Jail Time For The World's Worst Price Fixers

Legal Issues

from the dramned-if-you-do,-dramned-if-you-don't dept

As sure as the sun, analysts expect that a coming DRAM glut will put a crimp on industry profits in the near future. Generally, such stories are about as newsworthy and frequent as reports of farmers in the midwest dealing with a drought. Analysts and industry leaders have frequently called on companies to avoid the self-immolating volume ramp-ups and price wars that have always hampered the memory sector. Now we know what happens when executives heed such advice — prison time. Yesterday, four Korean executives were sentenced to prison in the US, for conspiring to fix DRAM prices between 1999-2002. It must have been the worst price-fixing scheme of all time, since much of the sales were still below cost. Not to mention, determining illegal pricing is always somewhat arbitrary (Samsung has been accused at times of selling memory for too much and too little.). It’s the nature of this industry that prices will inexorably decline over time. The companies depend on the infrequent periods of excess profits to fund costly capital expansion. Jail time is a shortsighted, and rather harsh, way to encourage lower prices. The profit motive, game theory, and the fundamental problems with maintaining a cartel work just fine.