Tesi triennale

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ALMA MATER STUDIORUM - UNIVERSITA’ DI BOLOGNA

SCUOLA DI ECONOMIA, MANAGEMENT E STATISTICA

SCHOOL OF ECONOMICS, MANAGEMENT AND STATISTICS

Corso di Laurea

First cycle degree

In

BUSINESS AND ECONOMICS

Collusion between companies: the ferry

operators' cartel in the Italy-Greece route

PRESENTATA DA

DEFENDED BY

Giacomo Conti

0000596506

Sessione terza Graduation session third

Anno Accademico – Academic year 2012/2013

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Table of Contents

ABSTRACT ................................................................................................. 3

A PARTICULAR CASE OF COLLUSION: THE CARTEL .............................. 5

ART. 81 (EX ART. 85), EC TREATY .......................................................... 7

THE GREEK FERRY OPERATORS’ CARTEL .............................................. 8 THE ITALY-GREECE ROUTE (AND THE RELATIVE MARKET) ..................................................................... 8 MAIN EVIDENCES AND HAPPENINGS ............................................................................................................ 9 ARGUMENTS OF THE UNDERTAKINGS ............................................................................................................................. 12

THE COMMISSION’S VERDICT: LEGAL ASSESSMENT AND FINES ........................................................................................................ 14

LEGAL ASSESSMENT ..................................................................................................................................... 14 FINES IMPOSED BY THE EUROPEAN COMMISSION .......................................................................................................... 15

CONCLUSIONS .............................................................................................................. 17

BIBLIOGRAPHY AND WEBSITE CITATIONS ............................................................ 19

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Abstract

The paper wants to offer a deep and clear representation of one of the most dangerous type of

anticompetitive strategies, used by companies in order to gain potential extracompetitive profits :

the cartel. In particular, the aim of the analysis is to illustrate the main characteristics of a specific

case of a cartel set at the end of the 1980s , involving several Greek ferry companies, by looking at

the consequences this phenomenon brought, both from a legal and economical point of view.

In order to better understand the dynamics that characterized the development of the Greek cartel,

firstly great emphasis will be given to the phenomenon of collusion between companies, to the

motives that could convince them to implement these illegal strategies and to the possible different

ways in which a collusive behavior can be set : then the analysis will be focused on the strict legal

case and it will be offered a broad description of all the happenings from the 1987 until 1998 ( the

year of the final European Commission sentence), by keeping in account the companies’ defense,

the reasons of the Court and the punishment which they decided to apply.

Introduction

“...people of the same trade seldom meet together, even for merriment and diversion, but the

conversation ends in a conspiracy against the public, or in some contrivance to raise prices”1.

In this way, the famous economist Adam Smith defined in his book An Inquiry into the Nature and

Causes of the Wealth of Nations (1776) the trend by people, and more deeply companies, to operate

in an anticompetitive way, in order to gain either the highest possible market share of its own

business or to earn some kind of extracompetitive profits.

Since the 18th century and in particular through the Industrial Revolution, the world of economics

has always been organized in various different challenges linked to the satisfaction of clear

objectives : from one side, there are the companies’ challenges which consist in trying to reach the

best performance in terms of quality, quantity, costs and profits by engaging in a competition race

in their own sector. Sometimes the rules of this competition race are put aside from the market and

firms decide to abolish the competitive pressures to which they are usually subordinated in order to

emerge as the leader: that is the reason why, on the other side, the public policy’s challenges are

present, namely monitoring the correct developing of the process of competition in all the markets.

1 Adam Smith “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776)

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The public policy can be identified on various type of organizations, each aimed with a particular

task based on the place where is located ( European Union, United States, Asia etc.).

