Oligopoly: Competition Among the Few

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1. Oligopoly: Competition Among the Few

1.1. Case in Point: Memory Chip Makers Caught in Global Price-Fixing Scheme

It may have been the remark by T. L. Chang, vice president of the Taiwan-based memory chip manufacturer Mosel-Vitelic that sparked the investigation by the U.S. Department of Justice Antitrust Division. Mr. Chang was quoted in Taiwan’s Commercial Times in May 2002 as admitting to price-fixing meetings held in Asia among the major producers of DRAM, or dynamic random access memory. DRAM is the most common semiconductor main memory format for storage and retrieval of information that is used in personal computers, mobile phones, digital cameras, MP3 music players, and other electronics products. At those meetings, as well as through emails and telephone conferences, the main manufacturers of DRAM not only decided what prices to charge and how much to make available but also exchanged information on DRAM sales for the purpose of monitoring and enforcing adherence to the agreed prices. The collusion lasted for three years - from 1999 to 2002. In December 2001, DRAM prices were less than $1. By May of 2002, price had risen to the $4 to $5 range.

The companies that were directly injured by the higher chip prices included Dell, Compaq, Hewlett-Packard, Apple, IBM, and Gateway. In the end, though, the purchasers of their products paid in the form of higher prices or less memory.

In December 2003, a Micron Technology sales manager pled guilty to obstruction of justice and served six months of home detention. The first chipmaker to plead guilty a year later was Germany-based Infineon Technologies, which was fined $160 million. In the end, four companies, Samsung being the largest, had been charged fines of more than $700 million, and a total of 3,185 days of jail time had been meted out to 16 corporate executives.

The European Union also prosecuted the DRAM price-fixing case, which ended with the imposition of over $400 million in fines and with Samsung paying almost half the total. The fines were somewhat lower than in the United States because in 2008 the European Union instituted new procedures that allow companies that settle to pay lower penalties. The EU hopes that the new procedures will shorten the length of cases and reduce the number of appeals. The EU initiated the DRAM price-fixing case in 2002 and finally settled it in 2010 using the new procedures.

The sharp reduction in the number of DRAM makers in the late 1990s undoubtedly made it easier to collude. The industry is still quite concentrated with Samsung holding about 40% of the market. The price, however, has fallen quite sharply in recent years.