Download Lysine Case

Amino Acid Lysine
Antitrust Litigation
Seth DePoint
Chuck Fort
Hadley Heath
Introduction
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Players:
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5 Collusive Firms
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Ajinomoto, Kyowa Hakko, Archer-Daniels-Midland,
Sewon, Cheil Sugar
Governing Agencies
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FBI, U.S. Department of Justice (DOJ),
European Commission and antitrust authorities of
Canada, Mexico, Brazil
Introduction (2)
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Strategies
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Collusive Firms: Maximize profits by price-fixing
Agencies: Maintain competitive markets by
enforcing antitrust law
The Game
Introduction (3)
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Considerations
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Collusive Firms
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“Optimal Deterrence Theory”
Penalty should be gains from collusion divided by the
probability of detection
Timeline of Events
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1970’s and 1980’s
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February 1991
Feb. 1991 – Mid 1992
April 1992
Early 1993
October 1993
June 1995
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Ajinomoto and Kyowa
Hakko dominate
ADM enters the market
Predatory pricing period
Collusion begins
Price war
Resolution
FBI raid, Collusion ends
Prices Over Time (Graph)
Market Factors
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“Trade association” as cover up
HHI >3500
Low buyer concentration
Product homogeneity
High barriers to entry
Market Factors (2)
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Should the market be considered an
oligopoly instead of perfect competition?
Are lysine prices seasonal?
Overcharge
(Calculation Strategies)
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Before-and-After Method
Costs-Based Approach
Econometrics Method
Yardstick Method
Game Theory
Overcharge (Definition)
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Overcharge = Actual price charged minus the
price had there been no collusion.
Or, price minus “but-for” price
Before and After
Defines Noncollusive and Collusive periods of time and
compares prices
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Strengths
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Simple to measure
Ability to approximate
costs trends
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Weaknesses
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Supply and Demand
Length of before and
after periods (sample
sizes)
Prices were seasonal?
Before prices should be
oligopoly based?
Costs
Determines what a firm would charge given an
estimate of its average costs and quantity
produced. In ADM case, costs could be estimated
to be between $.77 and $.83
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Strengths
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Supports evidence from
other methods
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Weaknesses
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(Not used at time of case)
Cost data valid? Source?
Econometrics
Compiles data into a model that predicts what
prices should have been given no collusion
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Strengths
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Many variables used to
estimate changes in
demand
A “forecast” / “backcast”
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Weaknesses
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Long process to gather
necessary data – “data
hungry”
Method too complicated
for non-economists when
presented in court
Yardstick
Compares prices in market controlled by collusion
with prices in market unaffected by collusion, either
because of a different geographic location or a
different product
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Strengths
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Could be very accurate
in approximating “but-for”
prices
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Weaknesses
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Often no similar markets
to compare because
cartels sell well-defined
products
Game Theory
Do the other methods of overcharge calculation
make sense in the light of game theory?
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Strengths
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Weaknesses
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Author suggests negative
prices would result
Author’s Position
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John M. Connor
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Economic expert for certain plaintiffs who
purchased lysine
Additional Questions
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Would the players have colluded if they knew
they would get caught?
Are the penalties for collusion harsh enough?
Which of the overcharge calculation
strategies works best in this case? Why?
Conclusion
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Collusive offenders  jail
ADM paid
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$70 million to government
$49 million to direct buyers
$15 million to indirect buyers
“Blue collar” used in “White collar” crime
First successful conviction of a global cartel
in more than four decades
The End