Moreover, the process of globalization which we are assisting now is addressing the whole system

toward the creation of a more centralized and homogeneous public policy of monitoring

competition and this, in turn, implies a convergence on a unique international competition policy

regime: this regime can possibly be analyzed following a multi-level system organization which

permits to ,according to the economist Budzinski, “…combining coherence and diversity or

balancing centralising with decentralising elements and forces”. 2

When a firm or a group of firms decides to exit from the regular scheme of the market, an

anticompetitive practice is taking place . The ACCC ( Australian Competition & Consumer

Commission) offers the clearest definition about anticompetitive practices : “Certain business

practices that limit or prevent competition are against the law. It is important that businesses

understand their rights and obligations at all times and, in particular, when dealing with

wholesalers, suppliers and other businesses.”3

Anticompetitive strategies : Collusion

Anticompetitive strategies are often recognized with the term PREDATORY CONDUCTS ,

which permits to better understand the real effects that these behaviors are able to cause : a firm

engaging in a predatory conduct threatens through its actions both market’s rivals and potential

firms which are likely to enter in the business.This type of strategy depends upon the concept of

credibility owned by the predator firm: if the firm is able to influence other firms’ behavior by

threating them, then its level of credibility will be very high.

Predatory conducts are a lot and of various type: in this paper, it will be deeply described only one

type of conduct, namely the COLLUSION phenomenon and great attention will be dedicated on a

particular kind of collusion, which is the CARTEL.

Collusion is defined as the phenomenon by which two or more companies intentionally make an

agreement ( secretively or not ) in order to eliminate the competition in the market.

2 Oliver Budzinski “The Governance of Global Competition: Competence allocation in International Competition Policy”, Edward Elgar Pub (April 8, 2008) 3 Australian Competition & Consumer Commission Website http://www.accc.gov.au/business/anti-‐competitive-‐behaviour”

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Collusion is part of a wider range of strategies all involving the price fixing : price is, in fact, the

simplest and quickest tool to set and this easily permitts to make an agreement between a group of

firms.

It is possible to identify two main different types of collusion : the explicit collusion and the tacit

collusion. The explicit collusion consists in an agreement made by two or more firms in order to

threaten the rivalry from competition: the main characteristic of this type of collusion is the

communication, in the sense that firms directly transfer market information among them.

For what concerns tacit collusion, it happens when companies’ strategies are monopolistic-oriented

“without saying so”: in other words, they follow the same choices without stipulating any written

agreement or transfering any type of information.

A particular case of collusion: The Cartel Among different ways of colluding, the cartel is the more used in the wide field of anticompetitive

practices.

We refer to cartel as the phenomenon by which two or more firms with non-negligible market

shares attempt to reduce competition fixing cost together and trying to achieve MONOPOLISTIC

PROFIT : given this context, what becomes really important is that cartel members agree in order

to coordinate their actions and to follow the same strategy.

Especially in an economic environment like the actual one , two main complexities arise in setting a

price fixing behavior. The first one is related to the incentives that members could have in making

an agreement from a microeconomic point of view: lowering the price in the market implies a larger

gap between the price and the marginal cost to make the product which, in turn, could stimulate

members to produce an extra amount of output that corresponds to a cheat on the previous

agreement. In fact, all the members will be incentivized to do the same action and the extra output

produced will rapidly increase causing a dramatic fall on prices: in order to demonstrate this, the

prisoner’s dilemma can be very helpful. Although the cheating problem greatly affect the dynamic

of a cartel4, the dynamism of the reality permits to preserve the integrity of the cartel because the

repetition of such market interactions put the colluding behavior in a stronger position than cheating

one, especially in terms of profits.5

4 Widely described through Cournot and Bertand model in “Industrial organization: Contemporary theory and empirical applications”,4th edition, chapter 14 , pg. 326-‐329 5 Repeated games theories, “Industrial organization: Contemporary theory and empirical applications”,4th edition, chapter 14 , pg.330-‐341

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The second complexities stems from the fact that a cartel is considered illegal PER SE : leaving

aside some exceptions ( OPEC and other nation-state organizations6 ) , whatever the country the

cartel sets it will always be prosecuted by the local Antitrust law.

Moreover, a firm caught to be a cartel actor is subjected to heavy penalties: this inevitably make the

agreement more secretive and , in turn, greatly affect the sustainability of them and incentivize the

cheating.

Nevertheless, evidences suggest that cartels happen: a recent analysis made by the European

Commission highlights the statistics about cartel cases involving several undertakings in the

European area from the period 1990 to 2013; the results are quitely impressive.

