Mike Groll/AP

Price-Fixing Scandal, Economic Winds Weigh on Electronics Prices

November 14, 2008 02:14 PM
by Anne Szustek
LG, Sharp and Chunghwa have pleaded guilty to setting flat-screen TV prices artificially high—yet another development that may mean cheap electronics this holiday season.

Prices for Flat Screens Set to Drop Rather than Plateau

South Korea’s LG Display, Japanese technology manufacturer Sharp and Taiwanese company Chunghwa Picture Tubes pleaded guilty to fixing prices on flat-screens for use in cellphones, televisions and personal computers, announced the U.S. Department of Justice, which is working on a continued investigation into the price-fixing cartel.

The three companies set prices at higher than market value in a bid to temper typical price decreases for high-tech items.

Assistant Attorney General Thomas Barnett, who heads up the Justice Department’s antitrust division, told Bloomberg that LG and Chunghwa, along with other companies, met several times from 2001 to 2006 in what were called “crystal meetings” to negotiate price-setting.

Price deflation is common as technology evolves; however the current tight market has accelerated price declines. According to statistics cited by the International Herald Tribune, the price of a 15.4-inch panel to be used in a laptop computer has dropped by roughly one-third from $97 to $63 over the past six months. During the same period, the cost of a 32-inch LCD screen for a television has plummeted to $223 from $321.

Combined, the three flat-screen producers have to pay a combined $585 million in fines, with LG paying $400 million of that total, making the South Korean technology company the recipient of the second-highest fine levied by the Justice Department’s antitrust division. Swiss pharmaceutical titan F. Hoffman-La Roche still holds the unsavory top spot in that category, with $500 million paid in 1999 in connection with a price-fixing case on vitamins.

Under the plea deal, Sharp chairman and CEO Katsuhiko Matsuda and other company executives will begin paying back 10 to 30 percent of their salaries, starting in December.

Private class-action lawsuits have been filed against the flat screen producers, paving the way for consumer compensation, albeit a small payout. But electronics consumers may also benefit from other developments. On Nov. 10 retail electronics chain Circuit City filed for bankruptcy in addition to already-announced store closings, which likely means consumers will be seeing liquidation sales even at those locations that will remain open, which may in turn cause competitors to lower prices to keep up. Additionally, retail industry analysts forecast a sluggish holiday shopping season as Americans cut back on spending due to the economy; a slow start to holiday shopping could lead to significant sales and promotions as stores try to outdo each other in wooing customers.

Background: Tech store chains battered by credit crunch

After 59 years in business, Circuit City, the nation’s second-largest electronics retailer, applied for Chapter 11 bankruptcy protection Monday at U.S. Bankruptcy Court in Richmond, Virginia.
The move comes after the electronics retail chain’s announcement last week that it was closing 155 locations, over 20 percent of its stores, and laying off 17 percent of its American staff. Circuit City had lost money during five of the six past financial quarters.

Minneapolis-based Best Buy, a chief competitor of Circuit City, has said there is a possibility it would take over stores closed by struggling competitors. Jeffries and Co. analyst Jeff Binder told Reuters that such a move could hinder Best Buy during the heavy shopping season of the next seven weeks.

Another Best Buy competitor, Boston-based Tweeter, went out of business this year. Best Buy stands to falter in this sluggish economy nonetheless.

“Longer term, you’ve got Best Buy, who’s dominant in the sector, taking share. But in the short run it could feel the pain of the liquidation activity,” Binder told the wire service. “There’s already soft demand.”

The glut of cheap merchandise could force comparatively stable retailers like Best Buy to lower their prices across the board, eating into profitability. Plus, if Best Buy does subsume its erstwhile competitors’ outlets, it will have to contend with excess inventory subject to potential further markdowns come January.

Concerns over employment and reduced credit availability is likely to cut into gift buyers’ budgets for electronics this holiday season, if Best Buy’s year-to-date performance is any indication. Since the beginning of 2008, Best Buy’s stock has lost some 58 percent in value. The chain’s same-store sales dropped 7.6 percent in October.

Best Buy’s credit crunch course of attack: focus on customer service. In an internal memo leaked to finance blog Consumerist, Best Buy’s three top executives wrote to employees, “We can't change the overall level of consumer spending, but we can focus on deepening our relationships with customers wherever we interact with them: in our stores, on our Web sites and through our call centers.”

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