CHAPTER 10 • Market Power: Monopoly and Monopsony 393 Putnam Well… Crandall I mean, you know, @!#$%&!, what the hell is the point of it? Putnam But if you’re going to overlay every route of American’s on top of every route that Braniff has—I just can’t sit here and allow you to bury us without giving our best effort Crandall Oh sure, but Eastern and Delta the same thing in Atlanta and have for years Putnam Do you have a suggestion for me? Crandall Yes, I have a suggestion for you Raise your @!#$%&! fares 20 percent I’ll raise mine the next morning Putnam Robert, we… Crandall You’ll make more money and I will, too Putnam We can’t talk about pricing! Crandall Oh @!#$%&!, Howard We can talk about any @!#$%&! thing we want to talk about Crandall was wrong Corporate executives cannot talk about anything they want Talking about prices and agreeing to fix them is a clear violation of Section of the Sherman Act Putnam must have known this because he promptly rejected Crandall’s suggestion After learning about the call, the Justice Department filed a suit accusing Crandall of violating the antitrust laws by proposing to fix prices However, proposing to fix prices is not enough to violate Section of the Sherman Act: For the law to be violated, the two parties must agree to collude Therefore, because Putnam had rejected Crandall’s proposal, Section was not violated The court later ruled, however, that a proposal to fix prices could be an attempt to monopolize part of the airline industry and, if so, would violate Section of the Sherman Act American Airlines promised the Justice Department never again to engage in such activity EX AMPLE 10 GO DIRECTLY TO JAIL DON’T PASS GO Corporate executives sometimes forget that price fixing is a criminal act in the United States that can lead not only to stiff fines, but also a prison sentence Sitting in a prison cell is no fun The Internet and cell phone service is terrible, there is no cable TV, and the food leaves much to be desired So if you become a successful business executive, think twice before picking up the phone And if your company happens to be located in Europe or Asia, don’t think that will keep you out of a U.S jail For example: • In 1996 Archer Daniels Midland (ADM) and two other producers of lysine (an animal feed additive) pled guilty to charges of price fixing In 1999 three ADM executives were sentenced to prison terms of two to three years.20 20 • In 1999 four of the world’s largest drug and chemical companies—Hoffman-La Roche of Switzerland, BASF of Germany, Rhone Poulenc of France, and Takeda of Japan—pled guilty to fixing the prices of vitamins sold in the U.S and Europe The companies paid about $1.5 billion in penalties to the U.S Department of Justice (DOJ), $1 billion to the European Commission, and over $4 billion to settle civil suits Executives from each of the companies did prison time in the U.S • During 2002 to 2009, Horizon Lines engaged in price fixing with Sea Star Lines (Puerto Ricobased shipping companies) Five executives got prison terms ranging from one to four years Of course, it is always possible that you could be portrayed in a movie In the 2009 movie, The Informant, actor Matt Damon played the role of Mark Whitacre, the ADM executive who blew the whistle on the price-fixing conspiracy, and then served a prison term for embezzlement