Fig 17

As the table shows, 100 cartels were detected by the European Commission during this period:

among these, more than one involved several infringements of the Antitrust Law which ended in a

heavier fine for the companies: obviously, we should not forget that the role of Antitrust is very

difficult and this implies that presumably in this lapse of time there would have been an indefinite

number of undetected cartels.

6 “The legal status of Nation State cartels under United States Antitrust and Public International Law “, Mark R. Joelson , Joseph P. Griffin (1975) 7 European Commission Website : http://ec.europa.eu/competition/cartels/statistics/statistics.pdf

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Hereafter, the analysis will be focused only on the European area and in particular to the case of the

Greek ferries cartel.

Art. 81 (ex art. 85), EC Treaty Since it was born, the European Community have strongly favoured, in its legislation, the correct

functioning of competition in its economic area: therefore, it is not surprising to find numerous

sections dealing with this issue in every treaty that European countries ratified in the past.

The Treaty establishing the European Economic Community (TEEC,1958) was one of the first

treaties which really face the competition matter, since it contributed to create a sort of economic

macroregion involving a part of the European countries.

The treaty has been experienced many modifications in its lifetime but it still remains a benchmark

to refer in case of competition infringements, especially for what concerns collusions and cartels.

In regards to collusions, the article 818 of the TEEC rushes in Antitrust authorities’ assistance for

the purpose of punishing companies guilty of anticompetitive conducts :

“1. The following shall be prohibited as incompatible with the common market: all agreements

between undertakings, decisions by associations of undertakings and concerted practices which

may affect trade between Member States and which have as their object or effect the prevention,

restriction or distortion of competition within the common market, and in particular those which:

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment;

(c) share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby

placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary

obligations which, by their nature or according to commercial usage, have no connection with

the subject of such contracts.

2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.

3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

— any agreement or category of agreements between undertakings,

— any decision or category of decisions by associations of undertakings,

— any concerted practice or category of concerted practices,which contributes to improve the

production or distribution of goods or promoting technical or economic progress,while allowing

consumers a fair share of the resulting benefit, and which does not:

8 Consolidated version of th Treaty establishing the European Economic Community,art.81(ex art.85), http://eur-‐lex.europa.eu/LexUriServ/site/en/oj/2006/ce321/ce32120061229en00010331.pdf

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(a) impose on the undertakings concerned restrictions which are not indispensable to the

attainment of these objectives;

b) afford such undertakings the possibility of eliminating competition in respect of a substantial

part of the products in question.

The Greek ferry operators’ cartel

A very interesting case of cartel took place in 1987 in the maritime sector: the case involved the

roll-on roll-off ferry service localized in the Adriatic sea, in particular the route linking Greece and

Italy.

The procedure was started by the European Commission for Antitrust in July 1994 ,even if the

formal proceedings took start on 21 February 1997: it regards initially seven ferry operators but

afterwards the investigations focused only on six of them, five of which settled in Greece and one

in Italy.

More particularly, the undertakings involved were: Minoan Lines, with Crete headquarters, Anek

Lines, with Hania headquarters, Strintzis Lines, Marlines SA, Karageorgis Lines and Ventouris

Group Enterprises SA, all of them with Piraeus headquarters; finally there’s Adriatica di

Navigazione Spa with Venice headquarters. All of them offers passenger and freight services on the

different Italy-Greece routes.

As often occurs, the cartel was unmasked due to a complaint made by a “member of the public”9 (a

Dutch tourist) on the 23rd of August, 1992 which drew the attention of the Commission: the tourist

pointed out that ferry prices were quite homogeneous among the ferry operators and especially

among the different routes that links Greece and Italy.

Finally, evidences of the cartel existence are given by all the messages sent by telex between the

operators, in which they make agreements on the prices to set.

The Italy-Greece route (and the relative market)10 The roll-on roll-off ferry services stretches in three different major routes in which every operator

set its ships: these are between Ancona and Patras, between Brindisi and Patras and Bari and Patras.

Since passengers can easily choose their departure location, the three routes can be identified as a

unique market with a high level of substitutability between them.

