Fixing the Price Fixers

The Justice Department is busy busting international cartels, and its work is beginning to produce some solid results. Late last month, Justice levied a record $725-million criminal penalty against two European companies charged with conspiracy to fix prices of their products in the United States. It has some 30 similar cases under investigation, and another big fine might well be announced within a month. On another front, the big Microsoft trial is nearing its end. Does all this mean that lawlessness is rampant in the corporate world? Law enforcement officials wouldn’t put it this way, but they do see the growing pressure of international competition as one of the reasons behind a rise in detected corporate crime. Cracking down on companies that believe they are big enough to play by their own rules is the right response.

Few corporate crimes are more pernicious than competitors setting up secret cartels to fix prices and divvy up markets among their members. Justice Department analysts estimate that prices extorted from consumers by cartels are as much as 20% higher than those a competitive market would charge.

The government’s latest case was particularly galling to consumers. For nearly a decade, senior executives of LaRoche Holding, a Swiss pharmaceuticals giant, and its German co-conspirator, BASF, clandestinely set prices, production quotas and distribution for their human and animal vitamin products. LaRoche two years ago pleaded guilty to fixing the prices of citric acid (vitamin C) and paid a $14-million fine. The company executives questioned in that investigation lied to the Justice Department about the vitamin cartel, which is now also under scrutiny by European authorities.

By imposing the hefty fine and sending one LaRoche executive to jail, the head of Justice’s antitrust enforcement, Joel Klein, says he hopes to transmit “a signal around the world” that fixing prices and manipulating markets will be costly for companies.

Legal experts believe that what’s driving the illegal conduct is competitive pressure generated by economic globalization. Challenged in their own markets by foreign competitors, manufacturers seek new outlets in other countries. They increasingly merge with their competitors to gain a greater share of global markets or strike partnerships that inhibit competition.

Moreover, gradual deregulation of industries, which started in the United States in the 1980s and spread across many of the developed and emerging economies, is creating an atmosphere of permissiveness in which companies believe they can set their own rules for doing business.

It would be wrong, however, to conclude that free-market economics are failing and that the only solution is to return to government regulation. Market forces, augmented by vigorous enforcement of the existing antitrust laws, stimulate competition and continue to bring to consumers benefits that regulators have not delivered.

That’s why cranking up the Justice Department’s trust-busting machine, and its overseas counterparts, is so important. Companies, especially large conglomerates operating in many countries, must be put on notice globally that playing the monopoly game will not pay.