Anti-trust bomb falls on LCD market

More EU probes could follow

Analysis In all probability the anti-trust bomb that landed on Philips and LG Displays desk this week, courtesy of the European Union, is unlikely to be the only one dropped by the European Commission in this recession.

In order to engage in price fixing, LG, the global market leader in small LCD displays, must have entered into price floor agreements with other companies, not just its shareholder Philips. These other companies are likely to have been in receipt of a statement of objections from the Commission, too, back in May when it sent them. Philips and LG have revealed the proceedings against them, and we would expect other companies to have to do the same over the coming weeks.

But Flash memory, also the subject of recent price hikes (we wonder how that can have happened in the current market) and LCD TV screens - which were never the subject of previous investigations, such as the one in the US - have both been in a savage glut, but have somehow avoided the price crashes of other semiconductors. LCD TVs panels have fallen 7% in revenue terms while other technology economies have fallen a further 8% to 12% beyond that. However some plants claim to have put workers on short time and have slowed outputs.

Don't be hugely surprised if the two major Korean electronics companies - LG and Samsung - and all their partners, come under increasing scrutiny either throughout this recession, or after it, over these supposedly commodity areas.

The new objection from the European Commission may, or may not, be similar to the one in the US which resolved itself last year with $580m of fines. This was for price fixing on screens for devices made for, among others, Apple, Dell, and Motorola. The implication in that case was that iPods and handsets, and perhaps a few of the smaller laptops, suffered in having their LCD panels artificially price managed for a period of something like 5 years, dating back to 2001. The fines were agreed in November last and the great bulk - $400m - was paid by LG.

Price fixing is something of an infection. Once you see how easy it is, you get addicted to it. Say, for instance, there are three majors operating in a market. All it takes is for one middle manager, someone who prepares all the bids for his company, to arrange to see his two counterparts in the other companies, over a beer. “We won‟t bid any less than $X for panels, he says, you can bid $X and keep your existing big customers, and we can bid $X for our existing customers – for new customers we can only bid $X as our last final bid. Agreed?”

No money needs to change hands, all the three players need to do is try the new pricing. If the floor holds and no-one breaks cover and undercuts it, they all simply make more money and the individuals make more commission and their bosses just have to not look too hard. Eventually they meet when the market is fixed and say, “We no longer have a need to fix the price any more, but…” and they are either tempted or not - based on how greedy they are and how frightened they are of getting caught - to continue or go back to the bad old days of flat out competition.

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