Tyson's cost fixing lawsuit
Tyson Foods on February 17, 2004 lost a federal lawsuit in which it was found that the company had illegally held down the prices it paid to cattle producers. The jury fined Tyson Foods $1.28 billion in damages, to be distributed among some 35,000 ranchers. More important, if the verdict survives appeal, it may usher in a new approach to antitrust suits that might have serious impact on a number of oligopolies, both in the meat industry and outside.
Tyson, which buys around a third of all cattle sold in the US, declared that it does not manipulate the market, and last year's rise in beef prices is proof. The lawsuit was filed in 1996, long before Tyson acquired that company. Experts give the appeal some chance of succeeding.
A Wall Street Journal article ("Tyson Loses Cattle-Price Lawsuit", 2/17/2004) notes that
The verdict is the biggest yet in a growing area of litigation against a type of antitrust abuse known as monopsony, which is the mirror image of monopoly. While a monopoly usually involves a seller trying to raise the prices paid by consumers, a monopsony materializes when a firm acquires enough buying power to push down unfairly the prices it pays to its suppliers.
Actually, Tyson is an oligopsony, not a monopsony, since there are at least a few other serious competitors in the cattle-buying industry. The issue here is what we call cost fixing. The article points out the relationship of this case to the practices of Wal-Mart, and notes that prosecutors have been reluctant to pursue oligopsonists because of the narrow difference between regular price-cutting and illegal anti-competitive activities (cost-fixing).
But the growing level of concentration in everything from cigarette manufacturing to blueberry processing is sparking a wave of private litigation. Today's top five meatpackers control nearly 85% of beef production. Two similar lawsuits under that act are pending against two other top-five players: Cargill Inc., Minneapolis, which owns Excel meatpacking, and Swift & Co., of Greeley, Colo.
The actual suit, which was based on never-used provisions of a 1921 law, had to do with the prevalence of lock in contracts that forced the price of the few cattle sold on the market ever lower. In other words, the charge was that the big meat producers had rigged the auction of cattle to the disadvantage of ranchers,
The big difficulty is in proving that Tyson deliberately used their market power to fix costs, by taking advantage of the minimal competition and signaling acceptable bidding levels to its rivals. Such cases are always hard to prove, and companies have many ways in which they can adjust the rules of the game to avoid the outright appearance of collusion. And since this has no direct relation to higher consumer prices (indeed often leads to steady or somewhat lower consumer prices), government bodies see little urgency in pursuing this matter.
