Adm Case Analysis

ADM Case Analysis

1. The demand for lysine is derived from being an essential ingredient for farmers and poultry. Other factors that affect the demand for lysine are: seasonality, the ceiling price, and the prices of other resources associated with lysine. The supply for lysine is based on their competition, and how it's growing, and its production.

2. The U.S. lysine industry was a classic oligopoly due to high sales concentration, low buyer concentration, a perfectly homogenous product, and several barriers to entry. The lysine industry has many characteristics which implicit oligopolistic coordination would likely have arisen in the absence of explicit conspiracy. This would have meant that equilibrium price would be above the competitive price with a lower overcharge. Lysine became a five firm oligopoly with the merging of the five firms because it controlled most of the industry and has the power to set its own prices at a point that maximizes their profits.

3. I believe that the ADM proposed the formation of the Amino Acids Trade Association because they saw the formation as a chance to potentially maximize their profit. They also saw the increasing demand in global consumption for this product. ADM knew of the success of overseas companies in the lysine market and believed they could earn more profit in joining with their rivals. The mission in creating a cartel is to increase joint profits of its members and implement price fixing. They wanted to create a cartel because of these reasons. I think their intention was to be the leader in creating the conspiracy with the other firms, which was greedy and selfish on their part. Their strategic objective was to gain global market share equal to the already industry leader Ajinomoto. They minimized competition by dividing up the market, allocating the amount of sales, and setting prices.

Unfortunately, the entry of the US into the lysine market caused affected competition and caused a decline in the global price of lysine. ADM took the lead in the US market share but cause itself and its competitors to violate the Sherman Act.

4. The formation of the Amino Acids Trade Association was fairly easy. ADM was very aggressive when it came to entering into the lysine industry. The Asian manufacturers began seeing operating losses and asked ADM to be in their cooperative arrangement. From there, they set up many meetings based on price-fixing.

5. If the Association had been successful and had gotten away with the conspiracy, the member of the association would have made an immense amount of profit, while the consumers would have been cheated out of billions of dollars. The association was overcharging their consumers, creating more profit for themselves. Fair competition means that consumers will be paying prices close to the actual costs of producing the product. The consumers were not getting the best product