Market Failure Due to Monopoly 453competitors and to divest itself of its sports-ticketing subsidiary. In
2011, the administration approved Comcast acquiring a majority stake
in NBC Universal and Google’s bid to acquire ITA, a travel software
developer—both with conditions meant to ensure ongoing
competition. The latest merger under antitrust scrutiny is AT&T’s
proposed acquisition of T-Mobile.
4.Preventing Collusion. As we know, firms need not be monopolies to
exercise monopoly power. Firms can form cartels and collaborate to
reduce output and to fix prices. Such cartels have the same effect
on social welfare as do monopolies, and such behavior is illegal. In
1927 the court found that the makers of toilets had acted illegally
when they met to fix prices and limit quantities. Even absent an
explicit agreement to fix prices, the court may find “conscious
parallelism’’—that is, a situation in which all producers act in the
same way at the same time while being aware that other producers
are doing likewise.
In the 1990s, the government successfully challenged the
practice of Ivy League universities meeting and exchanging
information on planned tuition increases, faculty salaries, and
financial aid policies. It also won a collusion suit against the
producers of baby formula. In 1996, the giant agribusiness firm
Archer Daniels Midland pleaded guilty to fixing the price of citric
acid (a food additive) and lysine (a feed additive) and paid a $100
million fine. In 1997, 30 brokerage firms paid $900 million to settle
claims that they fixed prices. In 2000, antitrust authorities brought a
successful price-fixing case against six global vitamin makers,
followed by price-fixing charges against auction houses Sotheby’s and
Christie’s. Ultimately, Sotheby’s was fined $45 million (private law
suits have run to over $100 million), and its chairman was sentenced
to a year in prison and fined $7.5 million.
In the last decade, antitrust authorities in the United States and
Europe have continued to vigorously pursue price-fixing cases.. In 2004,
Infineon Corporation agreed to pay $160 million for its role in fixing the
prices of memory chips. In 2007, U.S. authorities fined British Airways
and Korean Airlines $850 million for colluding to fix fuel surcharges in
airfares. In 2008, three Asian producers of flat screens for television paid
$585 million in fines, and in 2010, six microchip makers paid the state of
California $175 million in fines for price fixing. Also in 2010, Whirlpool
and Panasonic paid $140 million in a price-fixing settlement. Currently,
U.S. regulators are continuing to fine 21 international airlines for
agreements to fix cargo fares from 2000 to 2006. In 2011, the European
Commission fined Procter and Gamble and Unilever a total of $456
million for operating a laundry-detergent cartel.c11RegulationPublicGoodsandBenefitCostAnalysis.qxd 9/29/11 1:34 PM Page 453