According to recently unsealed documents, a price-fixing
investigation of the chocolate companies began when Cadbury came forward as a
whistleblower in July 2007 seeking to participate in an immunity program in
return for its cooperation. The
chocolate companies allegedly fixed prices during meetings in coffee shops,
restaurants, and at trade conventions, and through phone calls and e-mails
beginning in 2002. The conspiracy
allegedly involved senior employees in both the United States and Canada.
Chocolate purchasers filed class action lawsuits in the
United States against Hershey, Nestle, Mars, and Cadbury in 2008, and class
certification was granted in 2012. Those
suits are ongoing.
I was asked in a recent media interview why chocolate in
particular was subjected to price-fixing as opposed to some other product. While a lot of other products are subject to
price fixing agreements besides chocolate, products are more susceptible to collusion under
certain economic conditions that are present in the chocolate industry. These include an oligopolistic market, high
barriers to entry, high fixed costs, a commodity product, many small customers,
and inelasticity of demand (e.g., the absence of close substitutes for the product).
As chocolate lovers (like myself) can attest, there is no
close substitute for chocolate, which many people crave, and which is reported
to provide certain health benefits when consumed. In other words, one of the qualities that
makes chocolate susceptible to price-fixing is that people love chocolate, and
will continue to purchase chocolate even if prices are artificially inflated.
Update June 21, 2013: Hershey's received a fine of almost $4 million in connection with its guilty plea. A trial date for Nestle and Mars is set for October 3.
Update June 21, 2013: Hershey's received a fine of almost $4 million in connection with its guilty plea. A trial date for Nestle and Mars is set for October 3.
