After Steven Soderbergh’s adaptation of Kurt Eichenwald’s nonfiction book The Informant debuted to largely positive reviews last weekend, price fixing is all the conversational rage again. Okay, that statement is not even remotely true, but Soderbergh’s film, which details a mid-1990s scheme to rig the price of the animal feed additive lysine, at least brought the anti-competitive practice to the big screen.
Just how common is price fixing, though? That’s tough to say, but let’s have a look at a few notable examples from business history.
In 1973, Stanley Adams was an executive at the Swiss pharmaceutical firm Hoffman-LaRoche when he uncovered some rather incriminating documents about his employer. It turned out that the company was part of a price-fixing scam in the international market for vitamins. Adams decided to pass his findings on to the European Economic Commission in a confidential memo detailing how Roche manipulated the bulk vitamin market.
Adams kept his end of the deal with the EEC, but the Commission did a lousy job with the whole “confidential” thing. It accidentally gave Roche copies of documents that included the whistleblower’s name, and under Swiss law, that meant Adams could be arrested for industrial espionage and theft. Adams spent months in solitary confinement in a Swiss prison; his wife was so distraught that she committed suicide.
Eventually Adams got out of jail, and Roche somehow managed to avoid taking a hard hit for its role in the price fixing. Getting off the hook for this offense may have just made the company more brazen, though. From 1990 to 1999, it engaged in an illegal price-fixing cartel for vitamins again, and this time Roche and its co-conspirators got nabbed. In 1999, the company pled guilty to price fixing in the U.S. and paid a $500 million fine. Within two years, the European Union had also taken Roche to task for its nefarious pricing and fined the company to the tune of 462 million euros.
If you needed to buy heavy equipment in the 1950s, you were probably going to pay too much thanks to a price-fixing cartel headed by General Electric and Westinghouse. The biggest players in the equipment market met secretly to fix prices on items like turbines and switch gear.
So who blew the whistle on this cartel? Nobody. The Tennessee Valley Authority actually caught the companies red-handed. When reviewing its financial records, the TVA found something strange: for the previous three years, 47 manufacturers had been submitting identical bids for projects. Since the bids were supposedly a secret, something seemed amiss; for example, it was a bit fishy that the TVA would get eight identical bids of $12,936 for an order of 4200 insulators.
How did the scam work? The heads of these companies would meet at public locations like golf courses and restaurants and pick out both a winning bid and a separate set of identical losing bids for each project or order.
When the government unraveled this plot in 1960, it dropped the hammer on the price fixing executives. Nearly 50 execs paid large fines, and nine employees of GE and Westinghouse spent a month or more in jail.
In late 2007, British fans of milk and cheese got some bad news: their supermarkets and milk suppliers had been illegally rigging the prices of dairy products since 2002. The Office of Fair Trade learned that many of the U.K.’s largest supermarket chains had been colluding to raise the prices of dairy products, and their milk distributors, namely Dairy Crest and Robert Wiseman Dairies, had been the go-betweens for the ostensibly secret pricing decisions.
The anti-competitive behavior supposedly cost customers close to 270 million pounds over the course of the scam, and the companies involved faced fines that maxed out at a combined 116 million pounds.
In 2007, the European Commission undermined a price-fixing scheme among the makers of flat glass, the variety that is used to make windows, doors and mirrors. In 2004 and 2005, four major makers of flat glass—Asahi, Guardian, Pilkington, and Saint-Gobain—secretly met to discuss artificially raising their prices.
As a result, the 1.7-billion-euro flat glass industry got a nice little bump in its revenues, or at least it did until the European Commission got to the bottom of the strange pricing. The Commission didn’t take it easy on the offending parties, either. It fined the four companies a total of nearly 487 million euros for violating the ban on cartel behavior and price fixing.
Remember the soaring fuel prices that gripped the travel industry a few years ago? British Airways found a less-than-scrupulous way for the rising prices to help pad its bottom line. When airlines started tacking fuel surcharges onto passengers’ flight costs, someone at BA apparently saw a way to make some quick cash.
In 2004, the airline entered into secret talks with its rival Virgin Atlantic to simultaneously bump up their fuel surcharges, a practice that continued into 2006. Over the course of the collusion, fuel surcharges rose from an average of five pounds a ticket to over 60 pounds a fare.
When Virgin Atlantic’s lawyers realized what the company had done, they did the only thing they could do: they ratted out British Airways. Virgin ended up getting immunity for providing the goods on its former partner in collusion, while BA got walloped with record fines. The British Office of Fair Trading nailed the airline for 121.5 million pounds, while the American Department of Justice smacked it with an additional $300 million fine. Ouch.
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