In April 2011, the European Commission fined Procter & Gamble and Unilever PLC $450 million for operating a laundry-detergent cartel that fixed prices in eight European countries from 2002 to 2005. In December 2011, French antitrust authorities fined Procter & Gamble, Henkel AG, and Colgate-Palmolive Co. for price-fixing in France from 1997 to 2004. Henkel was not fined in April because it alerted the commission to the cartel and received immunity. This move caused Unilever to cooperate with French authorities so that it received immunity and was not fined in December.45
The French authorities revealed that the companies met as far back as the 1980s to share price information and the companies used aliases to mask their identity at the meetings. The companies wanted "to limit the intensity of the competition between them and clean up the market." Managers took turns choosing spots for the secret meetings called "Store Checks," took documents home with them, and expensed restaurant bills under different names.
Initially the group rarely broke the rules of the agreements. However, monitoring special offers proved to be a complex process resulting in chaotic meetings. The price-fixing scheme began to dissolve by 2004 when the companies could not come to an agreement on price increases and promotions. Unilever broke the accord first followed by Procter & Gamble and Henkel.
Discuss the reasons why oligopoly theory would predict the above results for this price-fixing scheme.
This question was answered on: Jul 11, 2017
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