Explain seven main conditions that need to be met in order for a cartel to be possible. Were those conditions met in the ADM case described above and in class?

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Explain seven main conditions that need to be met in order for a cartel to be possible. Were those conditions met in the ADM case described above and in class?

During the 1990s a conspiracy to organize a cartel with the purpose of raising the price of an animal feed additive, lysine, was uncovered. It involved five companies that had commercialized high-tech fermentation technologies, including Archer Daniels Midland (ADM) and companies from Japan & South Korea.

A criminal investigation resulted in fines and prison sentences for executives of ADMwho colluded with the other companies to fix prices. (The foreign companies settled with the US DOJ Antitrust Division in 1996.) The cartel had been able to raise lysine prices 70% within their first nine months of cooperation.

The investigation yielded $105 million in criminal fines, a record antitrust penalty at the time, including a $70 million fine against ADM. ADM was fined an additional $30million for its participation in another conspiracy (citric acid). In addition, buyers of lysine in the US & Canada sued for $80 to $100 million in damages from the cartel members. ADM also paid $38 million to settle mismanagement suits by shareholders.

  1. Explain seven main conditions that need to be met in order for a cartel to be possible. Were those conditions met in the ADM case described above and in class?

 

  1. Under a cartel arrangement, the various companies operate together as a virtual monopoly. Draw a graph that demonstrates how customers are disadvantaged by a cartel.

Question Two

A good’s Demand Curve is QD = 25 – P, and its Supply Curve is QS = 10 + 2P. Draw this Supply and Demand Curve accurately.

  1. When P = $20, what is the difference, if any, between QD and QS?
  2. When P = $3, what is the difference, if any, between QD and QS?
  3. What are the equilibrium values of P and Q?
  4. List the major non-price determinants of demand.
  5. List the major non-price determinants of supply.