9 From now on, most of the happenings will be referred to the Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities 10 Paragraphs 3-‐7 of the Commission Decision

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For what concerns the Ancona-Patras route, only five of the seven companies involved are

operative which are Minoan,Strintzis, Marlines and Karageorgis with almost 100% of the traffic

share in the route: moreover, one additional company,namely Superfast Ferries, belongs to the

market but it was not involved in the Commission’s procedure.

On the other routes, Bari-Patras and Brindisi-Patras, at least 11 ferry companies were present with

their ferries, with undertakings included.

Regardless of the route taken into analysis, the ferry operators’ market in the Adriatic sea seemed to

be reasonably consistent, although it is still small if compared with other routes of the European

Union: hereunder there is a graphic representation of the different ferry markets among different

countries relative to the year 1996.

Fig 211

Main evidences and happenings

1988-1989 First evidences about cartel’s existence date back to 1989 when Minoan send a telex to Anek in

which it enlights the successful results of the previous agreements made with other companies for

the 1988 good vehicles tariffs on the Ancona-Patras route: Anek, in fact, enters in the Ancona-

Patras route in 1989 and initially refuses to take part of the agreement and sets prices for their own,

nevertheless Minoan strongly tries to persuade it. As only response, the other undertakings

(Minoan, Strintzis, Karageorgis and Marlines) decide to set the same tariffs of Anek.

11 Cruise&Ferry info.

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1990

The 1990 is the year of passenger tariffs’ agreement settlement, as demonstrated by the telex sent

by Minoan to the other companies on 20 June 1989: this is the occasion in which Anek decides to

be part of the common price policy (telex of 14 July 1989)12.

Other consultations takes place in order to modify and consequently increase the prices of trucks:

from now on, the undertakings decide to adjust their tariffs also on Bari and Brindisi routes.

1991

As the precedents of cartels teach, sooner or later members will try to cheat: in 1991, several

problems arise in the agreement stability. As reported on the investigations, Minoan, Strintzis and

Karageorgis perceive an unfair behavior temptation by Anek Lines13:

“…we note that you want to apply to the Patras-Trieste route the same fare that we have all agreed

for the Patras-Ancona route. You will realise that the obscurity in the wording causes us great

concern, because it raises the prospect of a collapse of the equilibrium in tariffs which we have

succeeded, with considerable difficulty, in establishing for all the Italian ports. Let us remind you

that by a joint effort - to which yourselves contributed - we reorganised the tariffs as best we could

and established differentials on the basis of the distances in nautical miles to the ports of Brindisi,

Bari and Ancona . We would accordingly entreat you to defend - as you ought to do - the agreement

between the 11 companies and the 36 vessels on the Greece-Italy crossing because given the intense

differences which are smouldering away under the surface the existing agreement could well

collapse. We would suggest to you that the tariff for the Patras-Trieste trip should be put at 20%

above that for the Patras-Ancona (as indeed was the case in the past), so as to harmonise fully with

the differentials between Ancona and the more southerly ports . Our companies are obliged to

notify you that if you insist on applying the same price from Trieste and Ancona for Greece, our

agreement for a common price policy concerning the Ancona route will cease and each company

will determine its own price policy.”

Anek replied to the telex on 18 November 1992 and besides confirming the existence of an

agreement through its words, it strongly protests against the illogicality of the 20% increase in the

Trieste-Patras route and tries to quieten other members’ dejection by underlining the importance of

the cooperation between them.14

12 Paragraph 15, Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities 13 Paragraph 22 , Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities 14 Paragraph 23, Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities

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1992

Evidences for the continuance of the collusion can be found also in 1992, for which the

Commission found several telexes (dated on 1991) containing list prices depending on the category

of vehicles, place for passengers high or low season prices, adjusted to the drachma depreciation.

Moreover, some concernings arise from the new developments of the maritime shipping in the

Adriatic sea: new ships have been introduced and the undertakings invoke an additional adjustment

on the already differentiated tariffs for the route, as can be found on the telex of 7 January 1993.

