ADM's Mistake (Mostly Corrected)

Alex Tabarrok discusses the new movie about Mark Whitacre and price fixing at Archer Daniels Midland.  ADM apparently was caught holding meetings with competitors to fix prices of certain chemical commodities, specifically Lysine.

Here was ADM's mistake, and it is one they have clearly learned from:  in the modern American corporate state, there is no reason to engage in illegal private price fixing or cartel arrangements when corporations can achieve similar ends legally and openly through the government.  If ADM was concerned about difficult competition depressing pricing, they could have emulated any of these examples:

  • Run to Congress to beg for strong tariff's on foreign sources of their commodity product (as do the sugar and ethanol industries)
  • Run to Congress and have them institute minimum pricing or buy up excess supply (as do many agricultural producers)
  • Run to Congress to seek supply restrictions (as does the taxi business)
  • Run to Congress and have them restrict new competition and sources of supply through licensure (as do a variety of industries, from real estate to funeral homes to medicine)
  • Run to Congress to have them pass onerous legislation that makes it difficult for new capacity to be added in the business (as does the waste disposal industry)
  • Run to Congress to seek subsidies for their product in the name of some public good - it doesn't even have to be true (as does, well, ADM with ethanol)
  • Run to Congress to seek regulations that favor your particular production and product technologies while hamstringing your competition (as does GE with light bulbs)
  • Run to Congress and have them enforce an industry price-fixing arrangement -- its legal when Congress does it (as do the Milk producers)
  • Run to the FTC to bring anti-trust actions against your competition (as did Netscape and Sun against Microsoft)  This is an interesting article on this, which says in part, "Most [antitrust] cases are not brought by public representatives, whether elected or self-appointed, but by private companies, often rivals of the defendant who are being driven out of business. Businessmen believe that competition is good if they win but bad if the other guy wins."

Of course, all of this takes a little care.  The competitive relief must be couched in something like "consumer protection" or "saving jobs" or "going green" or "fairness," but there are plenty of good examples of consumers getting the shaft in the name of consumer protection that it shouldn't be too hard to come up with something.  Developing a high profile in an early Presidential primary state like Iowa doesn't hurt either.

As I said in the title, ADM has certainly figured this out, if their approach to the ethanol business is any guide.  In ethanol, they have resorted to any number of these tactics simultaneously.



    Why is it that people say they "slept like a baby" when babies wake up 10 times every hour?

  2. t:

    But Microsoft has been found a convicted monopolist for hurting consumers by bundling a browser and a media player with their operating system! Consumers would be better off buying those seperately, as they do on linux and osx. Oh. Wait.

    Sucks if you don't pay protections money to the right folks.

  3. Jim F:

    My understanding with the Microsoft case was that it wasn't about the bundling of a browser and media player. If I recall, it was that they were basically forcing you to use those bundled pieces by either not allowing you to install third party software or the third party software would be severely crippled when you did install it. Basically you were not allowed the ability to choose an alternate piece of software if you wanted.

    With any of the Mac OS's you've always been able to freely install any browser or media player that has been created for it. When I was doing web design I ran Safari, Firefox, Opera, and Explorer on my Macs so that I could view websites in different browsers for compatibility issues.

    Where Apple had potentially run afoul of antitrust was with iTunes and their AAC/DRM encoding for songs bought from the iTunes store. AAC was viewed as an Apple proprietary compression tech, like Quicktime, but that was really more a case of Apple being an early adopter of the compression tech, as they tend to be with many (but not all) tech advances. The DRM issue is one that Apple eventually had to address as the free market demanded that they remove their proprietary DRM from the music catalog. (Though Apple spun that decision as a new benefit to their users, and not as a response to market demand.)

  4. Glenn:

    Have congress create onerous environmental regulations that create an insurmountable barrior to entry. Crude Refining

  5. feeblemind:

    As a hog feeder at that time, I remember the price fixing well. I always marveled at how little coverage it received in the Press. Then I remembered that ADM advertised on all the Sunday morning news shows as well as on pBS. Perhaps they still do? Anyway, I suspect that the advertising helps keep a hostile press off their back. It is probably a shrewd strategy.

  6. Matt:

    "Run to Congress and have them restrict new competition and sources of supply through licensure"

    The number of businesses which aren't required to comply with some sort of licensure is vanishingly minute.

    Hell, even having a garage sale requires a damn license.

    That means: no one is permitted to make a living without permission from the state.

    "Land of the free," my ass.

  7. d:

    "Consumers would be better off buying those seperately (sic), as they do on linux and osx. Oh. Wait."

    I can't speak for Linux, but what's your problem with OS X? There's nothing monopolistic about Apple's inclusion of Safari in their install. I'm typing this using Firefox on my iMac. Even as an Apple employee, I can attest there is *zero* internal pressure to use Safari — I use Firefox there, too. And I don't need any "jail break" procedure to do it, either. Just a normal install, like any other app.

