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Will EU Penalties Discourage Price Fixing?

The European Commission has fined six LCD giants, including Philips, Samsung, LG, and Panasonic, by imposing an antitrust penalty in excess of 1.4 billion euros (more than $1.8 billion). This figure marks the biggest antitrust penalty the EU has ever imposed. The same companies also paid $1.1 billion in fines in the US a few months ago.

The EU competition commission said it believes that these companies came together between 1996 and 2006 in a series of meetings during which they formed cartels to fix prices and to decide how to share the market. According to Joaquin Almunia, the EU competition commissioner, those companies were fully aware that their actions were illegal. This price fixing in the CRT market is against fair competition practices from which consumers ultimately benefit.

Following is the list of top three fines:

  • Philips: 313.4 million euros ($412 million)
  • LG Electronics: 295.6 million euros ($388 million)
  • Samsung: 150.8 million euros ($197 million)

This clearly shows that the rules apply to everyone, including the industry giants. However, the fact that the companies were fined for actions that took place more than six years ago is of concern. The slow legal process is one of the reasons companies are able to take the risk of playing unfairly in this business. The decision has been reached so late that CRT technology does not exist anymore. The fines are high enough that, hopefully, this will set an example for the rest of the players in industry.

The one thing that cannot be fixed is how much extra money consumers ended up paying due to these cartels. Ultimately, they are the ones who are harmed the most while big companies are making money via illegal means. The trouble with such penalties is they are effective in punishing the offenders, but they do not help the losses of the consumers at all. I think in addition to these penalties, forcing a fair percentage of price cut on the current comparable goods (such as LCDs, in this case) would help fix things from the consumers’ perspective. It would also be a bigger deterrent for price fixing cases in the future.

Another point I find interesting with such cases is that while most companies complain about the economic crisis and how difficult it is to keep a strong balance sheet these days, such companies are still able to take the risk of paying millions of Euros in fines for not playing fair. I guess the potential earnings to be made by price fixing are attractive enough to risk huge amounts of losses in fines.

This is probably one of the many cases that was caught and exposed globally; however, it makes you think of many other unfair competition tricks that the big companies are playing as you are reading this.

6 comments on “Will EU Penalties Discourage Price Fixing?

  1. _hm
    December 17, 2012

    Penalties are very late and very small. This is deceptive to consumers. Price fixing looks quite prevalent now too.

  2. Daniel
    December 17, 2012

    Cagri, I personally feel that it's a government responsibility to protect citizen's right. Such monopolistic nature of business can harm the citizen's right to get a good product at a better price. Again “will such penalties discourage price fixing” is a big question; at the end companies may forced to share a part of these penalties with customers by hiking the price of product.

  3. Daniel
    December 17, 2012

    _hm, I think government and commercial departments has to be more vigilant on such issues. Otherwise finally, such companies will move a part of such burdens to customer through various methods. The only thing is government agencies has to monitor the entire process at various levels.

  4. Cryptoman
    December 18, 2012

    @_hm

    I totally agree on the timescales of this decision. It is funny to see that the manufacturers have to pay a fine for the unfair play they have performed on the CRT technology that does not exist anymore! The court decision is way too late for this. The pace of the the legal system in the third world countries is rather slow because the system does not function properly. In some countries, the suspects are imprisoned first under the assumption that they are guilty. Until the suspect proves that he/she is innocent, he/she remains in prison; even for a few years on end.

    In the EU and the rest of the developed world, the suspect is assumed to be innocent until proven guilty (which is the right way). However, this legal method  works slower than the backward one I mentioned above.

    Maybe in commercial cases, the funds from the suspects should at least be blocked promptly to save time and kept blocked throughout the case. That may put off any potential lawbreakers before they even think of mk,ng such an attempt.

  5. Cryptoman
    December 18, 2012

    @Jacob

    It is a difficult one for the government I think. The only thing that can be done is to escalate the fines whilst shortening the court case decision making delays. I think the cartels are formed in a very high degree of secrecy and it is difficult to know about them promptly. The time needs to pass so that an evidence of such an illegal act can somehow leak into the public domain. I am sure only a handful of people in those large companies will know about such cartels. An average employee will never have the exposure to such information. Therefore, the level of secrecy determines the safety of such illegal acts that prevent from governments finding out.

    It is definitely very harmful to the end customer and to the fundamentals of free trade in terms of getting a competitive deal on products.

  6. Daniel
    December 31, 2012

    Cryptoman, I think there is nothing difficult in that. There are government agencies to fix and monitor fair pricing policy for various commodities and they are doing fine. Similarly they can constitute another agency with industrial/market/business experts for monitoring and price fixing. If no such super monitoring agencies are in place, companies can fix the price without any justification.

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