DRAM price fixing
A new development in an ongoing price fixing scandal. Starting in 2002 and spurred on by the complaints of key PC makers in the US, the US government investigated a price-fixing cartel in the DRAM market. DRAM, as you may know, is the kind of semiconductor normally used for computer memory. It started out as a classic case of an oligopsony (the makers of personal computers) battling against an oligopoly (the DRAM makers).
The government got the evidence to implicate the four biggest players along with a few of the smaller ones, who were involved in a conspiracy for over four years. Micron, one of the top players, admitted guilt, but got spared a fine by cooperating with the antitrust regulators though an executive of the company was jailed and fiend for falsifying evidence.
In 2004, the US government got execs at Germany-based Infineon to plead guilty, and four executives were given short jail sentences and given significant fines ($250,000 each). Infineon, as a corporation, also pled guilty, and the company was assigner a $160 million fine. In 2005, Hynix pled and got slapped with a $185 million fine. They were followed by Samsung, which was fined $300 million.
In a follow-up suit, earlier this year, Samsung, Infineon, and Hynix agreed to pay $100 million to settle antitrust suits to a group of computer consulting groups.
But it keeps going on. In 2006, Elpida (a joint venture of NEC and Hitachi) pled and was fined. $64 million.
Then, just this week 34 states started their own price fixing lawsuits. In a InformationWeek article ("34 States Sue DRAM Companies For Price Fixing", 6/13/06), the scope of the suit is explained:
According to New York's lawsuit, DRAM manufacturers regularly exchanged price information and other confidential business data in order to raise the prices that OEMs and other DRAM customers paid for memory chips. The suit seeks to recover damages on behalf of consumers and local governments in New York, according to the attorney general's office.
This has may end up being the biggest price fixing suit in terms of fines ever prosecuted. EU and other antitrust authorities are not done yet, either.
The DRAM oligopoly is a tight one, with four players getting 70% or more of the worldwide sales. The industry was a natural for a cartel. DRAM is a commodity item, so there was little ability to compete over features or service. There was excess manufacturing capacity (as we've seen recently in the controller chip market) depressed price. The players all know each other well and are members of the Semiconductor Industry Association and are involved in setting technical specifications. And the buyer community is limited. So it was easy and tempting the top companies got together to maintain prices and coerced the smaller players to go along.
First quarter world market share
Company Country Sales in billions Market share
Samsung South Korea $1.76 26.6%
Infineon Germany $1.16 17.6%
Hynix South Korea $0.95 14.4%
Micron US $0.87 13.4%
Other players are Nanya, Powerchip Semiconductor, and
ProMos, all Taiwanese companies, as well as Elpida, based in Japan.
Source: Dow Jones, 4/27/06
