European Car Recycling Cartel: Collusion in an Oligopoly
EU regulators fined major carmakers €458 million for colluding on vehicle recycling, showing how governments can tackle cartel behaviour.
Economic relevance
Regulation
Key figures
Total EU fine
About €458 million
The European Commission fined 15 major car manufacturers and the European Automobile Manufacturers' Association.
Length of cartel
More than 15 years
The infringement ran from 29 May 2002 to 4 September 2017.
Manufacturers involved
16
Sixteen major manufacturers were involved. Fifteen were fined; Mercedes-Benz received full immunity for revealing the cartel.
Mercedes-Benz fine avoided
About €35 million
Mercedes-Benz received full immunity under the Commission's leniency programme.
At a glance
- In April 2025, the European Commission fined 15 major car manufacturers and their industry association about €458 million for taking part in a recycling cartel.
- The cartel operated for more than 15 years and involved firms agreeing not to pay car dismantlers for recycling services.
- The manufacturers also agreed not to compete by advertising how recyclable their cars were or how much recycled material they used.
- The case shows how firms in an oligopoly may gain by cooperating instead of competing, and how governments can respond through competition law, fines and leniency programmes.
- Mercedes-Benz avoided a fine because it revealed the cartel to the Commission, showing how leniency can help governments detect secret collusion.
Background
An oligopoly is a market dominated by a small number of large firms. Because each firm's decisions affect its rivals, firms are interdependent. This can create an incentive to compete strongly, but it can also create an incentive to cooperate.
When competing firms make an agreement to reduce competition, they form a cartel. Cartels may agree on prices, output, customers or other business decisions. This can allow firms to increase profits at the expense of consumers or other businesses.
The European car industry provides a useful real-world example because major manufacturers coordinated parts of their recycling policies instead of making these decisions independently. The case also shows that collusion does not have to involve setting the retail price of cars. Firms can also collude over costs, suppliers or non-price competition.
What happened
On 1 April 2025, the European Commission fined 15 major car manufacturers and the European Automobile Manufacturers' Association about €458 million for participating in a cartel involving end-of-life vehicle recycling.
The Commission found that the firms had colluded in two main ways. First, they agreed not to pay car dismantlers for processing end-of-life vehicles. They followed a 'zero treatment cost' approach and shared commercially sensitive information about their agreements with recycling firms.
Second, they agreed not to compete by promoting how recyclable their cars were or how much recycled material was used in new cars. The Commission said this reduced pressure on manufacturers to go beyond the minimum legal recycling requirements.
The cartel lasted from 29 May 2002 until 4 September 2017. Mercedes-Benz later revealed the cartel to the Commission and received full immunity from a fine that would have been about €35 million.
The EU acted under Article 101 of the Treaty on the Functioning of the European Union, which prohibits agreements between firms that restrict competition. The Commission also used its leniency programme, which encourages cartel members to provide evidence in exchange for immunity or lower fines. All parties admitted their involvement and settled the case, receiving a 10% reduction in their fines.
Timeline
29 May 2002
The Commission identified this as the start of the continuous cartel infringement.
4 September 2017
The cartel infringement ended.
September 2019
Mercedes-Benz applied for leniency and revealed the cartel to the European Commission.
March 2022
The Commission carried out inspections as part of its investigation.
1 April 2025
The Commission announced fines of about €458 million against 15 manufacturers and their industry association.
Using this in the exam
Use this case in an answer about oligopoly, collusion, cartels or government competition policy.
First explain why oligopolistic firms may want to cooperate. If firms compete aggressively, they may reduce each other's profits. By colluding, they can avoid some of this competition. In this case, car manufacturers agreed not to pay recyclers and agreed not to compete over recycling information.
You can connect this to the prisoner's dilemma. All firms may gain from maintaining the agreement, but each firm also has an incentive to break the agreement or report the cartel. Mercedes-Benz did exactly this by revealing the cartel and receiving immunity from its fine.
For government intervention, explain that the EU used competition law, large fines and a leniency programme. The fines make collusion more costly, while leniency makes cartels less stable because each member knows another firm may report the agreement.
Do not describe this as a simple consumer price-fixing cartel. The firms mainly coordinated their payments to recyclers and their advertising of recycling performance. The economic lesson is broader: oligopolistic firms can collude over many forms of competition, not only retail prices.
Syllabus topics
Diagrams to use
Test yourself
Questions this example can answer
- Explain why firms in an oligopoly may choose to collude.
- Using a real-world example, evaluate government policies used to reduce cartel behaviour.
- Discuss whether fines are an effective way to increase competition in oligopolistic markets.
Evaluation
Arguments in favour
Large fines increase the cost of collusion
The Commission imposed fines of about €458 million. If firms expect illegal cooperation to lead to large financial penalties, the expected profit from joining a cartel falls, which can discourage future collusion.
Leniency programmes can make cartels unstable
Mercedes-Benz received full immunity after revealing the cartel. This creates an incentive for each member to report the others first, making it harder for firms to trust each other and maintain a cartel.
Competition law can protect suppliers and consumers
Stopping firms from coordinating their payments to recyclers allows recycling businesses to negotiate more independently. Preventing agreements over advertising can also restore competition over environmental performance and give consumers more useful information.
Arguments against
Cartels can remain hidden for many years
The agreement lasted for more than 15 years before the case was exposed. This shows that even large fines may have little effect if firms believe the probability of being caught is low.
Fines may not fully compensate those harmed
A government fine punishes the firms, but it does not automatically repay recycling companies or consumers who may have been affected by the cartel. Separate compensation claims may still be needed.
The deterrent depends on the size and probability of punishment
A fine will only strongly discourage collusion if firms expect the possible penalty, multiplied by the chance of being caught, to be greater than the extra profit they expect from cooperating.
Context and assumptions
Leniency and fines work together
Fines make being caught expensive, while leniency gives one cartel member a reason to provide evidence. Using both policies together can be more effective than relying on fines alone.
Not all cooperation between firms is illegal
Firms can cooperate in ways that improve efficiency or technology. Competition law targets agreements that restrict competition, so governments must distinguish harmful collusion from cooperation that may benefit consumers.
The cartel affected non-price competition as well as costs
The manufacturers did not only coordinate payments to recyclers. They also agreed not to advertise better recycling performance, showing that firms can compete or collude over quality, information and environmental features as well as price.
Key terms
- Oligopoly
- A market structure dominated by a small number of large firms whose decisions are interdependent.Taught in Unit 2.11: Market Failure: Market Power
- Collusion
- Cooperation between firms to reduce competition between them.Taught in Unit 2.11: Market Failure: Market Power
- Cartel
- A formal agreement between competing firms to restrict competition, for example by coordinating prices, output or other business decisions.Taught in Unit 2.11: Market Failure: Market Power
- Interdependence
- A situation where the decisions of one firm affect other firms, so each firm must consider how competitors may respond.
- Competition policy
- Government policies designed to prevent anti-competitive behaviour and promote competition between firms.Taught in Unit 2.7: Role of Government in Microeconomics
- Leniency programme
- A policy that reduces or removes a cartel member's fine if it reports the cartel and provides evidence to the competition authority.
References
Sources
- 01
Commission fines car manufacturers and association €458 million over end-of-life vehicles recycling cartel
European Commission
- 02
Article 101 of the Treaty on the Functioning of the European Union
EUR-Lex
- 03
Cartel settlement procedure
European Commission
- 04
Fines and leniency in EU competition policy
European Commission
- 05
Car industry settles competition law case
UK Competition and Markets Authority
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