Opinion

A Fix for Price Fixing: Revive This Antitrust Program to Stop Corporate Collusion

In the early days of the 2020 presidential campaign, several Democratic hopefuls have made loud noises about getting tough on antitrust enforcement.

Massachusetts Sen. Elizabeth Warren wants to break up technology behemoths like Facebook and Google. Minnesota Sen. Amy Klobuchar calls for a breakup of the agricultural giants, such as Archer Daniels Midland and Cargill.  

These ideas would represent a major shift in U.S. antitrust policy and are certain to be controversial. If a candidate wants an antitrust proposal that resonates with voters across the political spectrum, he or she should call for stronger enforcement of criminal antitrust laws — the laws that protect American consumers from being cheated by price fixing, bid rigging and other corporate collusion.  

Enforcement of those laws has slowed to a trickle in the last three years, leaving U.S. consumers exposed to corporate cartels such as the one that bilked us out of a collective $3 billion for auto parts in the 2000s, or the one that overcharged us by at least $850 million for vitamins.

At this moment, U.S. consumers are almost certainly paying inflated prices for similar goods because the companies that produce or sell them are colluding with their competitors to keep prices high — this in the midst of a 14-year rise in consumer prices that has persistently outpaced increases in Americans’ wages. Allowing corporate cartels to gouge us, while those prices are still rising, without fear of reprisal, only adds insult to injury.  

We are unable to point to which organizations might be fixing prices or colluding to exploit and cheat American consumers, because corporate collusion is virtually invisible until law enforcement roots it out. None of us knew we were overpaying for nearly 60 different auto parts until the Department of Justice’s Antitrust Division raided a handful of parts makers in the Detroit area in 2010.

The resulting prosecution netted just short of $3 billion in fines from 46 companies. That number roughly equals the amount the auto-parts cartel wrongfully charged to unsuspecting American consumers in the 2000s.  

In the last two decades, antitrust enforcement has exposed, halted and punished similar cartels for fixing prices on many other common consumer products, from vitamins to LCD panels to canned tuna. But lately, that enforcement has undergone a drastic decline.

In 2018, the Antitrust Division charged only three companies with price fixing, a decrease from eight companies in 2017 and 16 companies in 2016. Fines paid by price fixers and bid riggers have also plummeted.

Between 2006 and 2015, the division collected an average of a little over $1 billion per year in fines. In 2016, the total fines collected plummeted to $399 million. In 2017, it fell to $67 million.  

The division has not yet released data for 2018, but as any of our colleagues in the antitrust bar can attest, the numbers will be much closer to 2017’s trough than 2015’s peak. Meanwhile, the prices Americans pay for consumer goods have jumped another 6 percent.

This drop appears to be the direct result of a series of changes to the DOJ’s corporate leniency program — with disastrous results.  

The corporate leniency program dates back to 1978, when the DOJ began providing incentives for companies willing to voluntarily disclose price fixing and other antitrust violations. In 1993, the DOJ supercharged the incentives, promising not to prosecute the first cartel member — including employees, directors and executives — that came forward with evidence of a price-fixing scheme and cooperated with the DOJ’s prosecution of other cartel members.  

Those incentives bore fruit almost immediately. Going back to 1996, the corporate leniency program has accounted for about two-thirds of Antitrust Division prosecutions — and about 90 percent of the fines the division has collected. Additionally, nearly all of the DOJ’s successful cartel-busting in the past 20 years began when a participating company exposed the scheme in a leniency application.  

But then in 2014, the DOJ made a series of policy changes that upset the delicate balance of incentives that made the leniency program so successful. In a series of statements, Assistant Attorney General Bill Baer declared that granting antitrust leniency might not stop the DOJ from charging a company with other crimes or sending “highly culpable” employees to prison. Baer and other DOJ officials also stressed their heightened expectations for cooperating in a timely manner and for what they considered thorough cooperation.

It’s unclear what motivated the DOJ’s decision to “get tough” on leniency applicants. In any case, the changes leave executives who discover price fixing or bid rigging at their companies far-less likely to turn on cartels that are colluding to overcharge American consumers.  

Fortunately, the DOJ can restore its vigorous prosecution of those cartels by making a few, simple clarifications and minor fixes to revive the corporate leniency program. The DOJ should state definitively that it will not prosecute employees of companies that cooperate through the leniency program, and that it will work with companies to protect former employees. This would remove the perception among executives that applying for leniency could mean hanging certain employees, or themselves, out to dry. The DOJ should also reassure companies that it will not pressure or require them to terminate culpable employees in order to satisfy their cooperation obligation.

Third, the DOJ should issue guidance about what type of behavior it would consider prosecuting under other statutes. Bringing criminal fraud charges against a company that provides evidence of a price-fixing scheme should be the exception.  

Finally, the DOJ should change its tone toward leniency applicants. An executive who hears and sees federal law enforcement expressing skepticism, or even hostility, toward leniency applicants, is far less likely to expose a cartel, and far more likely to allow it to carry on fleecing consumers.  

It’s hard to imagine anyone arguing against prosecuting price fixers, bid riggers and corporate cartels. For more than 20 years, the corporate leniency program fueled a wildly successful crackdown on those criminals, and it’s time the DOJ restored the incentives that made it such an effective enforcement tool.  

 

Robert Bell and Kristin Millay practice antitrust law at Hughes Hubbard & Reed in Washington, D.C.

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