Download Ohio v. Trauth

Ohio v. Trauth
Bidding, Bid Rigging, and School Milk Prices
Rebecca Adkins
Chelsea Block
Gracie Randall
Market Structure
 600 school districts
 Demand is relatively inelastic
 Processors receive milk from dairy farms
Standardize butter fat and distribute to schools
Market Structure
Market Structure
 Players:
 Thirteen dairies
 Meyer Dairy and Coors Dairy
 Trauth Dairy
 The State of Ohio
 Scheme
 Bid-rigging
 “respecting incumbencies”
 Economic Evidence
 Incentives to collude
 Behavior consistent with competition or collusion?
 Extent of damages
Timeline of Events
1980-1990: Bid Rigging
1988: Florida Bid Rigging Case
1993: Confession to Bid Rigging
1993: DOJ clarifies Corporate Leniency Policy
1994: 13 Dairies Charged
1995: Failed Conspiracy Case
1996: Settlement
Factors Facilitating
Collusion
1. Firms Compete Only on Price
2. Announcement of Bids
3. Variation in Auction Dates
4. Predictability of Demand
5. Easily Defined Markets
6. Small and Stable Set of Firms
7. Similar Cost Structures
8. Contact Between Competitors in Multiple Markets
9. Availability of Competitor’s Prices
10.Frequent Customers of One Another
11.Existence of Trade Associations
Competitive Model:
Deciding Factors of Bid Submission
1. Transportation Costs
2. Distance from District
3. Type of Firm
4. Size of the School District
5. Efficiency of Production Under Contract Terms
Competitive Model
 Two decisions:
 Submit a bid?
 Level of bid?
 Strongest factor: distance
Competitive Model
Competitive Model
Effect on Prices Paid
Prices increased 6.5%
From the competitive model
Defendants’ Behavior
 Behavior statistically significantly differs from control
group
 Doesn’t necessarily mean collusion
 Bid on districts farther away than model suggests
 Test for independence/zero correlation
 Bid levels differ from competitive model
 Hypotheses of independent action vs.
complimentary bidding
Defendants’ Response
•Firms disagreed with this interpretation of the
evidence
•Incomplete list of explanatory variables
•Incohesive Control Group
•Insufficient evidence to distinguish
between a conspiracy and a tacit collusion
Summary and Aftermath
 All 13 dairies charged with Collusion
 Settled in 1996, without trial
 1993- DOJ clarified Corporate Leniency
Policy
 1st confessor receives amnesty
 Doesn’t shield from civil penalties
 Hastens collapse of collusive agreements