Question

The article:

GLOBAL CARTELS REDUX: The Amino Acid Lysine Antitrust Litigation (1996) by John M. Connor

http://docplayer.net/amp/54191121-Global-cartels-redux-the-amino-acid-lysine-antitrust-litigation-1996-john-m-connor-1.html

Read the article, answer the question.

2. Give the history of lysine industry. a. What type of product is lysene? Where has its historical demand come from? How has this change over time? b. How did the early manufacturers of lysene price? How did technological change affect their pricing? c. How did ADM’s entry affect the market? d. How did a cartel emerge? How was it detected? What legal procedures occurred that ADM (and other firms) participated in? Which one of these is the article concerned with?

Answer 1

Give the history of lysine industry.

a. What type of product is lysene?

Lysine is an essential amino acid (that which cannot produce by the body on its own and hence has to be provided through food). Animal food generally provide good amounts of lysine

Lysine is prepared artificially

• Natural/pharmaceutical grade lysine- extracted from vegetables and is costly

• Synthetic lysine- produced using biotechnology processes- (from bacterial fermentation)

Where has its historical demand come from?

Primary demand comes from animal feed for swine, poultry, aquaculture etc. Countries in North America and Western Europe which consume a lot of lean meat are the primary buyers of lysine

How has this change over time?

Though demand also rose in Asian countries and Latin American countries, North America and Western Europe remained the primary buyers

b. How did the early manufacturers of lysine price?

Early producers include Kyowa Hakko, Ajinomoto, and South Korean conglomerate Sewon. They formed an oligopoly and involved in price fixing – i.e. fixing to sell the product only at a certain price, without competing with each there. Prices were fixed

• in Japan in the 1970s and 1980s

• in Europe in the 1980s

Ajinomoto and Kyowa Hakko fixed prices and shared the U.S. lysine market 55-45% among themselves (1986 to 1990)

How did technological change affect their pricing?

Lysine has been using fermentation at a lower cost than chemically extracted lysine; production technology improvements helped to bring the cost of production further down. This helped to drive down prices of lysine

c. How did ADM’s entry affect the market?

In 1991 ADM opened the world’s largest lysine manufacturing plant in Illinois in. within 2 years they expand the production capacity by 25%

They involved in ruthless price cutting by ADM and capacity expansion. This excess capacity and price drop made global lysine prices to fall 45% in the first 18 months of ADM operation. It captured 80% of U.S. sales in 1992. Ajinomoto and Kyowa suffered large operating losses in 1991 and 1992. In 1992 the transaction price per pound went below the marginal cost of production per pound

d. How did a cartel emerge?

Three major players Ajinomoto, Kyowa, and ADM officers met in 1992 with the excuse of forming a trade association and formed a cartel. Five corporations were involved in total, they shared monthly reporting of each company’s lysine sales volume to all the members of the cartel. Many supplementary bilateral meetings took place to solve issues

How was it detected? What legal procedures occurred that ADM (and other firms) participated in?

Department of Justice (DOJ) began an investigation in November 1992 with the help of undercover cooperation of the ADM lysine-division president. On June 27, 1995 headquarters of ADM in Illinois was raided. A number of ADM officers were enquired. Four other companies were also raided. Documents, interviews and secret tape recordings of the Conspirators were used to build a case against five companies for illegally colluding on global lysine prices for three years

Around 400 plaintiffs were classified as a single federal class -Amino Acid Lysine Antitrust Litigation in U.S. District Court of Northern Illinois. The judge calculated the penalty based on overcharge. The overcharge is the price of a cartelized product actually made minus price without the cartel. The three largest defendants offered $45 million to settle the damages, in April 1996. The other companies agreed to $5 million.

They offered guilty pleas for price fixing. four lysine executives in a highly publicized jury.I n 1998 three executives were sentenced. Follow-up suits made the lysine cartelists to pay $305 million(ADM paid $177 million )

Which one of these is the article concerned with?

The article is concerned with the computation of overcharges in a forensic setting based on this lysine cartel case. The article also aims to show the difficulties of laying monetary sanctions that can deter cartel formation