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5 Brazen Examples of Price Fixing

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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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iStock // Ekaterina Minaeva
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technology
Man Buys Two Metric Tons of LEGO Bricks; Sorts Them Via Machine Learning
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iStock // Ekaterina Minaeva

Jacques Mattheij made a small, but awesome, mistake. He went on eBay one evening and bid on a bunch of bulk LEGO brick auctions, then went to sleep. Upon waking, he discovered that he was the high bidder on many, and was now the proud owner of two tons of LEGO bricks. (This is about 4400 pounds.) He wrote, "[L]esson 1: if you win almost all bids you are bidding too high."

Mattheij had noticed that bulk, unsorted bricks sell for something like €10/kilogram, whereas sets are roughly €40/kg and rare parts go for up to €100/kg. Much of the value of the bricks is in their sorting. If he could reduce the entropy of these bins of unsorted bricks, he could make a tidy profit. While many people do this work by hand, the problem is enormous—just the kind of challenge for a computer. Mattheij writes:

There are 38000+ shapes and there are 100+ possible shades of color (you can roughly tell how old someone is by asking them what lego colors they remember from their youth).

In the following months, Mattheij built a proof-of-concept sorting system using, of course, LEGO. He broke the problem down into a series of sub-problems (including "feeding LEGO reliably from a hopper is surprisingly hard," one of those facts of nature that will stymie even the best system design). After tinkering with the prototype at length, he expanded the system to a surprisingly complex system of conveyer belts (powered by a home treadmill), various pieces of cabinetry, and "copious quantities of crazy glue."

Here's a video showing the current system running at low speed:

The key part of the system was running the bricks past a camera paired with a computer running a neural net-based image classifier. That allows the computer (when sufficiently trained on brick images) to recognize bricks and thus categorize them by color, shape, or other parameters. Remember that as bricks pass by, they can be in any orientation, can be dirty, can even be stuck to other pieces. So having a flexible software system is key to recognizing—in a fraction of a second—what a given brick is, in order to sort it out. When a match is found, a jet of compressed air pops the piece off the conveyer belt and into a waiting bin.

After much experimentation, Mattheij rewrote the software (several times in fact) to accomplish a variety of basic tasks. At its core, the system takes images from a webcam and feeds them to a neural network to do the classification. Of course, the neural net needs to be "trained" by showing it lots of images, and telling it what those images represent. Mattheij's breakthrough was allowing the machine to effectively train itself, with guidance: Running pieces through allows the system to take its own photos, make a guess, and build on that guess. As long as Mattheij corrects the incorrect guesses, he ends up with a decent (and self-reinforcing) corpus of training data. As the machine continues running, it can rack up more training, allowing it to recognize a broad variety of pieces on the fly.

Here's another video, focusing on how the pieces move on conveyer belts (running at slow speed so puny humans can follow). You can also see the air jets in action:

In an email interview, Mattheij told Mental Floss that the system currently sorts LEGO bricks into more than 50 categories. It can also be run in a color-sorting mode to bin the parts across 12 color groups. (Thus at present you'd likely do a two-pass sort on the bricks: once for shape, then a separate pass for color.) He continues to refine the system, with a focus on making its recognition abilities faster. At some point down the line, he plans to make the software portion open source. You're on your own as far as building conveyer belts, bins, and so forth.

Check out Mattheij's writeup in two parts for more information. It starts with an overview of the story, followed up with a deep dive on the software. He's also tweeting about the project (among other things). And if you look around a bit, you'll find bulk LEGO brick auctions online—it's definitely a thing!

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© Nintendo
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fun
Nintendo Will Release an $80 Mini SNES in September
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© Nintendo

Retro gamers rejoice: Nintendo just announced that it will be launching a revamped version of its beloved Super Nintendo Classic console, which will allow kids and grown-ups alike to play classic 16-bit games in high-definition.

The new SNES Classic Edition, a miniature version of the original console, comes with an HDMI cable to make it compatible with modern televisions. It also comes pre-loaded with a roster of 21 games, including Super Mario Kart, The Legend of Zelda: A Link to the Past, Donkey Kong Country, and Star Fox 2, an unreleased sequel to the 1993 original.

“While many people from around the world consider the Super NES to be one of the greatest video game systems ever made, many of our younger fans never had a chance to play it,” Doug Bowser, Nintendo's senior vice president of sales and marketing, said in a statement. “With the Super NES Classic Edition, new fans will be introduced to some of the best Nintendo games of all time, while longtime fans can relive some of their favorite retro classics with family and friends.”

The SNES Classic Edition will go on sale on September 29 and retail for $79.99. Nintendo reportedly only plans to manufacture the console “until the end of calendar year 2017,” which means that the competition to get your hands on one will likely be stiff, as anyone who tried to purchase an NES Classic last year will well remember.

In November 2016, Nintendo released a miniature version of its original NES system, which sold out pretty much instantly. After selling 2.3 million units, Nintendo discontinued the NES Classic in April. In a statement to Polygon, the company has pledged to “produce significantly more units of Super NES Classic Edition than we did of NES Classic Edition.”

Nintendo has not yet released information about where gamers will be able to buy the new console, but you may want to start planning to get in line soon.

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