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5 Brazen Examples of Price Fixing

After Steven Soderbergh's adaptation of Kurt Eichenwald's nonfiction book The Informant debuted to largely positive reviews last weekend, price fixing is all the conversational rage again. Okay, that statement is not even remotely true, but Soderbergh's film, which details a mid-1990s scheme to rig the price of the animal feed additive lysine, at least brought the anti-competitive practice to the big screen.

Just how common is price fixing, though? That's tough to say, but let's have a look at a few notable examples from business history.

1. Roche Doesn't Learn Its Lesson

In 1973, Stanley Adams was an executive at the Swiss pharmaceutical firm Hoffman-LaRoche when he uncovered some rather incriminating documents about his employer. It turned out that the company was part of a price-fixing scam in the international market for vitamins. Adams decided to pass his findings on to the European Economic Commission in a confidential memo detailing how Roche manipulated the bulk vitamin market.

rocheAdams kept his end of the deal with the EEC, but the Commission did a lousy job with the whole "confidential" thing. It accidentally gave Roche copies of documents that included the whistleblower's name, and under Swiss law, that meant Adams could be arrested for industrial espionage and theft. Adams spent months in solitary confinement in a Swiss prison; his wife was so distraught that she committed suicide.

Eventually Adams got out of jail, and Roche somehow managed to avoid taking a hard hit for its role in the price fixing. Getting off the hook for this offense may have just made the company more brazen, though. From 1990 to 1999, it engaged in an illegal price-fixing cartel for vitamins again, and this time Roche and its co-conspirators got nabbed. In 1999, the company pled guilty to price fixing in the U.S. and paid a $500 million fine. Within two years, the European Union had also taken Roche to task for its nefarious pricing and fined the company to the tune of 462 million euros.

2. 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.

3. 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.

4. Flat Glass Gets a Flat Price

In 2007, the European Commission undermined a price-fixing scheme among the makers of flat glass, the variety that is used to make windows, doors and mirrors. In 2004 and 2005, four major makers of flat glass—Asahi, Guardian, Pilkington, and Saint-Gobain—secretly met to discuss artificially raising their prices.

As a result, the 1.7-billion-euro flat glass industry got a nice little bump in its revenues, or at least it did until the European Commission got to the bottom of the strange pricing. The Commission didn't take it easy on the offending parties, either. It fined the four companies a total of nearly 487 million euros for violating the ban on cartel behavior and price fixing.

5. British Airways Gives Fuel Prices a Hike

baRemember 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.

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A.C. Gilbert, the Toymaker Who (Actually) Saved Christmas 
Travel Salem via Flickr // CC BY-ND 2.0
Travel Salem via Flickr // CC BY-ND 2.0

Alfred Carlton Gilbert was told he had 15 minutes to convince the United States government not to cancel Christmas.

For hours, he paced the outer hall, awaiting his turn before the Council of National Defense. With him were the tools of his trade: toy submarines, air rifles, and colorful picture books. As government personnel walked by, Gilbert, bashful about his cache of kid things, tried hiding them behind a leather satchel.

Finally, his name was called. It was 1918, the U.S. was embroiled in World War I, and the Council had made an open issue about their deliberation over whether to halt all production of toys indefinitely, turning factories into ammunition centers and even discouraging giving or receiving gifts that holiday season. Instead of toys, they argued, citizens should be spending money on war bonds. Playthings had become inconsequential.

Frantic toymakers persuaded Gilbert, founder of the A.C. Gilbert Company and creator of the popular Erector construction sets, to speak on their behalf. Toys in hand, he faced his own personal firing squad of military generals, policy advisors, and the Secretary of War.

Gilbert held up an air rifle and began to talk. What he’d say next would determine the fate of the entire toy industry.

Even if he had never had to testify on behalf of Christmas toys, A.C. Gilbert would still be remembered for living a remarkable life. Born in Oregon in 1884, Gilbert excelled at athletics, once holding the world record for consecutive chin-ups (39) and earning an Olympic gold medal in the pole vault during the 1908 Games. In 1909, he graduated from Yale School of Medicine with designs on remaining in sports as a health advisor.

But medicine wasn’t where Gilbert found his passion. A lifelong performer of magic, he set his sights on opening a business selling illusionist kits. The Mysto Manufacturing Company didn’t last long, but it proved to Gilbert that he had what it took to own and operate a small shingle. In 1916, three years after introducing the Erector sets, he renamed Mysto the A.C. Gilbert Company.