    Just because Safari is bundled with OS X does not mean Apple locks out others. Opera, anyone? Hell, even Internet Explorer 5 still runs on a Mac if you want to go down that path. Should I sue Google because they don't make a Mac-compatible version of Chrome? Perhaps Apple watched and learned from MSFT's tribulations, but Apple has NEVER locked out any other browser on its platform as MSFT did.

    Being factual is one thing, t. Being FWS (flippant while stupid) is another.

  8. epobirs:

    Jim F.,

    That is utter nonsense. Microsoft never prevented the use of third party software of any kind. They provide massive amounts of documentation to encourage third party developers, whose support is the strength of Windows. Rob Glaser, who was almost universally hated when he worked at Microsoft, tried to claim before Congress that MS had screwed up the then version Real Player. It turned out his programmers had screwed up and made amateurish mistakes in their implementation.

    It was never any problem running multiple browsers on Windows. A more pressing complaint for web designers was the need to test against different versions of the same browser. To test against both IE 4 and IE5 you'd need two machines or a dual boot or a boot drive selector switch, etc. This had little bearing for the average consumer who only cared if the site looked right with his installed browser.


    Speaking of being factual, did you assume Jim's bad info was correct? Microsoft has never prevented consumers from installing any browser of their choice. I've run pretty much every browser to come down the pike on everything from Win95 on up. Being Flippant While Ignorant is no way to go through life, son.

    What was wrangled over in the anti-trust case was the ability of PC VENDORS to pre-install software as the default choice. Microsoft tried to restrict their bundled apps from being overshadowed by third party products, much as they restricted the amount of branding PC vendors could do to Windows. Microsoft didn't want the appearance of someone like Gateway claiming the Windows that shipped with their machine was somehow different from that on other systems. This threatened a return tot he days when there were dozens of MS-DOS machines that were not IBM PC compatible. The number of versions of WordStar that only ran on one brand of PC, sometimes only on certain models within the brand, made for a retail nightmare. The PC market didn't mature until the non-IBM PC compatible MS-DOS systems dropped out of the market in favor of PC clones that could all generally run the same software.

    The Microsoft Anti-Trust case was a classic moment of a company coming under attack because competitors had worked harder at being politically connected. At the start of the case Microsoft had taken a neutral approach to Washington, DC. They had no political lobbying staff as was common at nearly all of the complainant companies. Well, that taught them. Good job, guys who ultimately lost anyway because they couldn't sell eternal youth, given the opportunity.

    All of the genuine complaints of any merit in the case could have been settled easily taken on an individual basis. Instead the DOJ wasted vast amounts of taxpayer and MS money (pun not intended) on litigation driven by political pull rather than any genuine offense committed. Guys like Scott McNealey and Larry Ellison ran $multi-billion companies that couldn't reach consumer markets if you held them at gunpoint and magically eliminated the very existence of Microsoft, yet somehow Bill Gates was to blame. What this really was came down to a pair of jocks who hated that the kind of nerd they once tormented had them beat. Netscape was a patsy for the bigger, older companies who knew full well that there was something a little questionable about a company that tried to commercialize what started as freeware and was upset that somebody else still regarded it as freeware.

    If the case were done as it should have been, as a bunch of little law suit rather than a grandiose bit of kabuki litigation theater, very few people would have been interested. But it wasn't about those little issues for the big companies backing the case, it was about bringing down the competition before it was really competing in the same markets.

  9. Lasto4ka:

    Почему вы так редко новые материалы добавляете??

  10. tomw:

    I believe the M'soft anti-trust suite was based upon the fact that Microsoft required the manufacturers to purchase a license for whatever version of Windows was current for each and every machine that they shipped. Even if it was going to be run with a Unix operating system, or OS/2, or [brain fade - the network company in Utah that was SO far ahead using small business nets]

    There is/was a suit in Europe over the browser that was included, and there, IE is not distributed with the OS,IIRC.

    I believe McNealey and Ellison were suing M'soft over stuff that M'soft was using in its sql server, stored procedures or more esoteric stuff. There were suits and countersuits galore over the "windows" interface. The guy that runs Amazon has some sort of patent for 'one click buying', as if it is not an 'obvious' idea.
    There are firms that buy patents, and use them as cudgels against smaller companies to extract small fortunes. They never use the patents. I don't think that should be legal, but who am I to say?

  11. Tim:

    One other fundamental issue with the Microsoft case is a matter of definition and semantics. Are web browsers and media players fundamental parts of an operating system; or are they application level programs? If they are the latter; then why is the product structured in such a way that they cannot be uninstalled? And, to epobirs's point; it isn't just about what you can add, it's about what you can't uninstall.

    The other less common and litigatable complaint is that Microsoft uses it's market presence and install base to abuse interoperability standards. That's why web compatibility is such an issue. Microsoft's web browsers are fundamentally *different*; which affects behavior, but a standard HTML/CSS/JavaScript page should present the same way, semantically, on any browser on any operating system. But there really isn't a point of law there; just ethics.

    Sun Microsystem's suit against Microsoft; which was also mentioned above, wasn't an anti-trust action. It was a breach of contract. Microsoft willfully violated their Java development license by, as I pointed out above, adding Windows specific features and breaking Java's interoperability. This type of activity was specifically prohibited by the technology license.

