Alternative Means of Cartel Detection:

1. Alternative Means of Cartel Detection: Proactive means of detection - use of market data and information on behaviour of major companies to identify the likelihood of collusion Vladimir Kachalin Assistant/Advisor to the Head of Federal Antimonopoly Service of Russia- Views expressed are these of the author and does not reflect the official position of FAS-Russia

2. Introductory Remarks • What are the “alternative” means of cartel detection? • Does “detecting” mean “legally proving?” • How to protect the market and consumers from cartelization of suppliers in the absence of a “smoking gun” evidence of collusion? • Do market effects matter? May the behavioral “rule of reason” considerations be of some use in cartel detection? • “Proactive” vs “reactive” cartel detection: responding rather to the market signals than information originating from major players (e.g. leniency application or customer complaint). • Complementarily between the both modes of detection, e.g. suspicious market behavior can prompt searching for informants, facts and possibly making some of the cartel participants to apply for leniency under the treat of being disclosed – application for leniency is a rationalistic decision based on the cost-benefit analysis of the potential applicant.

3. “Pro-active Detection:” Key features • Market structure: What markets are most vulnerable to cartelization? I.e. in what markets cartels are most likely to emerge and sustain? • Oligopoly: implicit vs explicit collusion. • Information on price and tariff setting by major companies in the market. • Analysis of behavior of major companies in the market.

4. Information on Price and Tariff Setting • Comparison between similar markets • Comparison between time periods and price monitoring

5. Aeroflot-Russian Airlines, Sibir’ and UT-Air: 90% of service between Moscow and Perm’. Similar situation is in Moscow – Irkutsk and some other routes. • Simultaneous price increase. • Passengers complaint that price of flight was higher than flights for similar distances and time, e.g. Moscow-Krasnodar or Moscow – Ufa. • Market research showed that company per flight costs were lower and passengers load higher than on similar flights. Comparison Between Similar Markets: Airline case example and “Comparative Table” Distance = 1100 Km Per flight price = 12-14 thousand RUR ($400-470) Three companies challenged FAS order to companies to decrease prices in the court. FAS is developing a “Comparative Table” of per flight tariffs for similar routes domestically and internationally to reveal cartels and price increases.

6. Comparison Between Time Periods and Price Monitoring: Indirect Price Collusion in the Oil Sector (1) • In 2007-11 FAS three times fined Rosneft, TNC-BP, GaspromNeft, Bashneft and Lukoil totally for 20,7 billon RUR $ 700 000 for price collusion. The Court upheld the Agency decision. • FAS and leading oil companies agreed on a compliance program providing for: • sale of not less than 10% of gasoline, 10% of aviation kerosene, 8% of diesel fuel at commodity exchange on a monthly basis; • equal access for all customers to supply of oil through pipe-lines and rail transportation; • non-discriminatory sale out of the commodity exchange

7. Comparison Between Time Periods and Price Monitoring: Indirect Price Collusion in the Oil Sector (2) • In August 2013 the wholesale prices for major oil products increased by 20% as a result of decrease in sales at the commodity exchange by the oil companies (GaspromNeft, Bashneft, Surgutneftegas). • Comment: The oil companies did not collude directly on prices but they intentionally violated the regularity of supply that lead to shortage of oil products and price increase. Not all the dominant companies participated in the violation but all benefited from the price increase. • Agency reaction: warning to the companies to observe the regularity of supply to the commodity exchange (i.e. to return to the requested volumes of monthly supply by the end of October) under the treat of an administrative penalty (fine) in case of non-compliance. • Companies’ reaction – varying from confirming company’s adherence to the regularity of supply requirement (GaspormNeft) to ‘no comment’ (Bashneft).

8. Behavioral Proofs of Collusion: An Example of a Bid-Rigging Case • Story • Eske, Sirius and Blitz companies participated in the Government Tender for food purchase among other bidders. Two of them vigorously competed on price and thus made other participants to withdraw from the tender. Having won the tender both refused to sign the contract that was awarded to the third company who suggested the price slightly below the starting one but did not withdraw from the tender. In professional slang this is called the “ram” practice. • Agency reaction:FAS fined them for bid rigging. The agency decision was upheld by the Court although the companies did not confess in collusion.