Case Assignment: Lysine Cartel                                        Economics 33

For class discussion Thursday, May 6th                                Prof. Stephen Schmidt

 

Read the case “Global Cartels Redux: The Amino Acid Lysine Antitrust Litigation” in Antitrust Revolution (pages 252-276). Hand in a typed one to two page answer to the following question:

Do the facts of this case generally support the Chicago school of antitrust analysis or generally refute them? Explain your answer, referring both to specific propositions of the Chicago school and specific information in the case that brings evidence to bear on those propositions.

Be prepared to discuss that question and the following questions in class. Also prepare two questions of your own regarding the case to ask in class discussion.

 

1.      What was unusual about the lysine litigation that makes it important as a legal decision? (More than one answer is possible.) Which, if any, of those things make it important to an economist?

2.      What is an overcharge, and why is it important to the resolution of the case? How do the various trials of individual executives affect the negotiation over the overcharges?

3.      What must be true about the economics of an industry in order for a cartel to form? Do those conditions appear to be met in the lysine industry or not? How do you know? What do events of the 1990s tell you about entry barriers?

4.      Does the graph of prices on page 261 suggest a cartel existed, or not? How does it suggest that, or fail to do so?

5.      What is the strength of the before-and-after method of measuring overcharges? What is its main weakness? Do you regard this as the best way to measure overcharges or not? Why or why not?

6.      What does the price of corn have to do with this case? What does the evidence about the price of corn tell us about overcharges, and about the effectiveness of the cartel? What does this suggest about the validity of the before-and-after method of measuring the overcharges?

7.      Would you have accepted the $45 million settlement or not, either as the lawyer prosecuting the case or as one of the firms that lawyer represented? What are the most important economic facts that support your view?