logo

Arguments for the Prosecution in the Lysine Price-Fixing Conspiracy

   

Added on  2019-09-30

4 Pages951 Words93 Views
 | 
 | 
 | 
ReportArguments for the prosecution in the Lysine price-fixing conspiracyThe case:This conspiracy occurred in 1990 by five companies who made an organized effort to raise theprice of lysine which was an animal feed additive (White, 2001). The high-tech fermentationtechnologies were commercialized by the five companies. These companies were: ArcherDaniels Midland (American company), Ajinomoto and Kyowa Hakko Kogyo (Japanesecompanies), and Sewon America Inc. and Cheil Jedang Ltd (Korean companies). Arguments:Lysine is an amino acid which is essential for the lean muscle development of poultry and hogs.It is a chemical compound and close to being a homogeneous product. This is because; thefarmers can get the required nutrients by using soybean meal or by combining the corn andlysine. The switching cost between these two nutrients is zero. The shadow price of thealternative feed source (henceforth the “ceiling price”) can be approximated by a weightedaverage of corn and soybean meal prices (Warren-Boulton, 1995). The characteristic of demandis inelastic and the firms that produce it face the capacity constraints. The capacity of the firms,their locations and the costs incurred by them is heterogeneous. These characteristics prove thatthe structure of the market is the oligopoly. In the oligopoly market or the Bertrand Model, theproducts are homogeneous, the firms that produce these products have extra capacity, and theproduct is provided by few firms (Connor, 1997). In this case, the chemical compound withwhich lysine is made is homogeneous, so the product is homogeneous. There are just five firms1
Arguments for the Prosecution in the Lysine Price-Fixing Conspiracy_1

who produce it so the firms are less in number and they have extra production capacity.Therefore, it is proved that the oligopoly exists and this model is the Bertrand model. In 1990, the three firms dominated the market for lysine. The price was $1/lb (Connor, 2001).The company ADM opened a production facility in Decatur, Illinois that doubled the capacity ofthe world and the price was pushed below the $1. This price moved towards the marginal costthat was $0.66/lb. After this, Whitacre orchestrated a coordinated effort to fix prices among thefour dominant producers (Connor, 2008). This formed collusion. This cartel was formed forraising the selling price all over the world so that the companies can gain excess profits. Although, an oligopoly is a legal form of market structure, but the firms have demonstratedintent to corner the market using the anti-competitive practices. They have not dominated theindustry in an unintentional manner by giving the better product or using the superior businesspractices or innovating, but they tried to dominate the market using the price fixing techniquewhich is illegal. Then, the intention of the five companies was to harm the customers as they were found to talkto each other that they consider the competitors as their friends and their customers as theirenemy (Connor, 1996). This shows that they tried to shake hands with the competitors so thatthey can dilute the competition in the market and earn more profits in the long run. The lysineconspirators actually created an amino acid working group or subcommittee of the EuropeanFeed Additives Association, a legitimate trade group. The sole purpose of the new subcommitteewas to provide a false, but facially legitimate, explanation as to why they were meeting (Connor,2007). Conclusion2
Arguments for the Prosecution in the Lysine Price-Fixing Conspiracy_2

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents