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Three LCD Makers Plead Guilty in Antitrust Probe

WASHINGTON – Three leading electronics manufacturers –LG Display Co. Ltd., Sharp Corp. and Chunghwa Picture Tubes Ltd. –have agreed to plead guilty and pay a total of $585 million in criminal fines for their roles in conspiracies to fix prices in the sale of liquid crystal display (LCD) panels, the Department of Justice announced. Of the $585 million in fines, LG will pay $400 million, the second highest criminal fine ever imposed by the Department’s Antitrust Division. Today’s charges were filed in U.S. District Court in San Francisco. The companies have agreed to cooperate with the Department’s ongoing antitrust investigation.

This is a most peculiar anti-trust lawsuit. For years we have seen PC/Laptop prices, along with flat-panel monitor and television prices, fall. Looking at stories about flat panel prices four years ago, such as this, mark a 15″ XGA LCDs at $235 after a price increase, and $180 before. DisplaySearch.com lists prices this July for 15″ Widescreen XGA LCDs between $80-90 depending on classification (LCD monitor vs laptop). Since July of this year the price is marked around $60.

So, what good was the cartel? And what is the problem? In arguing with coworkers I found a common reaction. This cartel was able to set prices above what it “should” have been. In August I bought a 42″ 1080p LCD HD TV. It was (and still is!) an Insignia brand TV (which Best-Buy told me was manufactured by LG, one of the companies in question). I paid $1,200 for it. At the time it was the best-priced TV I could find with the best contrast-ratio and color-vividness that I wanted. I also receive TigerDirect.com emails almost daily, which now consistently show me sets that are larger (46″ for example) cheaper ($999, although that may be the same as what I paid after tax) and the same max resolution (1080p).

What on earth should a price be? Deadweight-loss is there with oligopolistic price-fixing. I will grant that. But that still doesn’t answer the question of what a price should be. When I made that comment, that there is no such thing as a “should be” price, I was told that I just don’t get it. “It’s price gouging,” I was told. I reminded them that the logic that they normally would use with oil (even though I would still argue against it) does not apply in this situation. Oil is a “necessity” (so many quoted words today) and therefore we need the product and are beholden to pay whatever the price is without option. That logic does not apply to LCD screens. There is no such need for LCD screens, especially TVs.

I was then told that you are forced to buy LCD because you can’t find CRT televisions anymore. Of course, this assumes you need to buy a television in the first place. Even given that, you’re not forced to buy NEW. It was then requested of me that I find them a CRT television. I told them I have a 27″ CRT television I will sell them for $100 right now, which I do. They declined my offer.

There is a huge problem with the general public’s idea of how prices work: they have no idea. Not only does the public take posit the wrong hypotheses, they posit mutually exclusive ones. Wal-mart, because of their “monopoly” is able to charge prices so low no competition can enter. This is bad, prices are too low. Then other monopolistic/oligopolistic companies are able to charge whatever they want, and will gouge the consumer. This is bad, prices are too high. So the general public’s Goldilocks price theory forces us to conclude that there is a correct price.

You could argue that the price “should” be the pure-competition equilibrium price. But this is a silly argument. The equilibrium price is only knowable when we input the equations ourselves. If you know enough to know what I’m currently talking about, then you should also know we can’t calculate demand curves in real life no matter how hard we try. So pure-competition equilibrium can only occur ex-post, it can’t be determined ex-ante. All a supplier can do mark a price and all the buyer can do is buy or not buy.

You could falsely make the claim that based on pure-competition theory that the price should be equal to the marginal cost, but that forgets that all transactions are marginal. In the static supply and demand graph, you have a given lot, the first units cost X to produce and the equilibrium units cost 2X. You can say you should charge 2X, but the equilibrium quantity isn’t necessarily sold in one specific timeframe, and most consumers are consumers of individual bundles (like single televisions, or a dozen cookies), and each of these are marginal. If the price were the marginal cost of each item then the producer surplus would be zero. Not the worst of situations, as you would avoid deadweight loss, but it’s not necessarily the optimal.

There are other deadweight losses than static supply-demand ones. Take drug manufacturing. We concede that drug patents allow a temporary monopoly over that drug. That has deadweight loss attached to it in the supply-demand analysis. But we can say that deadweight loss is paying the cost of future drugs, which we want. The same applies to these companies. When they make profit, they could invest in newer technology. Without that same profit margin, they may not make that newer technology.

Furthermore, what conceivable moral theory exists for this supposed “should be” price? If a company is not permitted to force us to buy their product at whatever price they set, how are we allowed to force them to sell at whatever price we set?

But I digress (a lot), my biggest issue with this particular case is this: why on earth are we up in arms over a price-fixing cartel that existed in a market where the product price has been dropping for years at a significant rate? Is this really an issue at all?