Are Vendors Engaging In Component Price Fixing?
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SPECIAL REPORT: Following a recent court case in the US, where a number of chip makers have been caught red-handed engaging in cartel-like activity and other unlawful collaborations, the question that immediately comes to mind is how much component price fixing really goes on?


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According to the court case, five officials at four companies have been sentenced to as much as 14 months in prison for violating the US Sherman Antitrust Act by colluding on prices for dynamic random-access memory, or DRAM, chips.

The four chipmakers pleaded guilty and agreed to pay $US732.7 million in criminal penalties for violating the Sherman Act. The companies included the two biggest, Samsung Electronics and Hynix.

But the case itself raises a number of questions, not least of which is: who else in the electronics market is colluding with their competitors?

According to a wide-ranging and special report on Bloomberg.com, US Prosecutors are “now investigating possible price rigging of other components in everyday products in communications and entertainment: personal computers, mobile phones, music players, cameras and monitors for PCs and televisions.”

The U.S. Justice Department antitrust case showed that this was far from being an isolated case and the penalties imposed on the chip makers were the highest that US law would allow.

 

Since five companies control some 80 per cent of the chip market, it needs to be asked whether this case was the first or for that matter, last that we will see in the electronics industry. Moreover, since these components go into just about every electrical and electronic product there is, the ramifications of this could be enormous, to put it mildly.

Admittedly, those involved in the DRAM case in many ways were breaking the law for little sense – the prices of DRAM and other similar components have fallen so much that colluding with competitors on a product whose price is hurtling to earth at supersonic speeds only serves in buying a few months, if not weeks of profit time. But the issue is whether the same allegations have been, or for that matter could be investigated in Australia.

The truth is firstly that comparing the US Department of Justice and its tough anti-trust laws and our own Australian Competition and Consumer Commission and our much weaker fair trading laws is like comparing a Bengal tiger with a domestic tabby cat.

Furthermore, to date, no such investigation has been launched here or is likely to be ever be launched by the ACCC whilst successive federal governments give the watchdog ever-increasing rows of paper teeth. One look at how the ACCC caved in to the petrol companies foot-stomping over their dubious petrol pricing practices speaks volumes.

 

However the stakes here are astronomically high. If the price of electronics components is higher than it should be, it is the consumer that ultimately pays with higher-priced purchases. Moreover, if these same components, most of which are imported are artificially higher in cost, then our trade balance is criminally skewed to higher levels than it should be. 

This of course has other ramifications across the whole market and thus, the entire economy.
And of course, then the whole country pays when one considers that there were $23 billion worth of ICT imports in 2006 for example.

One wonders if the ACCC would ever consider looking into this matter, although if history is any indicator, this scenario seems highly unlikely.