Question

This question is about the Archer Daniels Midland price fixing scandal. Answer the first three parts before watching the video. Read in your book the introduction to the chapter titled “Price fixing and repeated games”. You can use any additional sources to answer the following questions.

a. Write a few lines describing the company Archer Daniels Midland. Where are they located, what kind of products do they sell.

b. What is “price fixing”, why do some countries including the US prohibit it by law?

c. Why is it often hard to detect price fixing? Watch the youtube video clip using this link http://www.youtube.com/watch?v=DPXTsPS-hyw or find it online by searching for “Archer Daniels Midland Segment from Fair Fight in the Marketplace”

d. The price of what product was fixed?

e. Do you think the different firms involved in price fixing were selling products that were relatively homogeneous or differentiated?

f. If price fixing goes undetected, who benefits? Who loses?

g. One of the parties in the video refers to others and friends and enemies. Explain.

h. How was the price fixing behavior detected in this case?

Answer 1

a. The Archer Daniels Midland is an American global food processing and commodities trading corporation. The company operates more than 270 plants and 420 crop procurement facilities worldwide, where cereal grains and oilseeds are processed into products used in food, beverages and animal feed markets worldwide. The company also provides agricultural storage and transportation services. Its headquater is located in Chicago, Illinois, United States.

b. Price fixing is an agreement between participants on the same side in a market to buy or sell a product , service or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement. A plain agreement among competitors to fix prices is illegal, whether prices are fixed at a minimum, maximum or within some range. Hence it is prohibited by law in some countries including US.

c. It hard to detect price fixing because it remains hidden and shows its impact at the end.

d. The product whose price fixing was done was, Lysine: An amino acid.

e. The firms involved in price fixing were selling relatively homogeneous products.

f. If price fixing goes undetected, then the companies involved in price fixing benefits and the small companies who are vulnerable to even a small price change loses.

g. In the video the customers are refered to as enemies and the rivals as friends. It was said so, because rivals can help in making money with the help of price fixing.

h. The price fixing was brought into limelight with the help of the secret video clip.