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Source link: http://archive.mises.org/6758/is-the-vitamin-cartel-a-threat-a-case-study-of-antitrust/

Is the Vitamin Cartel a Threat? A Case Study of Antitrust

June 19, 2007 by

The EU antitrust law leaves many businessmen in a fog, writes Yumi Kim. It is difficult enough satisfying fickle consumers. On top of that, they have to devote a lot of time and resources into complying with regulations that in fact hamper competition in markets. The regulators are effectively saying that they know more efficient ways of organizing markets than those who actually buy and sell. As a person with no experience of running a restaurant, if I told a restaurant owner how much meat and vegetables to buy per day, how many bottles of lemonades to buy, how many waiters to hire and so on, it would be disastrous. Such knowledge can only be gained through experience and no super calculation can compete with that. FULL ARTICLE

{ 8 comments }

Evans Munyemesha June 19, 2007 at 5:00 pm

It is absurd for the European Union Cartel to regulate other (apparent) minor cartels.

punter June 19, 2007 at 6:29 pm

Personally, I don’t think the economics of antitrust are relevant in this case. Not suggesting Yumi Kim is incorrect in her analysis, rather that this is obviously a clear case of European governments going after a hated political target – vitamin companies – just like they did here in Australia. Big pharma controls pretty much every politician on this planet and they absolutely hate vitamin companies whose products a) are not particularly dangerous and b) actually sometimes work. Neither of which can be said about the big pharma products.

Mike Sproul June 19, 2007 at 6:54 pm

Yumi:

Check out the price of vitamins on the producer price index. You’ll see that the price of vitamins was not affected by the breakup of the vitamin cartel.

Yumi June 20, 2007 at 3:56 am

Hi Mike,

Thanks. I’ll look it up. As a consumer, I notice that the prices of vitamins haven’t fluctuated much over the years but I was unable to find tracking. Indeed, if the prices haven’t dropped sharply since the ‘breakup’ of the cartel, what was the investigation for?

Simon Maynard June 20, 2007 at 7:12 am

I would just like to challenge the following paragraph from the article:

Agreements are allowed if they have more positive effects than negative effects. But why would companies enter into an agreement unless they can benefit from it? And the only way they can benefit is by satisfying their customers, in which case all such agreements have to have more positive effects than negative ones.

Firstly, the question as to whether the benefits should outweigh the negatives are obviously from the point of view of the consumer and not the companies themselves. I’m sure the EU is not disputing whether the companies benefit from entering into such arrangements.

Secondly, it is suggested that the companies cannot possibly increase profits without likewise increasing the profit of the consumer. But is this really the case? If it was the case that prices were raised after the formation of a cartel, how has the consumer’s profit increased? Yes, those consumers who continue to purchase the product continue to profit, even at the increased price, because the benefits still outweigh the negatives. But surely it must also be the case that their profit has been reduced? Afterall, the benefits haven’t increased but the negatives (the price) has.

Thus, in such a scenario, it cannot be said that the agreement has more positive than negative effects on the consumer.

Yumi June 20, 2007 at 11:07 am

Dear Simon,

I think the negatives to consumers that you’re referring to at the end is a reduction in ‘consumer surplus’, the difference between what the consumer actually pays and how much he is willing to pay. Sure, many consumers would prefer not to pay anything for goods and services. So in that sense, their ‘consumer surplus’ is always affected whenever they buy an item. However it would be absurd to say that consumers are harmed every time they make a purchase because their decision to purchase demonstrates their preference. As to how much each individual is willing to pay for a particular good at a certain time, it cannot be calculated and the subjective theory of value comes in handy here. Also the formation of a ‘cartel’ did not result in a sharp rise in prices in this case. Please feel free to email me.

Fried Egg June 21, 2007 at 4:12 am

Yumi,

Thanks for your response.

I accept in this case that prices did not in fact rise. In which case, this wasn’t really a cartel (or at least it wasn’t a very effective one!) However, I was addressing your more generalised claim that whenever an arrangement increases the profits of producers, it must likewise increase the profit of the consumers.

Had the cartel actually been effective and increased profits (by raising prices), it would not be true to say that the agreement had more positive effects than negative ones (from the point of view of the consumer). Yes, they are still satisfying their customers, but they are satisfying them less than they were previously.

Paul Marks June 21, 2007 at 2:55 pm

In spite of being supported by the government of the United States from the start in 1957 the E.E.C. (now E.U.) is deeply anti American (it will come as no surprise to readers of Von Mises Institute material that United States government action overseas can have a negative effect on the United States, in some cases I dispute this but in this case I have to agree that the anti intervertionists are correct and such things as American government support for the United Kingdom to join the E.E.C. – E.U. were deeply mistaken both for the U.K. and for the United States).

However, in spite of seeing itself as an alternative to the United States (a “counter weight” or whatever) the European Union (and its members) insist on copying some of the worst elements of modern American practice.

For example, only a few decades ago their were no “anti discrimination” regulations in most European nations and no subsidies for a “multi ethic – multi cultural society” now there are vast amounts of both (both at the member state and at the E.U. level).

There are also “insider trading” regulations (even going into to non E.U. Switzerland) and (as the article shows) the absurd mess that is “anti trust” – “competition policy” based on the false “perfect competition” conception of economics.

If anything the regulations in all these fields are becomming worse in the E.U. area than they are in the United States. Although the regulations on corporations and share dealing are still worse in the United States than they are (say) in London. Why anyone tries to run a corporation, or raise money for investment in one, in New York is beyond me – the slightest mistake in the paperwork, or even the judgment of the powers-that-be (without any formal violation of any specific regulation) that things are not being done as they like, can lead to directors of a company going to prison.

But then even trading with any individual or company based in the United States is dangerious as various British businessmen have found – now on trial for “offences” under statutes and regulations that are so vague as to have no clear meaning.

Perhaps that is why people still business in New York, as even if one is in London one can still be handed over to the American powers-that-be and sent to prison for actions that, to the Common Law mind, are in no way criminal.

Perhaps Henry Ford had it right – own every share of your company (100%). Then at least the courts can not claim you have somehow robbed or tricked minority shareholders (as there are none). Still even this does not save a person from “anti trust” regulations (which, somehow, do not apply to unions).

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