Cartel agreement reached, but price not raised

Abstract

This study examines the impact of a nationwide shutter price cartel mentioned in the Japan Fair Trade Commission’s June 2010 press release using producers’ shipment data obtained from publicly available information statistics. The economics literature has referred to cartel overcharges in excess of 20%. However, in reality, price hikes by cartels should be very difficult to implement under economic deflation. In our case, the realized price hike was only 4% against the agreed 10% hike. The reasons for this limited hike may be as follows: (i) seasonal factors, that is, bad months for fixing prices; (ii) excessively high price elasticity for price fixing; and (iii) the effect of cartels on inappropriate management perspectives.

Appendix: Japan Fair Trade Commission, Hearing Decision, September 2, 2020

Contents of the agreement between three shuttering companies to raise prices by 10%

Rationality of the nationwide agreement

First, it is possible for the sales representatives of the three companies to implement a price increase by a certain percentage of the base transaction price (the current price), assuming that the price increase is based on the estimated price and the unit price per square meter, calculated by multiplying a certain discount rate using past transactions as indicators.

Next, to raise the selling price, the three companies have actually used the method of raising the total cost price, and the employees of the three companies have stated that raising the total cost price is an effective means of raising the selling price. In addition, in the trading field of specific shutters, it is not unreasonable to raise the total price as a means to raise the selling price. Further, if the three companies, which have a combined market share of more than 90% in the specific shutter business field, present their quoted prices at the same time with the same range of increase, the possibility of losing customers is reduced, compared to the case where they conduct price increase activities alone. They will be able to negotiate at a higher price level than before. Thus, it cannot be denied that this will result in avoiding competition. Therefore, it cannot be said that such an agreement itself is unreasonable even if there are times when the sales price do not increase as agreed, due to the power relationship with consumers or economic conditions.

Furthermore, it is obvious that the rate of price increase may vary due to the nature of transactions in which prices are determined through individual negotiations. Even if individual prices are determined by each sales office or sales representative, the premise for such determination is the sales policy of the head office. The fact that the head office does not have the authority to decide on individual prices does not mean that it is impossible to implement a price increase based on the agreement by instructing the head office to implement price increase activities in accordance with the policy presented to each sales office.

Communication of intentions ("Jointly")

In order to fall under the category of "jointly" as set forth in Article 2, Paragraph 6 of the Antimonopoly Act, it is understood that there must be communication of intentions among multiple business operators in raising the price. It is not sufficient for one party to simply recognize and accept the other party's increase in consideration; however, it is not necessary for the parties to expressly agree to be bound by each other's increase in consideration. It is reasonable to conclude that it is sufficient to mutually recognize and tacitly accept the act of other businesses of raising the consideration.

In making such a judgment, the court should consider what the recognition and intention of the business operators were, taking into account the various circumstances before and after the increase in the consideration, and determine whether there is joint recognition and acceptance among the business operators. If a specific business operator (i) exchanges information with other business operators regarding the act of raising the consideration, (ii) takes the same or similar action, and (iii) there exists a relationship between these business operators in which they are expected to take cooperative action, unless there are special circumstances that indicate that the action was taken based on their own judgment that it can withstand competition for consideration in the transaction market, irrespective of the actions of other business operators, then, in the case of an increase in the price, the increase in the price is expected to be lower than the increase in the previous year.

• (a) Exchange of information on price increase actions.

  At the March 5, 2008 meeting, it is recognized that the two parties exchanged information regarding the implementation of the increase in the price of the shutters, etc., rather than merely making small talk.

• (b) Consistency of post-facto actions.

  Although none of the three companies had set a target of raising the sales price of the specified shutters by 10% prior to the March 5 meeting, after the March 5 meeting, they set a target of raising the sales price of the specified shutters by 10% and instructed their respective branches and sales offices to raise the sales price. Therefore, it is recognized that the three companies took the same action to raise the sales price of the specified shutters by about 10% from the current price.

• (c) Existence or non-existence of special circumstances indicating that the three companies acted on their own judgment in raising prices.

  According to (a) and (b) above, unless there are special circumstances indicating that the actions of each of the three companies to raise prices were taken independently and based on their own judgment that they could withstand competition in the trading market, it is presumed that there is communication of intent. In this case, it cannot be recognized that the agreement was made based on the independent judgment of the three companies.

Inference of the nationwide agreement

(1) The three companies exchanged information regarding the act of raising the price of shutters, etc., by approximately 10% percent. (2) The three companies set a target of raising the selling price of the specified shutters by 10% after April 1, 2008 at their respective headquarters, and conducted sales activities to raise the selling price. (3) It is recognized that the three companies took the same action of setting the sales price increase at 10% and conducted sales activities to increase the sales price. It is considered to be an unnatural coincidence that after the March 5 meeting, the three companies set "10%" as the target, at the same time as the information exchange, even though the three companies had different considerations on the range of increase before the March 5 meeting. (4) There is no particular circumstance indicating that the three companies' actions to raise the price were made based on their own judgment that the price could withstand competition in the trading market and independently of the actions of the other two companies that exchanged information at the March 5 meeting. Therefore, it is presumed that the three companies mutually anticipated that the sale price of the specified shutters would be increased by approximately 10% from the current price and intended to keep pace with this increase.

Although the timing of the price increase was not clearly stated at the March 5 meeting, the agreement to raise the price of shutter products is in line with the price increase of steel, a raw material, after April 1, 2008. In principle, the price of shutter products is raised through price negotiations with consumers based on the quoted price provided by the shutter manufacturer; hence, it is presumed that the three companies agreed to raise the price at least from the quoted price on the same day.

Therefore, it is presumed that the three companies communicated their intentions based on the nationwide agreement.

(in Japanese: https://www.jftc.go.jp/houdou/pressrelease/2020/sep/200902_2.html).