Public Policy in Private Markets

1
Public Policy in Private Markets

• Amino Acid Lysine Case
• Ohio v. Trauth

2
Announcements

• Minute paper 2 grade posted 6 points
• Part 1 2 points. OS market (1 pt), Internet
  browser market (1 pt)
• Part 2 4 points.
• a. Illegal monpolization of OS
• b. Illegal monpolization of browsers
• c. Illegal tying of IE and OS
• 4 points if you mention a either b or c, 2
  points otherwise

3
Announcements

• Resubmission of Homework 2 is due today
• You are responsible for being in class and
  picking up your homework (if not, you can pick it
  up from Darleen in Stockbridge 212E)
• Case presentations PPT MUST be sent to me by 9pm
  the day PRIOR to your presentation, otherwise 10
  points will be deducted.
• 3/6 Case 4
• 3/11 Case 5

4
ADM and Milk Textbook Cases?

• Recall factors that facilitate collusion
• Identical costs
• Homogeneous product
• Small number of firms
• High concentration
• Slow rate of technological advancement
• Steady rate of demand
• Low elasticity of demand (no substitutes)
• Low frequency of sales

5
ADM Case

• Important civil case before criminal case
• Criminal case guilty pleas can not be used in
  civil cases
• Size of criminal fine could not be used as guide
  for civil damages
• There was irrefutable evidence in this case the
  question was how much?
• Before and after
• Cournot
• Cost-based method
• Econometric method

6
ADM Case

• Other consequences
• Damage to reputation
• Damaged relation with stockholders
• ADM also price fixing in other markets
• Citric acid
• High fructose corn syrup
• 2/03 4 bill. Private suit by buyers

7
Ohio v. Trauth

• Schools Bid solicitation for annual supply of
  milk
• Methods involved complementary bidding
  artificially raised the price for schools
• Case where direct evidence was not enough
• Additional economic (statistical) evidence was
  needed
• Would a control group behave the way defendants
  behaved? (i.e. probability and level of bids)
• Are bids correlated? (complementary bidding)

8
Ohio v. Trauth

• Collusion is frequent in school milk auctions
• 130 criminal cases filed