Recent investigations by the U.S. Department of Justice into alleged price-fixing in industries such as e-books, air travel, and consumer electronics reflect the agency’s increasing scrutiny of companies accused of conspiring with others to alter prices.
The Justice Department is ramping up its monitoring, seeking to impose steeper fines on companies proven to have conspired and reaching beyond corporate liability and damages to prosecute senior executives. Regulatory bodies in the EU nations and other countries are also investigating such claims with more frequency, and follow-on civil suits are adding to the complexity and related expense.
One notable example is the years-long investigation of alleged price-fixing focusing on a number of players in the market for liquid crystal display (LCD) panels. The Justice Department had proposed a $1 billion fine on LCD manufacturer AU Optronics Corporation (AUO) for its role in allegedly conspiring with competitors to fix prices on its products. It had also proposed that 10-year prison sentences and fines be levied against two AUO executives who were found guilty of playing a large role in the conspiracy.1 Ultimately, a California federal judge set the fine at $500 million and the sentences at 36 months for each executive.
In high-stakes price-fixing matters, the decisions associated with applying for leniency, negotiating a plea, or going to trial are multifaceted. Given the stakes involved, companies need to make such decisions with the best available information. Economic analysis is needed to help assess the respective positions of both the prosecution and the defense, narrow the topics at issue, and develop estimates of potential financial exposure.
Economic experts can draw on a number of data sources and statistical screens to assist corporations in the investigation stage of the process – for instance, in determining the strength of circumstantial evidence of the alleged conspiratorial behavior. Such circumstantial evidence can fall into a number of categories. One category is communications records – for instance, telephone, dinner, and travel receipts that can place several executives in the same location at the same time, providing a potential venue for discussions of prices of the products or services at issue.
An economic expert can examine the structure of the industry and the indicia of competition, such as prices, price changes, and profit levels during the specific time frames in which the allegedly incriminating discussions took place, and can offer assessments about the potential effectiveness of any alleged conspiracy, given the market context.
Another category of evidence is price-specific company documents – for example, sales transaction data, corporate price lists, price-change notices, bid lists, meeting notes, or other pricing-related memoranda. An economic expert can use this type of information to, for example, assess whether price movements in a particular segment of an industry were statistically unusual – that is, did pricing in the sector change significantly during the time frame in which alleged collusive conversations took place?
Analyses such as those referenced here can clarify the likely scope, reach, and conclusions of an investigation into possible collusion and can help focus counsel on the activities of greatest economic concern. For companies being investigated and their outside counsel, engaging economic experts early in the process can also help to ensure accuracy and consistency in the data being used and in the information being communicated to investigators and opposing parties. ■
Michael Beauregard is a Managing Principal in the Los Angeles office.
1 Analysis Group teams have assisted in several criminal and civil lawsuits involving the market for LCD panels, led by Managing Principals Bruce Deal and Pierre Cremieux.
From Analysis Group Forum: Winter 2013