Jelle Jaspers
The year 1924 was a very good year for Anton Philips. He managed to team up his company Philips with the world’s largest light bulb manufacturers: General Electric, Osram and France’s Compagnie des Lampes, in the so-called Phoebus cartel. For years, the Phoebus cartel divided the global market for light bulbs and introduced production quotas. Phoebus is considered the first cartel with a truly global reach. However, the cartel did more than just fix prices and divide markets. Once manufacturers realised the quality and life span of light bulbs was improving, they identified a threat to their revenue model, based on the quantity of light bulbs sold. In response, they collectively hacked improvement and innovation in the light bulb’s lifespan.
Manufacturers collectively hacked improvement and innovation in the light bulb’s lifespan.
By installing the so-called ‘1,000 hours working group’, all manufacturers in the cartel were obliged to bring back the life span of incandescent lamps to a 1,000 hours. The participants of the cartel closely monitored this process and all firms were required to send their light bulbs to a central testing lab in Switzerland. A system with fines was in place to ensure everyone in the cartel complied with the agreement, to increase the costs of breaching the agreement and prevent opportunism by participants. The industry standard of 2,500 hours in 1924 eventually dropped to 1,000 hours by 1940. Historically significant, the Phoebus cartel is considered to have given birth to what is called ‘planned obsolescence’ of industrial products. Planned obsolescence is the structural and deliberate design of products to break down or decrease in quality after several years, which today is still present in products like IPhones, inkjet printers etc. In that sense, the principle of planned obsolescence is very much alive in contemporary business. An informative documentary on the history of planned obsolescence is ‘The Light Bulb Conspiracy’ by Cosima Dannoritzer from 2010.
Today, the context has changed. Nearly a century has passed since the Phoebus cartel and a transformed political and legal landscape sets the scene. The contemporary rise of the market economy and the European Single Market have changed the current perspective on cartel conduct. Politicians emphasize the damage cartels cause costumers and its detrimental effects for business innovation. Illustrated in the words of former European Commissioner Competition Mario Monti characterising cartels as: “cancers on the open market economy”. Legal scholars speak of global criminalisation of business cartels, with countries in virtually every region of the world prosecuting cartels (Shaffer, Nesbitt & Willer, 2011). Since the late 1990s, most countries increasingly introduced administrative penalties and some countries criminal penalties for serious cartel conduct (Harding, Beaton-Wells, and Edwards 2015). Clearly, authorities worldwide put forward an increasing enforcement and condemnation of cartel conduct. However, in these times of criminalisation and increased enforcement, recent cartel agreements still form today’s headlines (including the usual suspects): ‘EU imposes record $1.9 billion cartel fine on Philips, five others’ and “Price-Fixing Truck Makers Get Record E.U. Fine: $3.2 Billion”. So context has changed, but has business as well? In the words of Harding and Joshua (2010), we should in fact speak of a cartel parallax: not the subject matter itself has changed but its environment has.[1]
Indeed, the wide range of recent examples of detected cartels demonstrates that conspiring with the competition is still an attractive business strategy in today’s markets. This poses questions as to how, why and under which circumstances corporate officials will succumb to fixing prices, rigging bids and allocating markets with others in the industry.
Why and under which circumstances will corporate officials succumb to fixing prices, rigging bids and allocating markets with others in the industry?
Moreover, in a global context of cartel criminalisation it poses the question: what makes cartels endure? What explanations are there for their longevity – which entails years, sometimes decades (Connor 2010, Connor & Helmers 2007, Levenstein & Suslow 2006)? For instance, the European price-fixing cartel by truck producers lasted for 14 years. Do cartels impose effective social control on their participants? For example the control and fining system in the Phoebus cartel. And if so, when will external legal control of cartels undermine the internal controls? Or, what forms of internal control make cartels impenetrable for legal control?
In my following blogs, I will discuss the social mechanisms of coordination, negotiation, social control, reciprocity etc. within these –often considered– ‘gentlemen’s agreements’. I will address the above-mentioned questions by discussing alternating examples and landmark cases to elaborate on some of the main findings of my (PhD) research.
This research is funded by NWO Research talent grant
[1] A parallax is a metaphor -drawn from photography and film- for when a subject matter does not change position, but those observing and dealing with the subject alter their stance.
