Price Fixing is on the Rise. Only the US Can Stop It!

But will it?

As per these recent articles in the Economist on Cartels: Just One More Fix and Boring Can Still be Bad, competition authorities have uncovered several whopping conspiracies in recent years, including one in which more than 20 airlines worldwide had fixed prices on approximately $20 Billion of freight shipments. (In 2010, the European Commission fined 11 Air Cargo Airlines €800 Million for operating a worldwide cartel which affected cargo services within the European Economic area – namely Air Canada, Air France-KLM, British Airways, Cathay Pacific, Cargolux, Japan Airlines, LAN Chile, Martinair, SAS, Singapore Airlines and Qantas.)

In addition, investigators are still unravelling a huge network of cartels among suppliers of a wide range of car parts, including seat belts, radiators, and foam seat-stuffing. And the European Commission recently fined five marks of automative bearings $1.32 Billion and raided a number of manufacturers of car exhaust systems. On the other side of the Atlantic, Brazilian prosecutors have charged executives from a dozen foreign train-makers accused of rigging bids for rail and subway contracts in the country’s main cities.

This is despite the fact that enforcement has gotten tougher, smarter, and more coordinated, the fact that firms can expect staggering fines, and bosses can go to jail … unless they are in the United States. As the latter article states American courts, only too ready to lock up other types of miscreants for a long time, have rarely jailed egregious price-fixers for anything like the maximum of ten years that the law allows. But what do you expect from a country that won’t even jail executives who got caught knowingly laundering Billions for Mexican Narco-Terror Cartels? As per this recent article on BoingBoing, on HSBC Settlement Approved, there were no criminal charges, only 5 weeks’ profit in fines, and deferred bonuses for laundering Billions for Narco-Terrorists. That’s right, they still got their bonuses! (But whatever you do, don’t feed the birds, since you go to jail for feeding birds. [Source: myfoxtampabay.com “sebring woman headed back to jail for leaving bread out for crows”)

Until significant mandatory jail sentences are enforced for all executives involved in price-fixing, given the still-low risk of detection, collusion pays. After all, best case is you succeed undetected and make a few Billion. Worst case is you get caught, pay some of your ill-gotten gains in fines, and go back to business.

And stiffer fines aren’t the answer — if fines inflict so much damage on guilty companies, they will undermine competition as new entrants will be afraid to enter the market in fear that their efforts to keep costs in line with the competition will be seen as price fixing that could net them fines that would put them in bankruptcy.

The only answer is stiff prison sentences against executives, and the only major country that is unwilling to pursue them is the country that controls 25% of the global GDP – the US. So while you can do a lot to detect price-fixing and, if possible, avoid it by way of big data, statistical tests, market research, and collaboration with authorities – until the US DoJ and Courts step up and do the right thing, price fixing will likely remain a major problem.

Commercial Spam Turns 20 Today!


Some other time, some other place
We might not have been here, with egg on our face
I just wanna tell you, made up my mind
You know I can’t help the way I feel inside


Oh, this heart’s on fire
Right from the start, it’s been burning with rage
Oh, this heart’s on fire
One thing buddy, spam fills it with rampage!

And 20 years ago today, Laurence Canter and Martha Siegel unleashed the “Green Card” spam upon the world. While this was not the first instance of Usenet spam, it was the first instance of commercial Usenet spam and, quoting Wikipedia, its unapologetic authors are seen as having set the precedent for the modern global practice of spamming.

Canter and Siegel sent their advertisement, with the subject “Green Card Lottery – Final One?”, to at least 5,500 Usenet discussion groups, which was a huge number at the time, posting it as a separate posting in each newsgroup so a reader would see it in every group they read. Their internet service provider, Internet Direct, received so many complaints that its mail servers crashed repeatedly for the next two days! You have to remember, this was back in the time of dial-up and the highest speed modems available at that time were fax-speed 14.4K modems, with most people still on 2,400 baud modems! But this effort, and their subsequent efforts through Cybersell, which was a “spam-for-hire” company, ushered in the age of spam that we are still dealing with to this day.

The Board Gamers Guide to Supply Management Part XV: Le Havre Part II

After being introduced to Le Havre last Friday, you played all weekend as the subtle complexity and inherent trade-offs challenged you to prove that your intuition and strategic reasoning skills could not be matched. You bested your team-mates, and after one play each night of the simple game in the iOS version, where you beat the Admiral Sabine AI on your 4th try, you think you’re ready for the full base game. But are you?

In the simple game, only 19 of the 33 buildings are used — typically these will be the Abattoir, 2 Building Firms, Bakehouse, Bank, Brickworks, Charcoal Kiln, Clay Mound, Cokery, Colliery, Construction Firm, Fishery, IronWorks, Marketplace, Shipping Line, Smokehouse, Steel Mill, Tannery, and the Wharf. With the exception of the marketplace and the bank, each of these was covered in our first post. In addition, you start off with one wooden ship, 5 francs, and 12 resources: 2 fish, wood, coal, iron, and cole and 1 cattle and hide. You are guaranteed of being able to feed your works and build something first round. Not so in the full base game (which goes 6 extra rounds). In the full base game, you start off with five francs and one lump of coal. No ships, no food, and no resources to build. And the marketplace, which gave you four goods in the base game, gives you only 2. You have to wheel and deal your way just to survive (and victory is a long way off).

