A USB flash drive.

Yesterday, Blawgletter’s ears pricked up when we saw a WSJ report that the Antitrust Division has started probing possible anticompetitive behavior in the "flash memory" business.  We also noted a story that somebody — a certain Mr. Go — already filed a civil lawsuit against flash memory chip makers for price-fixing.

A few thoughts sprang to mind:

  • The government probe likely built on the Antitrust Division’s prosecution of price-fixing in another kind of memory chip — the dynamic random access memory chip or DRAM — and its follow-on investigation of same regarding another chip type — the static random access memory chip or SRAM.
  • Many of the probees make all three kinds of chips.
  • A lot of the same plaintiffs’ firms serve as counsel in class actions relating to price-fixing on DRAMs and SRAMs.

All three thoughts reflect the reality that international cartels exploit economies of scale.  Scale economies allow a producer or group of producers to produce more efficiently as they produce more and more.  An effective conspiracy to fix prices in one product — DRAMs, say — eases the path to and lowers the cost of forming a parallel conspiracy to fix prices on others — SRAMs and flash-memory chips, for example.  Members of the conspiracy (or conspiracies) overlap, enhancing their ability to police compliance with the price-fixing agreement.  And spreading the original conspiracy to more products tends to raise the profits of illegality.

But the economies of scale come at a price.  Expanding a cartel, especially to other markets, may destabilize it as less trustworthy members join.  And, once antitrust enforcers get wind of the conspiracy, the temptation to squeal (in hopes of gentler treatment) may become unbearable.

Plus the enforcers, both criminal and civil, may exploit their own economies of scale.  The knowledge and expertise that they gain in one area (DRAMs) will aid them in the others (SRAMs and flash-memory).  They will already understand the basics of the relevant markets — cartel members, their respective market shares and distribution channels, overall size and scope of the markets, the identities of purchasers, cartelists’ pricing strategies and policing mechanisms, and technological issues.  The anti-cartel economies reflect a mirror-image of the cartel’s.

Blawgletter doesn’t believe that economies of scale in price-fixing litigation equal the advantages of fixing prices.  Indeed, the small number of truly new prosecutions in recent years suggests that cartels continue to form and operate without detection.  But the scale economies give civil and criminal enforcers at least a fighting chance.

Barry Barnett

Feedicon Our feed promotes competition.