Erector was a big hit in the burgeoning American toy market, which had typically been fueled by imported toys from Germany. Kids could take the steel beams and make scaffolding, bridges, and other small-development projects. With the toy flying off shelves, Gilbert’s factory in New Haven, Connecticut grew so prosperous that he could afford to offer his employees benefits that were uncommon at the time, like maternity leave and partial medical insurance.

Gilbert’s reputation for being fair and level-headed led the growing toy industry to elect him their president for the newly created Toy Manufacturers of America, an assignment he readily accepted. But almost immediately, his position became something other than ceremonial: His peers began to grow concerned about the country’s involvement in the war and the growing belief that toys were a dispensable effort.

President Woodrow Wilson had appointed a Council of National Defense to debate these kinds of matters. The men were so preoccupied with the consequences of the U.S. marching into a European conflict that something as trivial as a pull-string toy or chemistry set seemed almost insulting to contemplate. Several toy companies agreed to convert to munitions factories, as did Gilbert. But when the Council began discussing a blanket prohibition on toymaking and even gift-giving, Gilbert was given an opportunity to defend his industry.

Before Gilbert was allowed into the Council’s chambers, a Naval guard inspected each toy for any sign of sabotage. Satisfied, he allowed Gilbert in. Among the officials sitting opposite him were Secretary of War Newton Baker and Secretary of the Navy Josephus Daniels.

“The greatest influences in the life of a boy are his toys,” Gilbert said. “Yet through the toys American manufacturers are turning out, he gets both fun and an education. The American boy is a genuine boy and wants genuine toys."

He drew an air rifle, showing the committee members how a child wielding less-than-lethal weapons could make for a better marksman when he was old enough to become a soldier. He insisted construction toys—like the A.C. Gilbert Erector Set—fostered creative thinking. He told the men that toys provided a valuable escape from the horror stories coming out of combat.

Armed with play objects, a boy’s life could be directed toward “construction, not destruction,” Gilbert said.

Gilbert then laid out his toys for the board to examine. Secretary Daniels grew absorbed with a toy submarine, marveling at the detail and asking Gilbert if it could be bought anywhere in the country. Other officials examined children’s books; one began pushing a train around the table.

The word didn’t come immediately, but the expressions on the faces of the officials told the story: Gilbert had won them over. There would be no toy or gift embargo that year.

Naturally, Gilbert still devoted his work floors to the production efforts for both the first and second world wars. By the 1950s, the A.C. Gilbert Company was dominating the toy business with products that demanded kids be engaged and attentive. Notoriously, he issued a U-238 Atomic Energy Lab, which came complete with four types of uranium ore. “Completely safe and harmless!” the box promised. A Geiger counter was included. At $50 each, Gilbert lost money on it, though his decision to produce it would earn him a certain infamy in toy circles.

“It was not suitable for the same age groups as our simpler chemistry and microscope sets, for instance,” he once said, “and you could not manufacture such a thing as a beginner’s atomic energy lab.”

Gilbert’s company reached an astounding $20 million in sales in 1953. By the mid-1960s, just a few years after Gilbert's death in 1961, it was gone, driven out of business by the apathy of new investors. No one, it seemed, had quite the same passion for play as Gilbert, who had spent over half a century providing fun and educational fare that kids were ecstatic to see under their trees.

When news of the Council’s 1918 decision reached the media, The Boston Globe's front page copy summed up Gilbert’s contribution perfectly: “The Man Who Saved Christmas.”

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Ho, No: Christmas Trees Will Be Expensive and Scarce This Year
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The annual tradition of picking out the healthiest, densest, biggest tree that you can tie to your car’s roof and stuff in your living room won’t be quite the same this year. According to The New York Times, Christmas trees will be scarce in some parts of the country and markedly more expensive overall.

The reason? Not Krampus, Belsnickel, or Scrooge, but something even more miserly: the American economy. The current situation has roots in 2008, when families were buying fewer trees due to the recession. Because more trees stayed in the ground, tree farms planted fewer seeds that year. And since firs grow in cycles of 8 to 10 years, we’re now arriving at a point where that diminished supply is beginning to impact the tree industry.

New York Times reporter Tiffany Hsu reports that 2017’s healthier holiday spending habits are set to drive up the price of trees as consumers vie for the choicest cuts on the market. In 2008, trees were just under $40 on average. Now, they’re $75 or more.

This doesn’t mean you can’t get a nice tree at a decent price—just that some farms will run out of prime selections more quickly and you might have to settle for something a little less impressive than in years past. Tree industry experts also caution that the shortages could last through 2025.

[h/t New York Times]

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