Archive for pricefixing

Getting Hosed – Price fixing in the rubber market

We have written here before about what price fixing in the rubber market means to the motorcycle industry. The corporate corruption on the part of our beloved suppliers continues.

According to this Oligopoly Watch post “Getting hosed“, the EU competition commission recently issued $173 million in fines to six global corporations for conspiring to fix the price of marine hose. Included in the list:

  • Bridgestone Tire and Rubber (Japan)
  • Trelleborg SA(Sweden)
  • Manuli Rubber Industries (Italy)
  • Dunlop Oil and Marine (UK-based, but a part of Herman conglomerate Continental Tire Group)
  • Parker ITR (Us/Italy)

Any of those names sound familiar? Getting credit for an also-ran position is Japan’s Yokohama, which chose to expose the cartel to avoid fines. These companies control the great majority of a world-wide commodity product — rubber — that is used for a lot of motorcycle parts besides tires.

According to the article, there is some hope as the UK appears to be moving more aggressively toward criminal investigations of complicit executives. It’s about time. After a dozen years of letting companies do whatever they want we need a serious redirection of anti-trust action.

As a side note we, as motorcyclists, need to be extremely cynical that global corporations have our best interests at heart. They do not. Not Honda. Not Suzuki. Not Yamaha. Not Kawasaki. Not BMW. Not HD. None of them. And we need to be extremely vigilant that these companies do not co-opt our rider organizations for their own goals just because they have the money.

What price fixing in the rubber market means to motorcyclists

news2price_fixingOligopoly Watch reported yesterday on recent price fixing scandals in the rubber industry. Why does this matter to the motorcycle community? Because we use a lot of rubber products and our suppliers are just as likely to be involved in this stuff as not. Just one cartel identified by US regulators for fixing the price of marine hoses has implicated Japan’s Bridgestone and Yokohama, France’s Trelleborg, UK-based Dunlop, and Italy’s Parker ITR and Manuli among others. That’s the ones they know about. This is just the most recent in a long list of price fixing scandals among rubber companies. EU regulators have been on an anti-trust rampage of late, with 2007 showing the largest number of fines ever.

The motorcycle industry isn’t very big and therefore doesn’t get much attention from regulators. But in the world of multi-national corporations price fixing is a common and natural consequence of having only a few large suppliers. The motorcycle industry is dominated by just six companies. Ever wonder why your Honda is always priced within a few dollars of a comparable Yamaha, which is just a few dollars more than a comparable Suzuki or Kawasaki? It’s called “signaling”, and it’s the way oligopolies control prices – and protect profits – without outright collusion. Again, from Oligopoly Watch:

Signaling is a way for members of an oligopoly to coordinate prices without having to actually talk to each other about it. It’s all about setting points of equilibrium in a market by setting your own prices in keeping with those of others. In a tight oligopoly, there is less likely to be a rogue seller who will not participate in the “gentlemen’s agreement” to maintain steady price ranges. Signaling is a favorite subject of role-playing experiments in economy classes, and based on game theory, mutual cooperation is the best solution for all the participants. But trusting other participants is never easy.

Price fixing isn’t the only consequence of industry consolidation. The irresistible drive for corporate growth has other effects – such as the steady drive to product sameness. As companies grow they become more and more alike, and their products become ever more similar until, one day, you can’t tell them apart anymore. But that’s a topic for another time.