Monday, September 01, 2003

The competitor is our friend, and the customer is our enemy A book called Global Price Fixing: Our Customers are the Enemy  (John Connor, 2001, Kluwer Academic Publishers) gives insight into the growing tendency of illegal cartels among oligopolies. We must confess that our knowledge of the book is based on a review in the Review of Industrial Organization; the $180 price of the book puts it beyond our reading budget. We'll quote the review, by San Diego State professor Douglas Greer. Connor believes that cartels (other than OPEC) had pretty much disappeared between the 1950s and 1990s, or at least they were clever enough to avoid prosecution. Then they reappeared with a vengeance. The book traces the history of cartels, the law regarding price fixing, and then focuses on a set of notorious cases in the late 1990's. These include the vitamin, lysine, and citric acid cartels. What he shows is the close relationship of trade associations and cartels, where the seemingly neutral trade association serves as a cover for the price-fixing. He quotes the brazen-faced credo of Archer Daniels Midland, the leader in several of these cartels: "The competitor is our friend, and the customer is our enemy." The book traces the investigation and prosecution of these cartels in detail, and notes other cartels in sorbates and graphic electrodes. The amounts of money involved were significant, including overcharges between 15 and 35 percent. The total costs to American consumers he estimates as well above a billion, and the worldwide costs as several billion. That's several billion in profit, a major boost to the members of the cartel. As Greer notes, "[Connor] compares the structural characteristics with those that typically facilitate cartel activities - e.g. high concentration, fewness of firms, high buyer concentration, and homogeneous products." This looks very much like an oligonomy to us. Given the increasing power of oligonomies, we can expect an increase in cartels in the future. 10:30:25 AM

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