Academic

Cartels are evil. (Response to Prof. Zamora)

By University of Houston Law Center

As you know, the MOST recent lawsuit against OPEC is In Re Petroleum Products Antitrust Litigation, MDL No. 1886, currently in the Southern District of Texas.  Of course, there are serious obstacles in terms of an antitrust suit against OPEC

or more precisely, its members. On the antitrust doctrine side, it would require the repeal of the Act of State Doctrine. Moreover, I suspect that because much of the oil is controlled by private entities, something would have to be done about the Foreign Sovereign compulsion doctrine as well. 

 As a practical matter, there are obvious hurdles. Clearly there would be extreme reluctance on the part of any Assistant Attorney General to take such a bold step. The White House would not look appreciatively at such a suit, as it would require some serious collaborate efforts by other countries to support such a suit, at least politically. 

In addition, there are the issues involved in whether or not OPEC member countries would withdraw capital from the U.S. or any EU states deciding to bring an antitrust action against OPEC members. At the very least, it could spark threats of economic retaliation and other repercussions. 

And, of course, the oil prices are not only OPEC’s doing. We have serious problems with oil speculation, and Congress is considering legislation to boost margin requirements. Refining capacity is perking up, based in part on projections that there is a 100% probability of oil prices greater than $60 barrel for just about forever. Oh, and then there’s our action in Iraq, which has caused serious volatility in the market.

As far as I’m concerned, however, cartels are evil. No exceptions. And it does not bother me that the cartel is run by foreign countries. I would love to see what kind of interesting discovery would occur if U.S. antitrust enforcement officials investigated OPEC and after the raiding of state oil company offices by European officials. 

 While we are at it, we could investigate whether U.S. oil companies are sharing in the monopoly rents. While Exxon and other companies are making record profits, I suspect that a lot of their revenues are likely concealed through exorbitant salaries and inefficient capital investment.   Or at least that is how it works in seriously concentrated industries. 

International cartels do untold damage because they are not deterred. They are not deterred because they are subject to a variety of immunities, such as the Act of State Doctrine. And, until recently, no country in the world subjects cartels to treble damages. And until recently, only the U.S. has offered hard prison time for cartel members. Thus, the rewards always exceed the risks by orders of magnitude. See John M. Connor and Darren Bush, How to Block Cartel Formation and Price Fixing: Using Extraterritorial Application of the Antitrust Laws as a Deterrence Mechanism, 112 Penn St. L. Rev. 813 (2008). 

Of course, none of these thoughts would have fit into the op-ed.

Full post as published by University of Houston Law Center Faculty Blog on July 03, 2008 (boomark / email).