Hey China Milk Man, What Part Of Price Fixing Do You Not Understand?
Fascinating post over at the Chinese Law Prof Blog, entitled, "What part of "colluding to fix prices" don't you understand?"
The post is on a recent public announcement by the Chinese Dairy Industry Association essentially saying five of its Beijing members are going to collude on prices so as to create a more orderly dairy market in Beijing:
According to the report, the five big dairy companies have agreed to exercise "self-discipline" in the Beijing retail market. Fierce competition is driving down profits, and the price of milk is apparently the same as it was in 2005. Moreover, once the dairy companies succeed in driving up retail sale prices, they plan to turn their attention to procurement end of things, and to "standardize" their purchasing activities.
Professor Clarke then goes on to note "this would seem to be a pretty clear violation of the Price Law, which states in Art. 14 that "Operators may not engage in the following acts of improper pricing: (1) colluding with each other to manipulate market prices, harming the lawful rights and interests of other operators or consumers").
Professor Clarke views the actions of these dairy producers as manifesting "the absence of what might be called a certain culture of the market." He goes on to say that he doubts "the Dairy Industry Association had any intention of breaking the law, or even of doing anything legal but improper. It just seemed to them that when profits are going down because of disorderly markets, collective action to maintain profit levels is entirely appropriate. And journalists and the public have not yet learned to be cynical about assertions of the virtues of "orderly" markets."
Yes, but .... and here is my question: did these Dairy Industry members act in what appears to be a blatant violation of Chinese law regarding price collusion because they were unaware of the law or because they have no fear of the laws being enforced against them?
http://www.chinalawblog.com/cgi-bin/mt/mt-t.cgi/2050
Hey China Milk Man, What Part Of Price Fixing Do You Not Understand?:
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Comments
I seem to recall that Lan Zhou noodle resturant owners did the same type of thing, but the local gov't stepped in to control the price hike...
Given kind of report the noodles got, it is hard to imagine that milk does get the message. Even if noodle operators did not know of price fixing laws, these five "Milk Men" should since they've got the industry association behind them.
So, I'm inclined to think that "they have no fear of the laws being..."
Posted by: Brad Luo | July 23, 2007 3:07 PM
So, how do we get them in court? Can any average Zhou sue them? It's a pretty obvious violation, and I'm surprised nothing has been done about it.
Posted by: Chip | July 23, 2007 7:06 PM
I would lean towards Dan's interpretation. Industry bodies seem to be pretty prehistoric in their attitudes, and this is just the sort of intervention that would help them to justify their own existence. I bet if asked they'd say, we're not harming anyone, it's all for the greater good (of the glorious communist motherland).
The transition from total control to trusting individuals and companies to set prices is a difficult one.
Posted by: Phil | July 23, 2007 7:07 PM
As a matter of interest could one argue that the phrase "harming the lawful rights and interests of other operators or consumers" provides a get out clause? I know the public interest argument is sometimes used to justify price collusion in other fields - perhaps they're suggesting that unless they co-operate to raise prices long term competitiveness in the industry will be hit as operators are forced out leaving behind a monopolist? (Not an argument I'd support, but I could see it opening up theoretical space...)
Posted by: Duncan | July 24, 2007 6:19 AM
I think this is a very interesting start that could provoke several anoher questions:
It is true that all the food and livestock price has rose ,but if what they said is true that milk price stays put,what happened to make this possible?
1 market is working: could be that these plants keeping overall cost down to avoid price lifting.Or as well could be the demand of dairy cow has rose,or also could be one or two plants have the resource to rage a price war to drive out other runners.etc,etc.
2 government is working,you can find all these plants are one way or another are government owned or partly owned.It could be possible subsidise keep the milk price down so these plant could maintain profit from higher procurement price.
but why they suddenly change road?From the reasons above it could be that the competition is driving one or more plants to the brink of broken that local government could not see that happen.It also could be that government don't want to subsidise them anymore.Or as the author has said they want to gouge a higher profit from consumer.
Posted by: Steven | July 24, 2007 8:48 PM
Industry assocations are subject to liability for anti-competitive behavior in the draft of the Anti-Monopoly Law, which should pass this year. Of course, enforcement will be another story...
Posted by: Ben | July 24, 2007 9:35 PM