Businesses can be quite creative when forced to defend themselves against anti-trust violations. The infant formula cases of the early 1990s provide an illustrative example.
In the early 1990s, the Federal Trade Commission and several states, including Minnesota and Florida, filed suit against the top producers of baby formula (Abbott Laboratories, Mead Johnson and American Home Products Corp.) for cartelization in violation of the Sherman Act.
With the formula giants caught cold price-fixing, the case should have been a cake-walk for prosecutors. However, the creative defense put forward by the formula producers complicated the situation. With the backing of the American Association of Pediatrics, the producers argued they were keeping the price of formula high for altruistic ends - to encourage mothers to breastfeed their babies. Breastfeeding has been shown to improve infant health.
3 comments:
Two of the companies agreed to settle and therefore did not have to admit to any wrong doing. This is absolutely ridiculous. The companies agreed to pay the settlements at a time when the shipment value in the dry milk industry was increasing so the settlement didn't cut into their profits too much. What is even more disturbing is that the price fixing was alleged under contracts that were awarded for WIC (Supplemental Food Program for Women, Infants, and Children). This program was designed to help low income families get adequate nutrition. The fixed-pricing therefore kept the program from serving more families. Federal programs have cost ceilings, so the artificially high baby formula prices kept other families from being able to participate. It is just shameful that the companies were not forced to admit that there actions were WRONG!
Braden, Adam, Amy, Fabio
Despite the collusion between the AAP and the formula companies that "bought it off," the claim of increased public welfare went unanswered. The greed behind the claim is deplorable, but the outcome is still the same: cheaper formula leads to increased demand for formula, which in turn decreases public welfare as breast-feeding and its many benefits become less popular. As breast-feeding imparts many phyiscal and mental health benefits, a decrease in its occurrence will lead to more childhood and possibly longterm illnesses, leading to higher medical bills, leading to higher insurance for everyone (including for those who choose to breast-feed or even those without kids), etc. The trickle-down effect is easily traced, seemingly showing that lower formula prices imply lower public welfare (even for those who choose formula, as they too are saddled with the associated increased costs, whether they know it or not, and I’m willing to bet that the overall increase in insurance premiums* is much greater – though unmeasurable in a direct manner – than the few dollars they may save on lower priced formula each year).
In most instances, formula is a luxury good, purchased by those who have the extra money for it, since it seems that those strapped for cash would opt for the free alternative. Of course there are a minority of cases in which the mother or child is incompatibled with breast-feeding in some way, but it would seem that this is a small percentage, given the relative recent introduction of formula compared to the thousands of years of successful human growth and reproduction. Thus, it would appear that at least some of the people who brought this case to the attention of their state Attorney General’s are probably not the people who really need lower formula prices in the first place (as is often the case with all political action groups). Perhaps if the formula companies (in an act of benevolence that would not be expected from a solvent corporation) had offered coupons to medical-need formula buyers to bring their price down, but otherwise kept the price high, what would have been the outcome? Or if the government had mandated such a system be put in place, would the high price still be wrong?
It seems that the DOJ completely sidestepped the real issue here. This case came down to a trail of intent, not outcome, and thus effectively mandated a decrease in public welfare because they did not want a couple of companies to make extra money. This seems to show that they are not in fact servants of the public good, but servants of the rule of law (which is not necessarily bad nor unexpected, but it should be considered). As a result of this analysis, it would not be unreasonable for a person who engages in breast-feeding to decide that higher formula prices would be desirable, so as to not have to suffer the other higher associated costs arising from convenience (as formula so often is). This kind of thing is currently being done for anti-smokers with cigarette pricing (government taxing to reduce consumption), so where is the governmental agency to protect the interests of the anti-formula-user?
*Everyone pays for insurance, even if it comes with your job – that’s money the company could be paying you (it’s just a good idea to “buy” it from the company because they get lower group rates). Additionally, part of people’s taxes also go towards “insurance,” in a way, as both state and federal governments give money to public hospitals (emergency departments especially) to offset losses from non-paying patients.
above post = risto, cheryl, joe
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