Prevention must be central to breaking the cartel cycle

Han Ki-jungThe author is a professor at Seoul National University Law School and a former chairperson of the Korea Fair Trade Commission.These days, one frequently hears people lament that the cost of groceries has become unbearable. There are many reasons why household food expenses have surged, but one critical factor should not be overlooked: cartels that undermine the foundations of the market economy.Cartels not only artificially raise prices but also damage trust in markets and weaken the long-term value of companies. They must be thoroughly investigated and eradicated.Joo Byung-ki, chair of the Fair Trade Commission, speaks while presiding over a plenary meeting at the commission’s hearing chamber at the Government Complex Sejong in Sejong on Oct. 1, 2025. [NEWS1]Collusion among companies to coordinate prices or control supply is the public enemy of free competition. Yet cartels continue to appear even in sectors closely tied to people’s daily lives. Each year the Fair Trade Commission imposes massive fines on companies found guilty of collusion, but the amount of undiscovered, covert cartel activity is likely far greater.Considering this reality, it is difficult even to estimate the severity of market distortion. Cartels should no longer be viewed simply as instances of moral hazard by individual firms. They must be recognized as a chronic disease threatening the entire market system, requiring an effective institutional response.The reason cartels persist is clear. Many firms believe the expected benefits of collusion far exceed the costs if they are caught. Because collusion is typically conducted in secrecy, the probability of detection is low. Even when discovered, sanctions are limited by the principle of proportionality, which punishes only the competitive harm caused.As a result, firms often regard being caught as merely bad luck and assume they will only pay a price proportional to their wrongdoing. This calculation allows collusion to be misperceived as a “high-profit business.” The result is a vicious cycle in which companies repeat collusive behavior even after facing penalties.To curb widespread collusion, the paradigm of enforcement must shift. Increasing criminal penalties to pressure firms has clear limitations. It runs counter to the global trend of reducing economic criminal sanctions and has shown limited effectiveness in deterring misconduct.Instead of focusing primarily on punishment after the fact, policymakers should concentrate on preventive institutional reforms that eliminate the incentive to collude. Carefully designed economic penalties can discourage firms from entering collusive agreements in the first place.One approach is to adjust the standards for calculating administrative fines so they better reflect reality and to significantly raise the statutory ceiling for such fines through legislative revision. Repeat offenders, in particular, should face sharply increased penalties so that companies recognize that collusion poses a fatal risk to corporate management.At the same time, these measures must not remain mere threats. Firms should be encouraged to build internal monitoring systems and compliance programs. For habitual violators, the benefits of the leniency program — which reduces penalties for firms that voluntarily report collusion — should be restricted to prevent abuse of the system.Another central problem is that distorted prices often remain even after fines are imposed. Administrative fines are paid to the state, but the inflated prices created by collusion can persist in the market, continuing to harm consumers.To address this issue, authorities should more actively use orders requiring price redetermination. At the same time, to prevent firms from making arbitrary adjustments, regulators should seriously consider exercising the power to directly order price reductions.Of course, such administrative actions require a high degree of expertise to maintain legitimacy. To justify a price-reduction order, regulators must scientifically estimate the hypothetical price that would have prevailed in the absence of collusion.This task belongs to the realm of rigorous economic analysis based on detailed market statistics. That is why the Fair Trade Commission must significantly expand the number of economic analysis experts within its ranks. Sophisticated analysis can persuade firms to accept enforcement outcomes and provide strong arguments if disputes proceed to litigation.Timely detection and swift case handling must also accompany these reforms. In recent years, many cartels have left little direct evidence. Proving them requires investigators to analyze market conditions and price trends comprehensively to infer the existence of agreements.The Fair Trade Commission headquarters in the central city of Sejong [YONHAP]This makes collaboration between experienced investigators and economists essential. Increasing staff numbers is important, but maintaining expertise is equally crucial. The cartel investigation unit should not become a position that officials avoid. Incentives and professional development opportunities should be provided so investigators can build expertise and maintain the credibility needed for effective enforcement.Cartels are a malignant virus that destroys the ecosystem of the market. They cannot be eliminated through punishment alone. The best approach is to design precise economic sanctions that prevent firms from succumbing to the temptation of collusion while building systems capable of detecting violations in a timely manner.Raising administrative fines and introducing price-reduction orders could become powerful tools, but they must be applied with precision by economic analysis experts placed at the forefront of enforcement. Only then can abnormal price distortions be corrected and a healthy market order be established in which consumers and businesses co-exist.This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.