Hoffman-LaRoche, a Swiss global health care company, was involved in an illegal price-fixing cartel for vitamins along with seven other companies, including BASF and Rhone Poulenc SA in the 1990s. Hoffman-LaRoche, the world’s largest vitamin producer with a 40 % market share, instigated the cartel. The eight firms were colluding to reduce competition, increase prices and earn inflated profits. In addition to fixing the prices of the pills, the conspirators agreed to allocate the sales volumes and market shares of the vitamins as well as divide contracts to supply premixes to consumers. In 1999, Hoffman-LaRoche pleaded guilty in the US and faced a $500 million fine, the largest fine at the time a firm had ever faced in the US. Subsequently, in 2001, the EU prosecuted LaRoche because it was in violation of EU law, which forbids price fixing. LaRoche faced a €462 million fine from the EU.
This is a clear example of a cartel. Because Hoffman-LaRoche controlled 40 % of the market and was the producer of all 12 vitamins under investigation, it was able to collude with the other firms and use its market power to fix prices above competitive levels. By coordinating their actions, the firms were able to raise their prices and consequently their profits. As a group of suppliers behaving collusively, they eliminated competition. Although the firms were successful as a cartel, they faced enormous fines, and in 2002 LaRoche sold its vitamin business as a result of the anti-trust violations.
Posted by: Jessica Halper, Michael Ledwith, Jake Carter-Lovejoy, and Drew Muir
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LaRoche clearly deserved the fine; was it record breaking because of a change in opinion regarding the severity of price fixing? Or because fines are correlated with the profits made from the cartel (and this just happened to be a wildly successful cartel)?
Its also interesting that LaRoche sold the vitamin business post-cartel. This raises additional quesetions regarding the profitability of the vitamin business (and nature of competition) in the absence of collusion. With a virtually homogeneous product, competition probably immediately drove costs and profits down. Lets just hope that LaRoche kept the fine liabilities even after selling off the division!
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