Price Fixing Is for Turkeys
Your Thanksgiving dinner has a cartel problem.
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While I know many folks are thinking about how to avoid discussing politics around the dinner table this week, there’s unfortunately an antitrust policy problem right there on the dinner table: The corporation that processed the turkey you’re eating (or chicken or pork, if those are your thing) may have been participating in a price-fixing scheme that means your bird cost more than it should have.
The Department of Justice recently filed a price-fixing case against a corporation called Agri Stats, based out of Fort Wayne, Indiana. The case has been joined by the attorneys general of Minnesota, California, North Carolina, Tennessee, Texas, and Utah. The allegation is that Agri Stats colluded with meat processors to fix and raise the prices of turkey, chicken, and pork, in violation of the federal Sherman Act, one of the country’s main antirust laws. This follows other, private lawsuits making the same allegation.
“Agri Stats’ illegal information sharing makes it harder for people to afford their lives by helping big meat processors coordinate with one another to keep food prices artificially high,” said Minnesota Attorney General Keith Ellison.
Agri Stat’s business is to collect data from its individual clients, who are the dominant meat processors such as Cargill, Tyson’s, and Butterball, and then compile that data into reports about the meat processing industry that it distributes to all of its clients. The information in these reports is incredibly detailed, according to the DoJ complaint, including pricing information down to individual cuts of meat, as well as rates of production.
Crucially, the reports also rank the different processors by price: Those with the highest prices are ranked first, and those with the lowest at the bottom. As the complaint says, “Using these reports, processors target products priced low compared to their competitors’ products for price increases—a practice some processors refer to as ‘chasing price’ or ‘pricing with courage.’” Indeed, “A processor that learns it has a low rank on price for an item—such as seventh out of eight competitors—can raise prices on that item with reduced uncertainty about losing business to a competitor based on price.”
So, essentially, what Agri Stats is doing is facilitating information sharing about pricing decisions that, if done by the meat processors themselves directly, would almost certainly run afoul of price-fixing law. By knowing what their competitors are charging and producing, individual processors can collude across the industry without ever talking to each other.
In fact, Agri Stats bragged, with this terrible ClipArt graphic, that its reports are a more reliable way to access inside information than talking to a competitor directly, because said direct competitor could lie.
The information in the reports, as DoJ and the state AGs allege, results in meat processors consistently raising their prices; in fact, two executives testified that they couldn’t think of a single instance in which Agri Stats data lead to lower prices in the industry. One pork processing executive characterized the firm’s advice as always “Just raise your price.”
Case in point for this holiday: In a 2016 presentation, the meat processor Cargill “explained that Agri Stats provides ‘insight into competitor’s pricing’ and identifies ‘what the market will bear.’” I.e., it identifies exactly how high Cargill could raise the price for its birds. Agri Stats clients control 90 percent of the market for turkey processing, meaning it has essentially contracted with the entire industry.
But that’s not all. The reports also include data about wages paid to workers, allowing firms to undermine labor markets. And Agri Stats refuses to contract with workers organizations or meat purchasers, such as grocery stores. It only helps processors raise prices and profit margins — that’s its whole business.
If this sounds a lot like the rental housing collusion case against RealPage and a slew of developers in Washington, D.C., that I wrote about recently, well, it is! In both cases, a firm acts as a middleman between the different “competitors” in the industry, synthesizing their price information and producing a product that likely leads to coordinated price increases across the industry by ensuring that no actual competition takes place that might drive prices down.
In the face of private lawsuits, Agri Stats paused its turkey and pork industry reports in 2019, but continues to work in the chicken industry today. If it wins in court, its executives have said the corporation will bring reports from those other sectors right back on line.
And therein lies the major question: As my colleague Lee Hepner wrote recently, cases against centralized price setting firms have faltered because judges don’t see explicit agreements between individual competitors to fix prices. A case against Agri Stats in Illinois was tossed on such grounds. By letting a middleman handle the information synthesizing and recommending for them, firms are finding themselves able to dodge antitrust scrutiny.
Lawmakers at both the federal and state level have proposed changes to price fixing law to make it easier to prosecute cases of coordinated price hikes, but they haven’t passed anywhere yet. For now, it’s a waiting game, but I find it encouraging that enforcers are willing to take on firms like Agri Stats before all our geese, errr, turkeys, are cooked.
SHAMELESS SELF-PROMOTION: I have a new piece in the Chicago Sun-Times explaining how state lawmakers can rein in Amazon’s power, particularly over labor markets, based on a policy brief I wrote. Read the op-ed here and the brief here.
I also spoke to the New York Times about a bill to ban non-competes that has passed the New York legislature, but is still sitting on Gov. Kathy Hochul’s desk awaiting her signature or veto. You can read the Times piece here.
UPDATE: I wrote a couple of weeks ago about bad state laws — known by the awful acronym of ROFR — that help electric utility monopolies raise costs on customers. Some good news on that front: A ROFR bill that had been rapidly advancing in Wisconsin was blocked at the last moment.
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— Pat Garofalo