The challenge of Le Havre, where you not not only have to balance food production (to pay your workers) with resource acquisition (to build your products), energy production (to power your manufacturing plants) and ship production (to distribute your goods for sale), is that you also have to build at the right time, use the buildings at the right time, and trade appropriately. If you’re too early or too late to the market with your goods, no one will buy them. If you don’t take advantage of opportunities, your competition will. And if you don’t secure transport during peak Christmas season, well, then, you’re just dumb. Furthermore, in the game of Le Havre, just like in the real world, only one player can use one building at a time, take an offer from the harbour and the resource type associated with it, or get points for a particular building or action. And the increasing food costs (payroll as your organization grows) make the game quite challenging if you don’t adequately prepare for food production (cash flow) from round one.

And when you scale up to the full base game, a lot more trade elements enter into the picture. Consider the following buildings not typically used in the simple game:

  • Arts Center: Each player occupying (using) one of her buildings receives 4 Francs from the treasury.
  • Black Market: A player visiting the black market may take 2 of each good whose offer space (in the harbour) is empty.
  • Bridge over the Seine: The player may sell as many goods as he wishes at the rate of 1 Franc for each upgraded good and 1 Franc for any combination of 3 standard goods.
  • Business Office: The player can exchange any four goods of his choice for one steel or one good of her choice for 1 charcoal, leather, or brick.
  • Church: It’s a miracle! Walk in with 5 loaves of bread and 2 fish and walk out with 5 more loaves of bread and 3 fish.
  • Dock: At the end of the game, the player who owns the dock receives 4 Francs for each ship.
  • Grocery Market: Receive 1 cattle, meat, fish, smoked fish, grain, and bread from the supply!
  • Hardware Store: Receive 1 wood, brick, and iron from the supply.
  • Local Court: Return 1 or 2 loan cards for free!
  • Sawmill: Build any building that requires wood for one less wood.
  • Storehouse: At the end of the game, the player with the storehouse receives francs for his unsold goods.
  • Town Hall: At the end of the game, each other public building owned by the player increases the value of the hall by 4 Francs.

When these buildings are added into the mix, there are more ways to get (valuable) goods (since each unit of steel requires 5 energy to produce), much needed food (as the grocery market yields the equivalent of 8 food units on a single visit), and money (especially at the end of the game). Trade becomes a much bigger part of the game, in terms of resources and buildings (as it is often advantageous later in the game to sell buildings acquired earlier in the game for those that give you monetary advantages at the end of the game). And the balancing act becomes tougher. (In fact, for those of you who acquired the iOS version, don’t be surprised if Admiral Sabine starts kicking your @ss again until you not only figure out that trade is the name of the game and what that means in the town of Le Havre.)

And this is just the beginning of the complexity. In addition to the full set of base buildings, you are also presented with 5 special buildings, put up by the town, that can be bought in each game. These are randomly selected from the set of 36 special buildings and include: 6 craftsman’s buildings, 14 economic buildings, 6 industrial buildings, 4 public buildings, 5 non-buildings, and a ship. The craftsman’s buildings, like the brick manufacturer or steelworks, give the player resource-based economic advantages. For example, the steelworks allows one iron and 15 energy to be exchanged for 2 steel (instead of the one-to-one conversion enabled by the steel mill). The economic buildings, like the guild house and mason’s guild, give players economic advantages during the game or at game end. For example, the guild house gives its owner 2 Francs for each economic building owned by the player at the end of the game. And the luxury yacht, which can be swapped for an iron ship, has a value of 20 Francs!

Le Havre really is a great game to test your supply management mettle. While it will take you a few hours to get through an intense four (or five) player session and prove your strategic supply management dominance, it really puts your thinking skills and your ability to balance supply with demand with opportunity to maximize the overall value generated to the test. Give Le Havre an honest go. You might just advance your strategic thinking and planning skills more than you bargained for. (And if you haven’t checked it out yet, don’t forget to try Le Havre on iOS. Remember to start with the tutorial, and then move on to the simple version of the 2-player game before moving on to a full 2-player game, and, finally, a full multi-player game.)

Indirect Procurement With Catalogs, Where Do You Start?

Today’s guest post is from Gert van der Heijden, the Executive editor of Spendmatters.nl, and is the English translation of his post, “indirecte inkoop met catalogi, waar te beginnen?”, that originally ran on March 27, 2014.

Organizational buyers are accustomed to thinking in Pareto analysis. This is because buying is an area where the 80/20 rule applies: 20% of the suppliers do 80% of the sales, and therefore these 20% of suppliers deserve the focus. As a result, when Procurement is designing solutions to improve compliance, they often end up with a solution that is inconsistent with what a buyer wants. One area where this often occurs is in the e-Procurement implementation of catalogs. From a Procurement perspective, it might make sense to get the spending under control, but for the end user in the organization, the critical issue is completely different.

An e-Procurement catalog implementation is only successful if the end user is lured to the catalogs and wants to use them without being forced. Compliance is only truly achieved when users follow processes of their own free will. Furthermore, one has to remember that it is the 20% of the suppliers who produce 80% of the invoices who have the most operational customer contacts and it is these 20% of suppliers who are most likely to disturb, and try to circumvent, the process. If the buyer doesn’t like the process, or it’s not easy for him to use, he will be easily swayed by the supplier (offering to make it easier with a direct order) to side-step the process and this will severely hinder your compliance effort.

A smooth process for the purchase of common items, like office suppliers, IT, and food in hospitals (for example), will provide the end user an optimal customer experience and an appreciation for the process. Only once these common, but critical categories, are fully implemented and meet the users needs, should the organization turn its attention to other, less common, categories.

One has to remember that success in e-catalog implementation and roll-out also comes from a proper application of the Pareto principle — focus on the categories that represent the majority of the user’s purchases first, and make sure the users want to use the system for these categories, and only try to go end-to-end once the staple categories are well in hand. That’s because when it comes to e-catalog success, the key is efficiency. That’s how you become truly effective with your efforts.

Thanks, Gert.