakery outside the agreement. One rival who undercuts gives the town somewhere to walk.
Right. Two of three could not hold £2 because the third undercut them. A fourth bakery took the full cartel back to £1.60. A cartel only holds while everyone selling is inside it.
The customers refusing to pay.
Not yet. With all three at £2 the customers had nowhere to go. Refusing needs an alternative, and the agreement's whole purpose was to remove it.
Nothing. Once agreed, the price stays.
Not yet. The fourth bakery frame took it back to £1.60. A cartel holds only while everyone selling is inside it, and a new seller is outside it.
Move the control.
14 yearsLorry makers
↓→
about €3.8 billionThe fines
Real cartels are bigger than bread. From 1997 to 2011 the makers of most of the lorries sold in Europe agreed their list prices and when to pass on the cost of cleaner engines. In 2016 the European Commission fined four of them €2.93 billion, and a fifth €880 million the next year: about €3.8 billion in all.
100 lorries→€100,000 each→5 in 100 extra→? euros
Picture a lorry firm that bought 100 lorries over those years at €100,000 each. If the agreement added 5 in 100 to the price, a made-up figure, what did the cartel cost the firm, in euros?
euros
Find what the lorries cost in all, then take 5 in 100 of it.
Right. Half a million euros. Ten million of lorries, 5 in 100 of it. The real extra is argued over in court by the firms that bought them. The extra is money the firm paid for nothing, to rivals who had agreed not to fight for its order.
Six rivals share a secret→First to confess pays nothing→Each fears the others→One confesses
The watcher's cleverest tool is how it finds them. A cartel is a secret shared by rivals, each of whom could tell. So the law makes an offer: the first company to confess and hand over the evidence pays no fine at all. The second pays less. In the lorry case one maker confessed first and paid nothing.
Youconfess?
vsvs
A rivalabout to confess
You run one of six companies in a cartel. You believe one of the others is about to confess. What does the law want you to do?
Stay quiet. The secret has held for years.
Not yet. It has held because nobody has moved yet. The day one rival does, silence costs you the full fine, and the offer exists to make that day come.
Confess first. The offer goes to the first, and if you are second you pay.
Right. The offer is built to make silence the risky choice. Once one rival moves, every other rival wishes it had moved first.
Confess together, so you all pay nothing.
Not yet. Only the first pays nothing. The offer is built so that there is no together; it rewards the one who broke ranks.
Each card is something rival companies do. Is it competing, or agreeing?
One card at a time. Tap the pile it belongs to.
Card 1 of 6
Two supermarkets each cut the price of milk to win shoppers
Two builders decide which of them will put in the cheaper bid for the school
Three phone companies agree not to sell in each other's regions
A shop copies a rival's lower price after seeing it in the window
Two firms share next month's price list with each other before publishing
A new airline undercuts the old one on every route
Two supermarkets each cut the price of milk to win shoppers → Competing
Not yet. Competing. Each is trying to be the cheaper one, which is the thing the law is protecting.
Two builders decide which of them will put in the cheaper bid for the school → Agreeing
Not yet. Agreeing. The school thinks it is choosing between rivals; the rivals have already chosen for it.
Three phone companies agree not to sell in each other's regions → Agreeing
Not yet. Agreeing. Carving up a map is agreeing not to compete, and no price needs to be fixed for it to be a cartel.
A shop copies a rival's lower price after seeing it in the window → Competing
Not yet. Competing. Watching a public price and matching it is what rivals do; no deal was made, and the price went down.
Two firms share next month's price list with each other before publishing → Agreeing
Not yet. Agreeing. Rivals who know each other's next price have stopped guessing, and guessing is what rivals do.
A new airline undercuts the old one on every route → Competing
Not yet. Competing. An outsider undercutting is the fourth bakery; it is what breaks a cartel, not what makes one.
3Competing
vsvs
3Agreeing
Right. Three and three. Competing means each rival decides alone and the customer gains from the fight. Agreeing means the rivals decided together, whether the thing agreed was a price, a winner or a map.
Ten firmstook turns
↓→
19 building jobsworth over £150 million
↓→
The fines£59 million
In 2023 the UK watcher found that ten building firms had taken turns putting in bids priced to lose, so that the firm they had picked would win. It covered 19 building jobs, public and private. No price list was ever agreed. From this lesson?
It is a cartel. Agreeing who wins is agreeing instead of competing, whatever the price was.
Right. The thing agreed was the winner, and the losing bids were priced to lose on purpose. That is rivals deciding together, which is what a cartel is.
Not a cartel. No price was agreed.
Not yet. The law is about rivals agreeing instead of competing. The thing agreed was who would win, and a bid priced to lose is an agreed price too.
Only the winner broke the law.
Not yet. The losers bid high on purpose to make it work. Every firm in the arrangement was in it, and all ten were fined.
Lesson complete
A cartel is rivals agreeing instead of competing, and the first to confess pays nothing.