Global Price Fixing: Our Customers are the Enemy PDF
Preview Global Price Fixing: Our Customers are the Enemy
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 ... " Kluwer Academic Publishers BostoniDordrecht/London Distributors for North, Central and South America: Kluwer Academic Publishers 101 Philip Drive Assinippi Park Norwell, Massachusetts 02061 USA Telephone (781) 871-6600 Fax (781) 681-9045 E-Mail <[email protected]> Distributors for all other countries: Kluwer Academic Publishers Group Distribution Centre Post Office Box 322 3300 AH Dordrecht, THE NETHERLANDS Telephone 31 786392392 Fax 31 786392254 E-Mail <[email protected]> ..... " Electronic Services <http://www.wkap.nl> 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
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