Amino Acid Lysine Antitrust Litigation

1. Amino Acid Lysine Antitrust Litigation Seth DePoint Chuck Fort Hadley Heath

2. Introduction • Players: • 5 Collusive Firms • Ajinomoto, Kyowa Hakko, Archer-Daniels-Midland, Sewon, Cheil Sugar • Governing Agencies • FBI, U.S. Department of Justice (DOJ), • European Commission and antitrust authorities of Canada, Mexico, Brazil

3. Introduction (2) • Strategies • Collusive Firms: Maximize profits by price-fixing • Agencies: Maintain competitive markets by enforcing antitrust law

4. The Game

5. Introduction (3) • Considerations • Collusive Firms • “Optimal Deterrence Theory” • Penalty should be gains from collusion divided by the probability of detection

6. 1970’s and 1980’s February 1991 Feb. 1991 – Mid 1992 April 1992 Early 1993 October 1993 June 1995 Ajinomoto and Kyowa Hakko dominate ADM enters the market Predatory pricing period Collusion begins Price war Resolution FBI raid, Collusion ends Timeline of Events

7. Prices Over Time (Graph)

8. Market Factors • “Trade association” as cover up • HHI >3500 • Low buyer concentration • Product homogeneity • High barriers to entry

9. Market Factors (2) • Should the market be considered an oligopoly instead of perfect competition? • Are lysine prices seasonal?

10. Overcharge (Calculation Strategies) • Before-and-After Method • Costs-Based Approach • Econometrics Method • Yardstick Method • Game Theory

11. Overcharge (Definition) • Overcharge = Actual price charged minus the price had there been no collusion. • Or, price minus “but-for” price

12. Strengths Simple to measure Ability to approximate costs trends Weaknesses Supply and Demand Length of before and after periods (sample sizes) Prices were seasonal? Before prices should be oligopoly based? Before and After Defines Noncollusive and Collusive periods of time and compares prices

13. Strengths Supports evidence from other methods Weaknesses (Not used at time of case) Cost data valid? Source? 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

14. Strengths Many variables used to estimate changes in demand A “forecast” / “backcast” Weaknesses Long process to gather necessary data – “data hungry” Method too complicated for non-economists when presented in court Econometrics Compiles data into a model that predicts what prices should have been given no collusion

15. Strengths Could be very accurate in approximating “but-for” prices Weaknesses Often no similar markets to compare because cartels sell well-defined products 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

16. Strengths Weaknesses Author suggests negative prices would result Game Theory Do the other methods of overcharge calculation make sense in the light of game theory?

17. Author’s Position • John M. Connor • Economic expert for certain plaintiffs who purchased lysine

18. Additional Questions • 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?

19. Conclusion • Collusive offenders  jail • ADM paid • $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

20. The End