It's cold season, a time when many Americans fight off sneezing and sore throats with an extra dose of vitamin C. Vitamins are cheap, ubiquitous, often effective, and, in any case, certainly don't do harm. You might be surprised, then, to know that the federal government and its state-level adjuncts are treating the vitamin industry as some sort of international conspiracy against consumers. Such is the absurdity of today's regulations, that they would be so fiercely wielded against a beneficial industry.
Last September, vitamin companies settled a price-fixing suit litigated in federal court by agreeing to shell out $1.1 billion — the largest antitrust suit ever settled. The allegation made against them (and they are not US companies) is that they conspired to keep prices high for their wholesale business, which then gouged soft-drink makers, cereal and animal-feed producers, and others who use vitamins in their products. A few months earlier, the Justice Department conspired to loot the companies of $750 million — yet another crime you can chalk up to the current regime.
The first chunk of loot is in the process of being delivered to the State of New York: $25 million. After the lawyers and the government takes their cut, millions will be distributed to nonprofit groups agitating for more public welfare spending. And how much will go to consumers, the group supposedly harmed by the nefarious practices of vitamin C makers? That's right, and this tells you something about the real purpose of antitrust: not to protect consumers but to loot deep-pocket companies who hold dominant positions in the market. The only winners are governments and their friends.
This is a heck of way to treat foreign companies who hope to do business in the land of the free. They sell us goods we want, guide us to better health by working with domestic manufacturers, and then get kicked in the teeth by arrogant US judges who know nothing about economics or the industries on which they are passing judgment. Between bombing foreign countries at the drop of a hat, stationing rowdy troops around the world, and looting multinationals who do business here, is it any wonder that the US government is the most hated in the world?
But what about the price-fixing complaint? Hardly a day goes by when the allegation isn't made against some company or group of companies. Is this really something we have to be wary of? The answer is no. Companies may try to get together and keep prices high, but they usually don't succeed. Competition creates an environment that rewards those who defect from such deals. And fearing that others will defect, even those party to a price-fixing agreement often race to bail out of the deal.
Also, it is notoriously difficult to distinguish between fixed prices and prices that have reached a settled level after a long interplay between the forces of supply and demand. For example, if two sausage vendors on the same urban street charge $2.50 for a bratwurst, do you conclude they have fixed the price or that they are so closely in competition that both have reduced prices to the lowest possible level that still yields a profit?
Well, if you are a leftist who sees business conspiracy everywhere, you can always accuse them of price fixing. But how can you prove it? You have to know what the "correct" price is for sausages on that street, which is information that is inaccessible simply because it doesn't exist apart from market reality itself. You can look at the costs of production, but here you run into a serious problem that prices may or may not be related in a fixed manner. Prices are not decided mechanically based on historical data but reflect the present market structure.
But let's just suppose that you can tell that there is a conspiracy. You can prove that the producers met and decided to fix a price that gives them an above-average return on their sales. The next question is: so what? Who is harmed? Certainly not the consumers, who are evidently willing to part with $2.50 and get something they enjoy eating in return. Both vendors benefit because they evidently prefer getting the money to keeping the sausages. In other words, all parties benefit and no one is made worse off. There is no basis for complaint, unless you are a socialist who can't stand the idea that capitalism is working well.
The judges and economists who set out to discover a vitamin price-fixing conspiracy were in exactly the same boat. There is no way to tell what the correct price for vitamins should be apart from real-life market settings. Any attempt to do so is based on a lie covered up by incomprehensible mathematical modeling. In the end, it is pure speculation, and yet these speculations form the basis of deciding the judgements.
Again, let's suppose that a dangerous cartel of vitamin makers has indeed succeeded in keeping prices high and doing so based on some explicit agreement between producers. I grant that there are cases when doing so might work and might benefit the companies in question (by reducing uncertainty in the markets, for example). Who is harmed? The companies who purchase the vitamins aren't being harmed, else they would choose not to buy them.
The judges litigating antitrust suits may proclaim that they are working for consumers, but they are lying. As with Microsoft, consumers are very happy with the products the companies deliver. The only people who seem to be upset are competitors who haven't been able to deliver goods that consumers like as much as those produced by the dominant players in the market. In other words, these cases usually stem from envy.
If you look into the vitamin suit deep enough, it is highly likely that you would find that the Black Hand behind it is some American manufacturer who didn't like the fact that German, Japanese, and Swedish vitamin companies had captured 80 percent of the market. Rather than beating them out by offering a better product at a more affordable price, they turn to the courts.
The vitamin litigation was launched by Boies & Schiller, a Washington, DC, firm, along with Cohen, Milstein, Hausfeld & Toll of Washington and Susman Godfrey of Houston. But who were their clients and why did the firms take this case? Inquiring minds want to know.
And yet the real fault for these antitrust debacles, which end up costing consumers, is not with the companies who bring the suits or the law firms that litigate them. It is with the politicians who passed the antitrust laws to begin with, and those who continue to defend them. There is no basis for empowering government to pass judgment on market shares or price levels under free enterprise. The very meaning of a free market is that these questions are settled through the interplay of supply and demand, which produces a dynamic far too complex for any regulator to understand.
In the Clinton years, antitrust litigation has gone through the roof, after having faded during the 1980s. Indeed, this might be one of the worst legacies of this administration. So absurd has it become that innocent vitamin companies are hounded as criminals and mugged by black-robed thugs. The repeal of these ridiculous laws would be a major point on the agenda of any future administration that cares about protecting the capitalist system from the looter class.
October 14, 2000
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