1. Ohio v. Trauth Bidding, Bid Rigging, and School Milk Prices
Rebecca Adkins
Chelsea Block
Gracie Randall

2. Market Structure 600 school districts Demand is relatively inelastic
Processors receive milk from dairy farms
Standardize butter fat and distribute to schools
Characteristics of Milk Market- Becky

3. Market Structure
Becky

4. Market Structure Players: Thirteen dairies Meyer Dairy and Coors Dairy
Trauth Dairy
The State of Ohio
Scheme
Bid-rigging
“respecting incumbencies”
Economic Evidence
Incentives to collude
Behavior consistent with competition or collusion?
Extent of damages
Market Structure - Chelsea

5. Timeline of Events 1980-1990: Bid Rigging
1988: Florida Bid Rigging Case
1993: Confession to Bid Rigging
1993: DOJ clarifies Corporate Leniency Policy
1994: 13 Dairies Charged
1995: Failed Conspiracy Case
1996: Settlement
Timeline of Events- Gracie

6. Factors Facilitating Collusion
Firms Compete Only on Price
Announcement of Bids
Variation in Auction Dates
Predictability of Demand
Easily Defined Markets
Small and Stable Set of Firms
Similar Cost Structures
Contact Between Competitors in Multiple Markets
Availability of Competitor’s Prices
Frequent Customers of One Another
Existence of Trade Associations
Factors Facilitating Collusion - Gracie

7. Competitive Model: Transportation Costs Distance from District
Deciding Factors of Bid Submission
Transportation Costs
Distance from District
Type of Firm
Size of the School District
Efficiency of Production Under Contract Terms
Intro to Bid Submission- Gracie

8. Competitive Model Two decisions: Submit a bid? Level of bid?
Strongest factor: distance
Competitive Model - Chelsea

9. Competitive Model
Competitive Model - Chelsea

10. Competitive Model
Competitive Model - Chelsea

11. Effect on Prices Paid Prices increased 6.5% From the competitive model
Effect on Prices Paid- Becky

12. Defendants’ Behavior
Behavior statistically significantly differs from control group
Doesn’t necessarily mean collusion
Bid on districts farther away than model suggests
Test for independence/zero correlation
Bid levels differ from competitive model
Hypotheses of independent action vs. complimentary bidding
Defendant’s Behavior - Chelsea

13. Defendants’ Response
Firms disagreed with this interpretation of the evidence
Incomplete list of explanatory variables
Incohesive Control Group
Insufficient evidence to distinguish between a conspiracy and a tacit collusion
Defendant’s Response- Gracie

14. Summary and Aftermath All 13 dairies charged with Collusion
Settled in 1996, without trial
1993- DOJ clarified Corporate Leniency Policy
1st confessor receives amnesty
Doesn’t shield from civil penalties
Hastens collapse of collusive agreements
Outcome/Conclusion- Becky