1993

Agreements on price and its modalities continues on 1993 (although they were stipulated in 1992),

where several meetings are established between all the companies involved: much effort is

expressed on the adjustment on prices due to the fluctuations of foreign currencies relative to the

drachma. This is the reason why on 15 October 1992 Minoan proposes an increase of 5% on the

Italian “Lire” tariff for 1993, thus arranging them to the instable drachma tariff.

Tariffs of this year are affected also by another important event: in November 1992, in fact, the

Commission sends a request for information on prices to Minoan. Giving the sensitive situation, the

ferry cartel, in particular Minoan, decides to make a re-adjustment and they propose to reduce each

company’s range of price relative to four categories by 1% , as can be read by the telex sent from

Minoan to Anek, Karageorgis and Strintzis15.

On 24 November 1993, all the companies involved in the procedure organize a meeting, in order to

decide and readjust the vehicles prices relative to all the routes linking Greece and Italy ( Brindisi,

Bari and Ancona with Patras): in this occasion, evidences proves that Minoan participates to the

meeting through the assistance of an agent company, the ETA ( “European Trust Agency”) ,who

informs the company on the success of the agreement for the enforcement of the new price list.16

1994

The undertakings continues to collude until July 1994, when official investigations by the European

Commission take start: before that date, evidences given by telexes and letters demonstrate that

companies are concerned about a new type of trailer which is rapidly developing on the Ancona

route and for which a new category of fare has to be introduced.

15 Paragraph 34, Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities 16 Telex of 24 November 1993, Paragraph 37, Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities

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Arguments of the undertakings

Once the investigation has been finished, all the companies involved in the procedure were charged

with the violation of the article 81 of the EC Treaty(ex art.85 EC), which prohibits all agreements

that are able to affect trade and, more deeply, to restrict or distort competition.

Two main initial considerations has been deliberated by the Commission in assessing the gravity of

the infringement: first of all, the Commission pointed out that even if the agreement was not legally

binding it similarly constitutes an anticompetitive behavior, since the undertakings have decided to

limit their own freedom in order to reach a consensus between them in determining the strategies to

follow in the market. Secondly, the Commission stated that , in order to implement an agreement,

no written contract had to be signed: the ferry operators’, in fact, enforced their collaborations only

by regular discussions through telex or meetings. Here is following a detailed description of the

cartel framework offered by the Commission: “…Regular, detailed discussions took place each

year to decide the tariff levels for the following year, and ad hoc consultations took place to decide

how the parties should react to issues that arose during the year, such as currency devaluation or

new categories of vehicles. It is also clear that these discussions took place at senior levels between

the parties. There can be no doubt that this arrangement amounted to an agreement, the object of

which was to fix selling prices and other trading conditions between the parties thereto. “17

After receiving notice of investigations by the European Commission, the undertakings brought

their arguments to the Court: a very interesting landmark is given by the commonality of reasons

advanced by them. All the companies, in fact, strongly stressed that agreements stipulated on the

years 1989-1994 represented a natural consequence of the rigid legislation imposed by the Greek

Law: moreover, they suggested to the Commission and then to the CFI( Court of First Instance) to

carefully keep in account the level of involvement of the governmental Greek authorities in the

case.

By deepening the issue of the possible participation of the government into the agreements, it is

necessary to make a brief review of the legislative framework and of the political context of the

Greece relative to that period too: until the end of the 80s, the Greek legislation have attributed to

the government strong decision power for what concerns the regulation of transport service,

especially the maritime one: in fact, considerable permissions were given to the YEN, the Minister

of Merchant Marine, for all the issues concerning the coastal industry management.

17 Paragraph 141, Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities

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The YEN, in turn, address its action to a intensive cabotage-oriented policy through many

provisions, among which the most important were the proclamation of“the Public Martime Code

Law” and the issue of the“Presidential Decree 684 of 1976” : their stipulation justified the

government intervention with the fact that it act with the only purpose of “…preventing destructive

competition, although such Schumpeterian terminology was not actually used by legislators”18.

In this “closed” industry, two more problems brought to a temporary crisis of the Greek coastal

shipping: the contemporary development of the process of Europeanization ( linked to the

Globalization) and the always more precarious Yugoslavian situation.

