How To Spot Price Fixing

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How To Spot Price Fixing

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How To Spot Price Fixing Merril Hirsh Partner Troutman Sanders LLP Washington, DC How To Spot Price Fixing What is price fixing? What does the law have to say about it? – PowerPoint PPT presentation

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Title: How To Spot Price Fixing


1
How To Spot Price Fixing
  • Merril Hirsh
  • Partner
  • Troutman Sanders LLP
  • Washington, DC

2
How To Spot Price Fixing
  • What is price fixing?
  • What does the law have to say about it?
  • What should I look for?
  • What can I do about it?

3
What is price fixing?
  • Well, it is price fixing e.g.
  • agreeing on minimum prices
  • agreeing on benchmarks (e.g., price for
    particular grade, or the standard price list)
  • agreeing on price differentials between types,
    sizes, quantities
  • agreeing on a standard formula for sales
  • agreeing on elements of prices (e.g., percentage
    surcharges credit terms)
  • agreeing on price discounts/or eliminating them
  • Agreeing not to lower prices

4
What is price fixing?
  • But prices can be controlled in other ways e.g.
  • Allocating markets (geographic, product)
  • Allocating customers
  • Agreeing not to compete for particular contracts
    (e.g., bid rigging, suppression, allocation,
    subcontracting)
  • Agreeing to limit supply
  • Agreeing to limit products
  • Agreeing to common terms or conditions
  • Agreeing not to compete in other ways (e.g.,
    advertising, RD)

5
What does the law have to say about price fixing?
  • Dont do it it is a felony
  • Section 1 of the Sherman Act provides that
    every contract, combination in the form of
    trust or otherwise, or conspiracy, in restraint
    of trade or commerce among the several States, or
    with foreign nations, is hereby declared to be
    illegal . (15 U.S.C. 2)
  • It also creates civil liability for treble
    damages
  • Naked price-fixing is a per se violation
  • It can be proved by direct evidence e.g.,
  • -
  • Or by circumstantial evidence

6
What should I look for?
  • Think about how price fixing is done
  • They need an agreement
  • They need to be able to police it
  • They need to be able to keep it up even though it
    is illegal

7
What should I look for?
  • General evidence
  • Identical prices, especially for a long period of
    time
  • Prices higher, or not dropping
  • Higher prices dont seem to relate to costs of
    raw materials, previous bids or cost estimates
  • Difficulty interesting companies in selling to
    you (reluctance to talk, or ridiculously high
    quotes, or poor quality samples)
  • The same companies solicit business, others dont
  • Price increases are announced at around the same
    time, or with the same or a rotating leader
  • Similar or identical letters explaining price or
    service changes

8
Sometimes price fixers are unimaginative
9
Lithe and fierce like a tiger
10
What should I look for?
  • Changes in what had been competition
  • Odd or new type of inflexibility on prices or
    terms
  • Elimination of historic discounts across an
    industry at the same time
  • Refusal to negotiate where negotiation is common
  • Odd lack of availability of product

11
What should I look for?
  • Unlikely patterns of competition
  • Same company always wins particular bid, while
    others always seem to submit non-conforming bids
  • Companies seem to have split up line items (some
    significantly higher on some and significantly
    lower on others)
  • Flip side bids always come in unexpectedly
    close to each other
  • Same increment of bids between different
    companies (create a chart of bids)
  • Small (alternating) group win bids
  • When a contract is rebid, bidders come back in
    the same order, or with the same differentials

12
What should I look for?
  • Tip-offs (duh, or doh! depending on your
    perspective)
  • One competitor submitting two companys bids
  • Company brings multiple bids to opening and only
    submits after determining (or trying to
    determine) who else is bidding
  • Competitors are seen meeting shortly before bids
  • Apparent knowledge of what competitors will do
    (e.g., they wont give you a better price)
  • References to industry-wide price schedules
  • Statements about customers belonging to certain
    sellers
  • Statements that bid was courtesy,
    complementary, token or cover
  • Winning bidder subcontracts to losers, or
    withdraws and becomes subcontractor
  • Proposals have identical typefaces, stationery,
    addresses, or typos, or contain whiteout marks

13
Sometimes price fixers are dumb
14
Typos
15
What should I look for?
  • Sudden competition
  • Prices drop mysteriously when a new bidder
    appears on the scene
  • Sudden willingness to sell followed by exit
  • Suddenly lower prices follow by price hikes
  • Unusual evasiveness

16
What can I do about it?
  • Expand the list of bidders
  • Require signing and submitting of non-collusion
    statements that inform bidders of penalties for
    violating the law
  • Teach employees to be aware of signs
  • Maintain all procurement records
  • Chart out the pattern of bidding over time,
    place, terms, etc.
  • Know the markets you are purchasing from (raw
    materials, patterns)
  • Ask questions if prices or bids dont make
    sense, press vendors to justify. Think about the
    explanations.
  • Report suspicions dont assume that everything
    that is odd is illegal, but dont assume it is
    legal either.
  • Of course call us!

17
Merril Hirsh
  • Merril Hirsh is a partner in the Washington, DC
    office of Troutman Sanders LLP. He joined
    Troutman as part of its January 1, 2009 merger
    with Ross, Dixon Bell, LLP, where Merril was
    the head of the antitrust practice group. In
    addition to counseling clients on a range of
    antitrust issues, his litigation on behalf of
    plaintiffs and defendants includes recovering
    76.25 million under the False Claims Act based
    upon alleged price fixing of carbon fiber
    successfully defending USA Track Field against
    an antitrust challenge to its competition
    standards obtaining an 87.5 million settlement
    in a telecommunications dispute and developing
    the structure for a 3 billion settlement of
    asbestos liabilities. Compliance Reporter named
    him Lawyer of the Year in 2008 for his
    representation of the Financial Planning
    Association in the DC Circuit lawsuit that
    overturned the SECs broker-dealer rule. Before
    joining Ross, Dixon, Merril was a Trial Attorney
    in the Justice Departments Civil Division where,
    among other things, he represented the Department
    of Education in the Kansas City school
    desegregation case. Merril has spoken
    frequently, published numerous articles and
    testified before Congress on antitrust issues and
    has participated on the ABAs pharmaceutical task
    force on antitrust issues.