Saturday, November 03, 2007

Send well-dressed thieves to jail

I agree with Graeme Samuel: send well-dressed criminals who steal systematically from the public to jail. As in the US, Canada and Britain those who operate cartels that fix prices and steal hundreds of millions of dollars from the public should go to jail. Visy Industries is the worst example of collusion in Australian history a Federal Court judge said yesterday – yet it got a trifling $36 million fine.

The prospect of a lengthy term in the clink would make the Richard Pratts of this world think twice about engaging in or being tolerant toward collusive behaviour. A $36 million fine, when there are hundreds of millions of dollars in potential gains from flouting the law, does not provide the same disincentive.

Further thoughts: The relatively paltry fine does however offer some encouragement for non-contract customers to pursue their joint $700 million class action claim against both Visy and Amcor. As I pointed out in an earlier post the law here that gave immunity from prosecution under trade practices legislation to Amcor for dobbing in Visy first does not imply an exemption from other civil damage claims. For the legal motivation for the structure of law here see my earlier posts here, here and here.

13 comments:

Anonymous said...

Oh for Christs sake, harry, you can't have monopolies or cartels in contestable markets.

You need to get out in the real world for a few years and see how business operates.

Bring Back CL's blog said...

I agree Harry how come white collar criminals get off so easy.

If it was a contestable market then he couldn't have hiked the price up!!

observa said...

"Oh for Christs sake, harry, you can't have monopolies or cartels in contestable markets."

And we didn't in the box market either when you analyse it more than superficially. Amcor approached Visy to collude on price, which Visy agreed to in order to secretly undercut that price and gain market share. That's precisely what happened when the price fell over the period of the so called agreement. When Amcor realised what had happened they spilled their guts to big daddy in order not to get the strap themselves. How were consumers hurt by such sibling rivalry?

observa said...

And what exactly did the ACCC dad achieve by strapping one naughty child for both children's childish behaviour?

hc said...

Observa, I have posted on this several times before (see here for example and should have cross linked.

The ACCC is exploiting Prisoners Dilemma instabilities in the cartel arrangement to help the structure self destruct. You can read the link.

I disagree with your interpretation of history and believe Pratt is lying. The fact is that prices got so high people started to get suspicious.

There is very good sense in this instance in punishing one child but exonerating the other for dobbing.

Anonymous said...

Harry:

how do you live with your intellectual inconsistencies.

On the one hand you want to punish firms for attempting to maximize profits through higher prices.

On the other hand you (and the rest of the ACCC supprters) would want to punish firms when they attempt to gain market share though lower prices: calling this predatory pricing.

This is totally bonkers.

You guys are in serious need of some econmics lessons.

"If it was a contestable market then he couldn't have hiked the price up!!"


You dope, homer. It's not prices going too high that is the important determinant, it is profitability.

The only white collar crime is see is people posing as economists.

Visy's chairman has done nothing wrong and the fine is pure teft.

Anonymous said...

Harry:

You may want to explain to people who don't understand the following.

How can two or more firms possibly collude when they have different balance sheets and different cost structures etc.

Agreeing to work at a mutaully agreeable point on the price curve is not collusion in economics.

Your assumptions are faulty.

hc said...

well no collusion in this situation is a snack. In this case it consisted of each firm jacking up prices and then the other firm not competing for business by offering still higher prices cwhen asked to quote.

There was no competition and entry to this market was restricted by huge scale economies.

rog said...

Admission of guilt will not help the civil action; they must prove that a damage was done and they must be able to quantify that damage. A lot of work.

Maurice Blackburn are specialists in class actions, they have a few australian companies in the courts eg Multiplex, Aristocrat, AWB.

Bring Back CL's blog said...

if this was a contestable market then there would have been no collusion period.
There couldn't be.
Those whom accuse people of not understanding economics should take a basic lesson as well.

Spiros said...

As the judge said, it was a conspiracy to defraud their customers. That's why the Visy and Amcor executives met in parks and suburban hotels and used pre-paid mobile phones to communicate.

Observa, it was Visy who approached Amcor. Visy now admit this.

Harry, I agree, crriminal penalties are a great idea. If Dick Pratt faced the prospect of sharing a cell with Ivan Milat, he might have thought twice before entering into a price fixing conspiracy. But you might care to ask Peter Costello why he still hasn't introduced criminal penalties for cartels,three years after he said he would.

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