The “Europeanization” represented a real problem in the Greek shipping environment because,

according to the economist Michael J. Romanos, due to the rigid close legislation which

characterized the country, Greece hardly struggled to transform its domestic politics’ nature into a

modern European one: in fact, it is only in June 1992 that, after exhausting negotiations with the

EU, cabotage was abolished in order to permit a fleet modernization and a more open organization

of the market. This, in turn, favored the emergence of new private actors that brought a large

amount of investments in the country: although YEN didn’t signal any approach toward a more

deregulated market, Greek ships started to operate also in the Adriatic route, which was

“ traditionally dominated by Italian state-owned shipping operators and transformed by EU induced

deregulation”.19

An important consequence followed the “ opening” of the market: in these years we assist to a

sensible depreciation of the drachma with respect to the other main foreign currencies ( Lira,

German mark etc.) and this is one of the reason the undertakings of the “Greek Ferries case”

advanced to the Court to explain the evidences of an agreement in order to increase the prices for

their services.

The second reason is more a political one: at the begin of the 1990s, the south-eastern Europe was

affected by the dramatic crisis of the Yugoslavian Federation that, after a cruel war involving all the

republics of that area, ended with the recognition of new sovereign territories. Until that period,

Greece based most of its import/export activity overland and the Yugoslavian area represented the

only channel through which goods could be moved to Western Europe: once the war begun, the

shipping industry became the only channel through which the Greek economy could rely on, and

the necessity of a modernization of this underdeveloped business and especially of an agreement

between the actors of the industry came out.

18“ Maritime Transport: The Greek Paradigm”, Athanasios A. Pallis ( Elsevier , 2007) 19 “Shipping, the State and the Market: The evolving role of the European Union in international & Greek Shipping politics”, Michael Joseph Romanos ( London School of Economics, May 2005)

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At any rate, Greek shipping industry remained quite hostile to a modernization process at the time

of the sentence and, as can be seen from the general arguments of the undertakings in the EC’s

decision document, they tried to convince the Court that their strategies were greatly influenced by

the legislative framework they were subjected to: in particular, the point on which they hardly insist

on was the threat of the restrictive competition Greek law, pertaining with great emphasis to the

content of the Law No. 4195/29. According to the companies, the law 4195/29 and the YEN in

general considerably influenced their actions in the sense that they were able to define all the

factors of the competition of that field: moreover, in their opinion, the YEN “encourages the

companies, informally, to maintain the tariffs at low levels and the annual increases within the

limits of inflation”20. In support of their thesis, they recalled the content of the law 4195/29, in

particular the article 2 and 4 which respectively “…prohibits any devaluation of fares for

passengers and goods in the external (international) routes to a level which would be derisory and

disproportionate to the level of service provided, with the object of unfair competition.” and state

that “if the freedom in fixing fares on these routes degenerates into unfair competition, the Ministry

for the Merchant Navy is entitled to impose upper and lower levels of fares.”

Despite the commonality of reasons advanced to the Commission, each company supplied in its

own defense several other arguments relating to specific allegations minutely described in the

“Commission Decision of 9 December 1998”21.

The Commission’s verdict: legal assessment and fines

Legal assessment

Once it received the parties’arguments by all the companies involved, the Commission drawn its

conclusions by confirming the existence of a price fixing cartel, composed by 7 companies, in the

Italy-Greece ferry route from the period 1987-1994: the collusion was organized through several

meetings and telexes sent between companies in order to exchange information about the strategies

to follow simoultaneously.

Great effort was given by the Commission to the argument brought by the undertakings, according

to which agreements on price were consistent with the legislative Greek framework and led by the

Ministry of Merchant Navy (YEN).

