Consultant Evaluation:
Collusion
General Electric & Westinghouse
Firms & Markets
Group 6
Peter Gallagher
15 November 2001
Daniel Masnaghe
Kristin Messner
Hyok Oh
AGENDA
 Introduction of industry
 GE Overview
 Westinghouse Overview
 Buying Process in 1950s
 Conflict with Department of Justice
 Change in Pricing Policy
 Collusion
 What Happened
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Turbine generators look like this…
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Turbine Industry Overview
 Product
 Small, medium and large turbine generators (biggest mkt)
 Players*
 GE (MS: 61%)
 Westinghouse (MS: 32%)
 Allis-Chalmers (Out of market in 1962)
 Buyers
 Government (Big buyer, Lowest bid)
 Investor-owned utilities (Numerous, Negotiation)
 High barrier to market entrance
 Capital intensive, steep learning curve
* Postwar Period Data
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Overview: GE
 Price leader
 Offered high discount
 Variable pricing strategy
 Technological leader and pioneer
 Enjoyed high MS among government customers
 Low cost strategy
 Highest industry capacity
 Spent over $100 mil for capacity since WWII
 Capacity a year or two ahead of WH
 Product focus: Large turbines
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Overview: Westinghouse
 Market follower
 Deeper discount to win
 Moderate capacity
 Spent over $50 mil for capacity since 1948
 Product focus: Small and Medium turbines
 Launch standardization program
 Standardized unit and component
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Buying process in 1950s:
open market system
Government
Specification
Bid invitation
Sealed bid
Lower bid win
Investor Owned Utilities
Specification
Book price
Determination
Bid invitation
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Final
Negotiation
Conflict with Department of Justice
 “Electrical conspiracy” price-fixing case
 Large turbine generators & other electrical products
 Seven executives had been imprisoned
 Cost GE and Westinghouse over $100 million USD each
 Consent decree on pricing had been signed in 1962
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Pricing policy change in 1963
 GE’s new pricing policy
 A new price book was published
 Simplified price formula
 Introduction of multiplier (e.g. book price * uniformed multiplier =
actual price)
 Resulting in lowered book prices
 Uniformed application to all customers, without exceptions
 Price protection clause was instituted
 Consequences
 Westinghouse’s instant adoption of GE’s new pricing policy
 No deviation from published price between the two
 Price negotiation and discounting ceased
Increasing concern by DOJ of possible collusion
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Collusion
 Fix, raise, lower, stabilize or peg prices
 Establish a range of prices, minimum price, a maximum price, or a
common pricing system
 Related law: Sherman Act
 No formal guidelines exist to which the DOJ adheres
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Is this collusion?
Unlawful Practice
GE & Westinghouse
 Price fixing
 Identical prices
 Horizontal restraints
 Competitor relationship
 Common pricing system
 Pricing using multiplier
 Refrain from bidding
 Lack of price negotiation
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What happened?
- Modification to the Consent Decree
 The formula for pricing generators prohibited
 Price book not disclosed outside of the firm
 No price protection policy
 Forbidden communication on pricing, terms and conditions with outside
persons
 Absolutely no information exchange between the players on sales
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Thank you.
Questions?
* Logos taken from respective web sites.
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