Connor Global Price Fixing

2., updated and rev. Auflage 2007
ISBN: 978-3-540-34222-9
Verlag: Springer
Format: PDF
Kopierschutz: Wasserzeichen (»Systemvoraussetzungen)

E-Book, Englisch, Band 26, 510 Seiten, eBook

Reihe: Studies in Industrial Organization

I have devoted myself to studying the economic organization of industries for thirty years. It has been my good fortune to work at places that tol- ated my gadfly approach to research. So long as I produced a few publi- tions each year and wooed a few graduate students to share those interests, I was free to sample a smorgasbord of economic delights: why firms div- sify, the competitive role of advertising, strategies for selling in overseas markets, measuring market power, and many others. Although firmly - chored in the eclectic analytical framework of industrial economics and focused on the food system, I traversed a wide field at will. A decade ago I had pretty much convinced myself that naked price fixing was not a high priority for scholarship. True, collusion was rife in a few industries, such as bid-rigging among suppliers of fluid milk to school districts in isolated rural districts. Ripping off milk money from school children is reprehensible enough, but the size of the economic losses from localized price fixing paled besides other sources of imperfect competition. Moreover, there were no great policy debates about the wisdom or me- ods of enforcing the price-fixing prohibitions in the Nation’s antitrust laws.

Zielgruppe

Research

Autoren/Hrsg.

Connor, John M.

Inhaltsverzeichnis

The Economics of Price Fixing.- Anticartel Laws and Enforcement.- The Citric Acid Industry.- The Citric Acid Conspiracy.- Economic Impacts of the Citric Acid Cartel.- The World Lysine Industry.- The Lysine Conspiracy.- Economic Effects of the Lysine Cartel.- The Global Vitamins Industries.- The Vitamins Conspiracies.- Effects of the Vitamins Cartels.- U.S. Government Prosecutions.- Antitrust Prosecutions Outside the United States.- The Civil Suits.- The Business of Fighting Cartels.- Global Price Fixing: Summing Up.

Leseproben

Chapter 8: The Lysine Conspiracy (p. 189-190)

Two top executives of the giant U.S. agribusiness firm Archer Daniels Midland flew from the company’s headquarters in Decatur, Illinois to Tokyo, Japan in April 1992. Terrance Wilson, President of the sprawling corn-products division of ADM, disliked long flights because he reacted badly to the effects of jet lag, but he was epitome of the loyal manager, and this trip could make tens of millions of dollars for his company if everything went according to plan.

Along with Wilson was a brash new ADM vice president, Mark Whitacre, who headed up ADM’s new Bioproducts Division. Whitacre was a quickly rising star at ADM. With his Ph.D. in nutritional biochemistry from prestigious Cornell University, he was well equipped to handle the technical side of the high-tech bioproducts business. The product the two men were concerned about was lysine, an essential amino acid that speeds up the formation of lean meat on farm animals. After getting his Ph.D., Whitacre had worked for the German company Degussa that was the world’s biggest maker of amino acids, and it was there that Whitacre had discovered he had a flair for salesmanship. It was this rare combination of talents that prompted ADM to depart from company practice and hire him away from Degussa rather than promote from within.

Terry Wilson had come as a young man straight from the U.S. Marine Corps to work for ADM. He loved the company and its charismatic leader, Dwayne O. Andreas, who had several times demonstrated that he personally cared for Wilson and his handicapped son. Wilson applied his tough military ways to his jobs at ADM, so that he rose from near the bottom of the company’s organization to very near to its pinnacle in his 25 years with ADM. Although Wilson had never gone to college, he had a thing or two to teach his more polished underling who was twenty years his junior. It was not the sort of thing taught in business schools. Terry Wilson was going to teach Mark Whitacre how to fix the world price of lysine.

This was a way of doing business that Terry Wilson knew a lot about. Just a year before this trip to Tokyo, Wilson had taken a very similar mission to Europe with his younger colleague Barrie Cox. In a few months under Wilson’s tutelage Cox had turned into an accomplished price fixer of citric acid (see Chapter 5). Now was the time to repeat that highly profitable lesson for Whitacre’s Biotechnology Division. Like citric acid, lysine was a high-tech product made by fermentation of the corn sweetener dextrose. Like citric acid, ADM had just entered the industry in a big way but wasn’t yet the industry’s top dog – ADM’s ultimate objective in all its lines of business. Like citric acid, new entry into the industry had precipitated a fierce price war that turned the ink red in all the producer’s books.

Now the time was ripe to let ADM’s rivals know that it was ready to play ball, to call off their aggressive scramble for market share, and to stanch the outflow of profits precipitated by the bloody yearlong price war. Wilson and Whitacre were on a peace mission to Tokyo to meet their counterparts at Ajinomoto and Kyowa Hakko, the two oldest and still dominant makers of lysine in the world. When the Americans met the Ajinomoto executives for the first time, Wilson made several specific proposals: establishing a lysine trade association, audited sales reports for its members, and a 50% increase in price. The sincerity of ADM’s offer to cooperate rather than fight would take a while to sink in, but within a few months the managers of all three companies would be toasting their newly formed partnership in crime.

The lysine cartel held its first formal meeting in June 1992. The event that made the conspiracy possible was ADM’s decision in 1989 to build the world’s biggest lysine plant. Without the demonstrated power of ADM’s large production to disrupt the market and to discipline recalcitrant lysine producers, the cartel would never have formed in the first place. ADM used the carrot of profits for all, the stick of its unused capacity, and diplomacy of a high order to get the others to join and cooperate. For the Asian producers a lengthy price war made them pine for the old days when world pricing was simply a sellers’ management decision.