In response to this accusation, the Commission pointed out that, after having requested some

information directly to the Greek Ministry and to the Greek Permanent Representation, the rigid

20 Paragraph 103, Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities 21 See Section E “The Arguments of the parties” from paragraph 43 to 96 , Commission Decision of 9 December 1998, IV/34466-‐Greek Ferries (1999/271/EC), Official Journal of the European Communities

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legal framework concerning the price fixing to which companies were subjected has to be

accounted for only the national part of the Italy-Greece route, since the unique aim of these

provisions is to avoid a possible price war between companies and preserve the competition

environment in the industry. Moreover, the Ministry denied any participation on the price fixing

policy for the international route because it sustained that companies were absolutely free to set

prices to their own. Finally, for what concerns the Law 4195/29, Commission indicated that the

content of this law could not represent a justification neither for the collusion, since “…it

presupposes that price competition exists and that companies are free to set their prices. It is only

when this freedom is used for unfair competition purposes that….the Ministry may only define

upper and lower prices and not impose a specific level of fares….”, nor for the adjustments relative

to the limits of inflation in the country.

Fines imposed by the European Commission

On the basis of all documentations collected by the Commission, all the companies involved in the

investigations were declared guilty of being part of a collusion strategy in the ferry service market

between Italy and Greece and this constitutes an intentional infringement of art.81 of the EC

Treaty, because the undertakings were undoubtedly aware of the capability of these agreements of

distorting competition.

The undertakings were punished by the Commission with the obligatory payment of fines, which

were set after some particular requirements. First of all, the limitations of fines to be attributed in

cases like this are indicated in the Article 19(2) of Regulation (EEC) No. 4056/86 which states that

fines can vary from “ECU 1000 to ECU 1000000, or a sum in excess thereof but not exceeding 10%

of the turnover in the preceding business year …”22.

Other important factors that affect the setting of a fine for a negligent behavior are the gravity and

the duration of the infringement: the gravity identifies the real consequences that the phenomenon

has on the market. In this context, it is possible to observe that a collusive price fixing behavior like

the cartel will always deflect the demand in the market, both within the group and outside: this is

the reason why Commission considers a price agreement a serious breach on the Community

Competition Law.

22 Article 19(2),COUNCIL REGULATION (EEC) N° 4056/86

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Surpringsly, the Commission stated that this particular infringement have not had such a great

impact on the market, since it has been noted that companies did not fully apply all the agreements

stipulated between them and they rather entered in a competition race for some of their strategies,

like discounting. Secondly, the Commission also observed that the Italian-Greek route seems to be

quite small compared with other ferry service markets in the European Union.

Finally, in assessing the gravity of an infringement the Commission has usually to consider the

share of the market owned by each company with the potential power to affect the competition in

the market: it is a common trend to punish more developed companies with higher fines.

For what concerns duration, the Commission pointed out that the cartel had a long duration, since

there are evidences of its start in 1987 up to July 1994, while in analyzing the real participation of

each single company it concluded that Minoan, Strintzis and Karageorgis’s infringement continued

until the investigations begin while other undertakings’s participation was classified of medium

duration.

Besides the already described factors, particular attention has to be put on both mitigating or

aggravating circumstances in order to increase or decrease the amount of fines for the companies.

The worst aggravating factor was attributed to Minoan Lines: first of all, Minoan has been charged

to be the real instigator of the cartel due to many reasons. Various documentary evidences

demonstrated that Minoan convinced Anek Lines to be part of the agreement in 1989: moreover, it

was responsible of being the intermediate of all the undertakings having the role of organize all the

meetings and monitor the cartel’s agreements through a subsidiary i.e. ETA which actively

participated to most of the negotiations. Finally it was responsible for a particular behavior that

strongly aggravate its position and its relative fine: once it received a request for information by the

Commission, it unfairly tried to obstruct the investigations by proposing to the other companies in

November 1992 a differentiation on prices of 1% for some categories of service, hoping to hide the

existence of an established collusive agreement: this justified an overall increase of 35% on the

Minoan’s fine attributed by the Commission.

On the other side, various mitigating circumstances contributed to some reduction on fines for the

undertakings and these concerns, for example, the existence of a prior common Greek economic

practice of setting domestic fares only after some consultations among them: last but not least, the

“follow my leader” role played by the undertakings with respect to Minoan contributed to a 15%

reduction of the fines for Marlines, Adriatica, Anek and Ventouris.

