Global Price Fixing: Our Customers are the Enemy

611 Pages·2001·16.244 MB·English

by  John M. Connor (auth.)

GLOBAL PRICE FIXING
STUDIES IN INDUSTRIAL ORGANIZATION
Volume 24
Series Editors:
H.W. de Jong, University ofA msterdam, Amsterdam, The Netherlands
W.G. Shepherd, University ofM assachusetts, Amherst, US.A.
Advisory Board:
W.Adams, Michigan State University, East Lansing, (Mich.), US.A.
R.E. Caves, Harvard Univetrsity, Cambridge, (Mass.), US.A.
K.D. George, University College ofS wansea, Singleton Park, UK.
E. Heusz, Friedrich Alexander University, Erlangen-Nurnberg, Germany
A.P. Jacquemin, University ofL ouvain, Louvain, Belgium and
Commission of the European Communities, Brussels, Belgium
E. Kantzenbach, University ofH amburg, Hamburg, Germany
H.W. Lambers, Erasmus University, Rotterdam, The Netherlands
R. Prodi, University ofB ologna, Bologna, Italy and
Instituto per la Ricostruzione Industriale, Bologna, Italy
F.M. Scherer, Harvard University, Cambridge, (Mass.), US.A.
GLOBAL PRICE FIXING
Our Customers are the Enemy
John M. Connor
Professor, Purdue University, Indiana, USA
...
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Library of Congress Cataloging-in-Publication Data
Connor, John M.
Global price fixing: our customers are the enemy / John M. Connor
p.cm--(Studies in industrial organization; v.24)
ISBN-13: 978-1-4613-7982-9 e-ISBN-13: 978-1-4613-0293-3
DOT: 10.1007/978-1-4613-0293-3
1. Price fixing--Case studies. 2. Cartels--Case studies. 1. Title. II. Series.
HF5417.C582001
338.5'23--dc21 2001034435
Copyright C> 2001 by Kluwer Academic Publishers.
Softcover reprint of the harcover 1st edition 2001
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, mechanical, photo-copying, recording,
or otherwise, without the prior written permission of the publisher, Kluwer Academic
Publishers, 101 Philip Drive, Assinippi Park, Norwell, Massachusetts 02061
Printed on acid-free paper.
DEDICATION
For Willard F. Mueller,
mentor, friend, and inspiration.
TABLE OF CONTENTS
Preface xv
Acknowledgments xix
1. Introduction
Purpose and Scope
Importance of the Cases 4
A Renaissance in Global Enforcement 4
Affected Sales and Injuries Are Huge 8
New Antitrust Enforcement Tools 9
New Insights into Cartel Operations 11
Sources and Methods 13
Organization 13
2. The Economics of Price Fixing 17
Basic Theory 17
Pure Competition and Monopoly 17
Oligopoly 19
Price Fixing Defined 21
Setting Prices and Conditions of Sales 22
Fixing Market Shares 24
Limiting Production or Sales 25
Monitoring the Agreements 26
Enforcement of Agreements 26
Covering Up Cartel Activities 28
Cartel Theory 28
Conditions Facilitating Collusion 30
High Seller Market Concentration 32
Low Buyer Concentration 32
Homogeneity and Standardization 33
Entry Barriers 34
Growth and Demand 35
Other Factors 36
Effects of Collusion 36
Cartel Histories 39
The Electrical Equipment Conspiracy 43
3. Anticartel Laws and Enforcement 49
Market Power 49
The Sherman Act 51
Vlll
Prosecuting Price Fixing 56
Government Suits 56
U.S. Price-Fixing Fines and Prison Sentences 61
U.S. Prosecution of Global Cartels 65
Suits by Private Parties 70
Estimating Damages 71
Legal Procedures 74
The Question of Timing 76
Price Fixing Penalties 77
Forensic Economics 80
Anticartel Enforcement Abroad 81
Historical Development 81
Anticartel Laws 83
Government Fine Structures 84
Other Price-Fixing Sanctions 89
Enforcement in Practice 89
International Cooperation 91
Appendix 97
4. The Citric Acid Industry 99
The Product 99
Technology and Early Development 99
Market Size and Growth 100
The Structure of Production 103
The North American Market 103
The Global Market 106
Members of the Cartel 108
Archer Daniels Midland Co. 109
Cargill Corporation 114
Bayer AG 115
Hoffmann-La Roche AG 116
Jungbunzlauer AG 117
International Trade Patterns 118
Costs of Production 120
Selling Practices 122
Appendix 125
5. The Citric Acid Conspiracy 131
Introduction 131
Triggering Events 132
Meetings and Methods 134
Citric Acid Price :Movements 137
IX
The Role of Cargill 139
The China Problem 141
The Cartel Is Unmasked 143
6. Economic Impacts of the Citric Acid Cartel 147
Price Effects 147
Effects on Production 150
Effects on International Trade 151
Imports 152
Exports 154
Trade Distortion 154
Geographic Price Discrimination 155
The Customer Overcharge 156
Conclusions 158
7. The World Lysine Industry 161
The Product and Its Uses 161
Technology of Production 162
History of the Industry 164
The Lysine Industry Up to 1990 165
Early Price-Fixing Episodes 167
New Entry 169
Market Size and Growth 171
Structure of Supply in the 1990s 174
North America 174
Members of the Cartel 179
Archer Daniels Midland Co. 179
Ajinomoto Co., Inc. 181
Kyowa Hakko Kogyu Co., Ltd. 183
Sewon Company 184
Cheil Food and Chemicals Co. 185
International Trade and Investment 186
Selling Practices 187
Appendix 192
8. The Lysine Conspiracy 199
The Price War of 1991-1992 200
Meetings and Methods 203
The Cartel Begins Meeting 203
The Role of Uncertainty 205
Allocating Sales Quotas 206
Monitoring the Volume Agreements 207
x
The Problem of Geographic Arbitrage 208
Demand Elasticity 209
The Shadow Price of Lysine 210
Seasonality of Demand 211
Price Fixing Grew in Complexity 213
Concerns about Entry into the Industry 213
The Cartel's Production Capacity 215
Costs of Lysine Production 217
Capacity Utilization 219
The Lysine Association 220
Concerns about Antitrust Violations 222
ADM's Charm Campaign 223
Continuing Cartel Contentiousness 224
The Cartel is Unmasked 229
Appendix 234
9. Economic Effects of the Lysine Cartel 241
Price Effects 241
Production Effects 247
Effects on International Trade 249
U.S. Export Volume 250
U.S. Export Prices 252
U.S. Imports 256
Effects on Profits 257
The Customer Overcharge 259
The Time Period 261
The But-For Price 261
The Before-and-After Method 262
The Cournot Method 262
The Cost-Based Method 263
Summary 264
Conclusions 264
Appendix 269
10. The Global Vitamins Industry 277
Origins of the Industry 278
Uses of Vitamins 278
Pharmaceutical and Vitamin Manufacturing 280
Early Development of the Industry 282
Companies 284
Hoffmann-La Roche 284
BASF AG 285