    Microsoft's ultimate response to the Java kerfuffle shows how the market should work. They've pushed their own Java-like technology (C#); using the ideas that are in the open marketplace. And, I believe, they're losing.

  12. epobirs:

    Microsoft's Java implementation did not break interoperability. It worked fine with code that had never been run against it or hadn't been written specifically for it. What it did that got Sun's panties in a twist was offer options that drastically increased performance at the cost of compatibility with other implementations. This meant Java-using developers who didn't care about running on anything but Windows systems could get decent performance at a time when Java was causing companies that attempted to do serious application work in Java to lose millions of dollars. Sun tried to promote Java as the be-all and end-all of software development and deployment when it was still years away from being suitable for much more than demos. Microsoft's great offense was revealing Java's weaknesses to the world.

    In a rational world, Sun's Java suit would have invalidated or been invalidated by the complaints over removal of Windows components. The basis of Sun's complaint was that they were the sole arbiters of what Java should and should not be. This was exactly the same control Microsoft was maintaining over Windows when it tried to keep base components from being removed from the system. The problem wasn't Compaq pre-installing Netscape. The problem was trying to completely exclude IE and creating a system that would not run everything Microsoft intended as capability of the base system.

    Sun wanted to protect the 'write once, run everywhere' and didn't want Java known as something that ran best on Windows. The latter issue was the greater complaint for Scott McNealey but carried little weight in court if Sun was going to let other platform makers produce their own VMs under license. Over the years it all turned out to be a huge waste of time, especially those people who invested years of their lives trying to produce desktop Java apps. Today the two most widely used Java apps are the interaction layer in Blu-ray players and Vuze, a BitTorrent client frequently used to avoid PAYING for Blu-ray content. Nice little circle there, fellas.

    Tomw, the issue over license requirements was more complicated than most of the litigants wanted to admits. The fact was and remains that anyone could set themselves up as a PC vendor offering Windows as an OS by buying licenses on the OEM market. Microsoft does not set any limitation on who can participate there. I've personally been using OEM licenses purchased from retailers like Fry's for about fifteen years of PC building. The companies expected to buy a Windows license for every machine sold that was described as PC compatible were those getting the maximum discount on those licenses. These companies were paying so little for their Windows licenses that many of them regarded the licensing issue a minor complaint as they had so little market outside of Windows on the desktop. Some companies sold their server products that were much more likely to have a non-MS OS under a separate licensing regime to circumvent the issue.

    This setup wasn't without benefit to consumers and other companies. Requiring that each system be compatible with Windows prevented fragmentation of the PC market and made life easier for developers of competing products by providing a stable platform across many vendors. Linux would simply never have emerged if the PC market hadn't been established first. It's been a very long time since anyone could both afford the cost and muster the will to build a complete new open hardware and software platform for the mass market. The last to try was Be Inc. They gave up on the hardware and made their last stand on the PC after Apple killed the emerging market in commodity Mac OS compatible hardware. (There was a spec called CHRP that would have established a standard equivalent to the PC but Steve Jobs pulled the plug on that as one of his first acts upon returning to the company.)

    It was only hardware companies who themselves had a stake in non-MS operating systems that really cared all that much. This really came down to IBM, who was trying to sell OS/2 as a consumer OS. I could write at great length at what went wrong there. To put it in short, the amount of failure within IBM was such that Microsoft could ignore the very existence of OS/2. OS/2 couldn't survive its own family, never mind handling any other kids in the neighborhood.

    Again, all of the complaints against Microsoft were those of other companies failing to compete or wanting a better deal. The harm to consumers was non-existent. The inability of companies like Apple to get their act together in the 90s were not Microsoft's fault. The DOJ should never have been involved. It was pure political bullying of a company that had amssed huge wealth without cutting politicians for a piece of the action.

  13. Peter:

    A lot of Microsofts anti-trust problems date back to the DOS days. There was a little known competitor called Dr DOS. Because Microsofts contracts with OEMs required that they pay $2.00 for a license if they sold MS DOS exclusively and over $200 if they OEM sold computers with other operating systems this made it impossible for competitors to break into the market. After all with 90+% of the market wanting MS DOS why would a manufacturer want to pay an extra fortune for the majority of their customers for the 1 extra sale from somebody who chooses the competition thus eliminating the possibility of competition.

  14. Tim:

    "The basis of Sun’s complaint was that they were the sole arbiters of what Java should and should not be." Sun *is* the sole arbiter of what Java should and should not be. They own the technology, offered Microsoft a license; which prohibited Microsoft to make modifications or extensions that broke interoperability.

    Which is precisely what Microsoft did. Microsoft started selling a version of "Java" that wasn't, by definition, Java. Remember -- Sun's action against Microsoft was a breach of contract, not an anti-trust action.

    As for the Sun action invalidating the anti-trust claims; please don't make the mistake that a browser or media player is a fundamental element of an operating system. It isn't; and it isn't part of Windows, either. That was the key bit of evidence that caused Microsoft to lose in the European courts. Somebody went through the effort to completely remove the browser; and Windows worked just fine.