17

In regard of all the elements obtained during the investigations and of the companies’ statements,

on the 9 December 1998 the Commission, through the formal sign of Mr. Karel Van Miert, finally

set the correct amount of fines to charge to each company.

Fig.323

Conclusions Numerous evidences from the actual economic researches demonstrates that cases of companies

deciding to collude together in order to”destroy” competition are very likely to happen.

In this paper, the functioning of one of the most used anticompetitive behavior, the cartel, has been

showed: in order to understand how the phenomenon of the cartel can work, first of all it is

necessary to comprehend the dynamics that could bring a company to the decision of adopting a

strategy of collusion, both from an economical point of view and a legal one.From one side, in fact,

there are the favorable possibilities recognized by the companies of gaining extra-profits by acting

as a single “monopolist”, while from the other there is the high level of threath that firms have due

to the rigid legal framework that all the national Antitrust authorities provide in order to maintain

the competitive environment of its own country untouched.

Nevertheless, it seems quite clear that the balance is on the “evil” part of the issue: by

circumscribing the matter only to the European area, in fact, analysis on the existence of cartel on

the few last 20 years have showed that the number of cartels detected by the European Commission

is really high and no data can be found on the undetected ones.

23 European Union Press releases database, http://europa.eu/rapid/press-‐release_IP-‐98-‐1091_en.html

18

One interesting case of cartel is the one developed at the begin of 1990s, when seven between

Greek and Italian ferry companies stipulated for about five years several agreements on ferry prices

for passengers travelling along the Italy-Greece route: despite of the small impact it had on the

market, a very substantial job was made by the Commission in detecting the undertakings

responsibles for the collusion and in understanding the correct functioning of the cartel, since the

companies involved didn’t sign any type of written contracts but limited their collaboration only to

telexes or confidential meetings. Moreover, the Commission precisely reconstructed the historical

evolution of the agreements and was successful in building the pyramidal gerarchy of the

organization that started from the Minoan Lines which acted as the “ leading role” among the

undertakings and ended with the smaller undertakings,in terms of market share,that could only obey

to the indications of other companies.

In order to demonstrate the excellent work made by the European Commission, fair fines were

attributed to each company, which took in account several factors like the market share of each

company, their level of involvement and finally some mitigating or aggravating circumstances,

especially in the case of Minoan Lines.

.

19

Bibliography and website citations

• Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations”, 1776

• Oliver Budzinski “The Governance of Global Competition: Competence allocation in

International Competition Policy”, Edward Elgar Pub (April 8, 2008)

• Australian Competition & Consumer Commission Website,

http://www.accc.gov.au/business/anti-competitive-behaviour

• Industrial organization: Contemporary theory and empirical applications”,4th edition,

chapter 14 , pg. 326-329

• “Repeated games theories”, Industrial organization: Contemporary theory and empirical

applications”,4th edition, chapter 14 , pg. 330-341

• “The legal status of Nation State cartels under United States Antitrust and Public

International Law “, Mark R. Joelson , Joseph P. Griffin (1975)

• European Commission website:http://ec.europa.eu/competition/cartels/statistics/statistics.pdf

• Consolidated version of the Treaty of the European Economic Community,art.81(ex art.85):

http ://eurlex.europa.eu/LexUriServ/site/en/oj/2006/ce321/ce32120061229en00010331.pdf

• Commission Decision of 9 December 1998, IV/34466-Greek Ferries (1999/271/EC),

Official Journal of the European Communities

• Paragraphs 3-7

• Paragraph 15

• Paragraph 22

• Paragraph 23

• Paragraph 34

• Paragraph 37

• Section E , Paragraphs 43-96

• Paragraph 103

• Paragraph 141

• Cruise&Ferry Info. Magazine, 1996

• Maritime Transport: The Greek Paradigm”, Athanasios A. Pallis ( Elsevier , 2007)

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• “Shipping, the State and the Market: The evolving role of the European Union in

international & Greek Shipping politics”,Michael Joseph Romanos,London School of

Economics, (2005)

• Article 19, Section 2, “Council Regulation (EEC) N° 4056/86

• European Union Press releases database

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