Competition Matters

Anti-competitive agreements can take many forms. Conspirators may agree to bid only in a certain geographic region, or they may alternate winning bids by year. One group of conspirators, however, took a far more astral approach: they let the phases of the moon determine the bid winner.

“The great electrical conspiracy” relied on this lunar approach to fix prices for the sale of heavy electrical equipment to the government. The electrical industry in the 1950s operated under a collusive oligopoly. The firms in the electrical industry created a cartel to set the prices, and an anti-competitive agreement formed.
Between November 1958 and October 1959, rival firms General Electric, Westinghouse, I-T-E Circuit Breaker, Allis-Chalmers, and Federal Pacific met 25 times. During these meetings, the cartel reached an anti-competitive agreement to set the market price for industrial electrical equipment.

The cartel colluded to keep its prices high. The conspiring companies would quote nearly identical prices to private industrial corporations, contractors, electric utilities, and government entities. Each of the conspiring firms would know what the other firms were bidding for each prospective sale. The winning firm would bid the low price, and the others would bid slightly higher amounts.

The phases of the moon determined who would bid the low amount, and thus win the contract. The cartel agreed to rotate the low bidders based on the phase of the moon on the date of the bid. This lunar approach helped the conspirators avoid detection. In fact, the formula was so calculated that it gave the appearance of actual price competition among the firms, when in reality no competition existed.

The “phases of the moon” anti-competitive agreement lasted an estimated seven years and rigged bids worth over $175 million per year. The Tennessee Valley Authority caught on to the anti-competitive agreement when it realized that the submitted bids were identical, even though they were supposed to be secret. Ultimately, 44 executives from the collusive firms received a fine totaling almost $2 million. Their anti-competitive agreement had spun out of its orbit.