Cartels and The Informant!

In the new Steven Soderbergh movie, The Informant!, Matt Damon plays Mark Whitacre, the Archers Daniel Midland executive who blew the whistle on the international lysine cartel. The movie is getting good early reviews but if you are strapped for time, Marginal Revolution has the key scene courtesy of a hidden camera.  I love the opening and the section beginning around 2:05 as the conspirators discuss who is coming to the meeting is priceless.

Tyler and I feature this case in our chapter on cartels in Modern Principles: Microeconomics.

Enjoy the movie!


See (listen) also the This American Life episode which inspired the making of the movie:

The movie was okay. I guess you have to grade it on the scale of 'semi-humorous movies about FBI investigations of price fixing.' On that scale it's probably the best.

Sometimes it's more comfortable for a movie to have a point, even if I almost always disagree with them. I left wondering what the big deal was and why anyone would ever work with the FBI. I wonder if anyone else gets the sense that Whitacre is just a subset of the people that use the regulators against their competition, in his case a petty jealousy of his superiors.

Is it clear that price fixing is damaging? Isn't overcapacity damaging? Isn't price-fixing what the government wants to do with energy? It's admirable when they get the rent?

Nice book site, btw.

It's good to know the antitrust folks know when someone shows disdain for them.

I half expected the Up With People people to sing and dance during the intro.

"Is it clear that price fixing is damaging?"


"Isn't overcapacity damaging?"

Don't build more capacity than you need.

Happy to help!

Watching Steven Soderbergh’s comedy The Informant! (with Matt Damon as that guy back in the 1990s who squealed to the feds about how he fixed the price of lysine for Archer Daniels Midland) reminded me of Econ 101, where you learn about the glories of competitive markets. Traditionally, economists draw their examples of “perfect competition† from agricultural commodities like corn, which ADM processes into other commodities, such as lysine, an amino acid used in animal feed.

What the professors sometimes forget to tell you is that you don’t want to work in an industry where the invisible hand sets the price.

Before the Sherman Anti-Trust Act was finally enforced in 1911, the first thing the more respectable sort of businessman would do when a new commodity like oil came along was to sit down with his rivals to agree on how to cut production and raise prices. American captains of industry prided themselves on their cooperativeness, not competitiveness. ADM’s internal byword—“Our customers are our enemies; our competitors are our friends†—would have struck J.D. Rockefeller and J.P. Morgan as sound thinking.

To this day, business strategy largely consists of trying to wield market power so you can charge more than the commodity price.

Trust me, it’s no fun competing in a commodity market. In the 1980s and 1990s, I worked for two archrival marketing research firms who each invested a fortune to turn a lazy and lucrative little industry of idiosyncratically guesstimating supermarket sales into a precise but unprofitable commodity industry where, it was often said, there was room only for 1.5 firms. The facts, it turned out, were a commodity—a lesson the newspaper business has painfully learned in this decade.

In contrast, it’s much nicer to be in an industry driven by the mystique of brand names, where you can slack off and let your past successes carry you for awhile. Consider the recent career of Steven Soderbergh, who became a directorial superstar in 2000-01 with Traffic, Erin Brockovich, and Ocean’s 11. Since then, Soderbergh, a man who apparently bores easily, has mostly amused himself by employing stars from Ocean’s 11 in attempts to pull off movie industry stunts as implausible as Danny Ocean’s casino heist. I sometimes suspect that Soderbergh's feeling is "Our audience is our enemy."

The rest of my review is at:

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What the professors sometimes forget to tell you is that you don’t want to work in an industry where the invisible hand sets the price.

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