I n t h I s c h a p t e r y o u w I l L

J u r y C o n v i c t s E x - E x e c u t i v e s
i n A D M C a s e
B
Y
S
COTT
K
ILMAN
C
HICAGO
—A federal jury found Michael
D. Andreas and two other former Archer-
Daniels-Midland Co. executives guilty in
a landmark price-fixing case.
The unanimous decision by the six-
woman, six-man jury, reached here after
a week of deliberations in the two-month
trial, is a blow to the Andreas family,
whose decades-long control of the De-
catur, Ill., grain-processing giant has
made it one of the Midwest’s wealthiest
and most politically influential families.
The verdicts also give the Justice
Department its biggest convictions in a
push against illegal global cartels. The
department has 30 grand juries around
the country considering international
price-fixing cases, and more are
expected. . . .
Mr. Andreas, who didn’t take the
stand in his defense, sat stone-faced as
U.S. District Judge Blanche M. Manning
read the verdict to the packed court-
room. Before the scandal, Mr. Andreas,
49 years old, was earning $1.3 million
annually as the No. 2 executive at
ADM and was being groomed to suc-
ceed his 80-year-old father, Dwayne
Andreas. . . .
The most prominent American exec-
utive ever convicted for international
price-fixing, the younger Mr. Andreas
faces sentencing on Jan. 7. Prosecutors
said they will seek the maximum sen-
tence of three years in prison for violat-
ing the Sherman Antitrust Act. The jury
determined that Mr. Andreas helped or-
ganize a cartel with four Asian compa-
nies to rig the $650 million world-wide
market for lysine, a fast-selling livestock-
feed additive that hastens the growth
of chickens and hogs. [
Author’s note:
Andreas was eventually sentenced to
spend two years in prison.]
S
OURCE
:
The Wall Street Journal,
September 18,
1998, p. A3.
I N T H E N E W S
The Short Step from
Millionaire Executive
to Convicted Felon

---

C H A P T E R 1 6
O L I G O P O LY
3 6 9
have been used to condemn some business practices whose effects are not obvious.
Here we consider three examples.
R e s a l e P r i c e M a i n t e n a n c e
One example of a controversial business
practice is 
resale price maintenance,
also called 
fair trade.
Imagine that Superduper
Electronics sells VCRs to retail stores for $300. If Superduper requires the retailers
to charge customers $350, it is said to engage in resale price maintenance. Any
retailer that charged less than $350 would have violated its contract with
Superduper.
At first, resale price maintenance might seem anticompetitive and, therefore,
detrimental to society. Like an agreement among members of a cartel, it prevents
the retailers from competing on price. For this reason, the courts have often
viewed resale price maintenance as a violation of the antitrust laws.
Yet some economists defend resale price maintenance on two grounds. First,
they deny that it is aimed at reducing competition. To the extent that Superduper
Electronics has any market power, it can exert that power through the wholesale
price, rather than through resale price maintenance. Moreover, Superduper has no
incentive to discourage competition among its retailers. Indeed, because a cartel of
retailers sells less than a group of competitive retailers, Superduper would be
worse off if its retailers were a cartel.
Second, economists believe that resale price maintenance has a legitimate goal.
Superduper may want its retailers to provide customers a pleasant showroom and
a knowledgeable sales force. Yet, without resale price maintenance, some cus-
tomers would take advantage of one store’s service to learn about the VCR’s spe-
cial features and then buy the VCR at a discount retailer that does not provide this
service. To some extent, good service is a public good among the retailers that sell
Superduper VCRs. As we discussed in Chapter 11, when one person provides a
public good, others are able to enjoy it without paying for it. In this case, discount
retailers would free ride on the service provided by other retailers, leading to less
service than is desirable. Resale price maintenance is one way for Superduper to
solve this free-rider problem.
The example of resale price maintenance illustrates an important principle: