Sunday, 27 September 2009

• Outrageous Examples of Price Fixing!

  

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  Mentalfloss.com is one of my favorite sites because it's full of trivia and random facts. It's a daily read for me, and the other day they had a post inspired by Matt Damon's new movie, The Informant. It's about 5 examples of really outrageous price fixing that various companies have engaged in.

  As quoted from Mental Floss, some of the tales of collusion are:

  1) Heavy Equipment Gets Heavy Prices 
  
  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.
  

  Companies got the right to submit the winning bid by a rotation system based on – no joke – the phases of the moon. The system bilked taxpayers out of nearly $175 million each year.

  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. 

  
  

  2) British Dairies Milk the Customers’ Wallets

  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.

  
  

  3) British Airways Gives Fuel Prices a Hike

  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.

  
  

  Have you heard of any other examples of outright price fixing? What's your reaction to any of these stories?
  

  Check out the rest of the list here: http://www.mentalfloss.com/blogs/archives/35353

  
  

  
  

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