Antitrust Law Daily Wrap Up, ANTITRUST—EDPenn: Complaint Alleges Gypsum Board Manufacturers Engaged in Price Fixing Conspiracy, (Jan 28, 2013)

By Tobias J. Gillett, J.D., LLM.

A group of gypsum manufacturers colluded to increase the price of gypsum board and to eliminate a pricing practice known as “job quotes” in violation of the Sherman Act and applicable state laws, according to a putative indirect purchaser class action complaint filed in the federal district court in Philadelphia (Pitter v. CertainTeed Corp., January 23, 2013).

The complaint alleges that the manufacturers conspired to fix and raise the prices of gypsum board sold in the United States, beginning with coordinated 35% price increases effective in January 2012. The increases were announced in advance by five of the eight manufacturers. These increases were allegedly instituted and maintained despite a relatively weak construction market and prior declining prices, and additional identical increases were announced effective in 2013. The manufacturers also purportedly restricted supply of gypsum board despite limited demand and substantial overcapacity.

At the same time, the manufacturers allegedly collaborated to cease offering a longstanding “job quotes” pricing practice, under which customers could “lock in” prices for gypsum board at the beginning of construction projects, and customers could obtain competing bids from various manufacturers. This would purportedly permit the manufacturers to raise the price of gypsum board and would allow them to more easily monitor compliance with the price increases. Without collusion, customers would have defected from any manufacturer that had attempted to abolish the practice.

According to the complaint, gypsum board is essentially a commodity, with most competition based on price. The market is “highly concentrated,” with the defendant manufacturers holding over 99% of the market, and the three largest manufacturers holding over 60% of the market. This amounted to a CR4 for the gypsum board market of 71%.

High barriers to entry, from substantial start-up costs and the vertical integration of the industry, allegedly also facilitate collusion. In addition, the price inelasticity of gypsum board, due to a lack of adequate substitutes, would permit a “small but significant increase” in price. Frequent industry meetings would allow the manufacturers plenty of opportunity to conspire. The complaint also claims the gypsum board industry has had a history of collusion, including a $455 million European Union fine levied against gypsum board manufacturers in 2002, and civil actions in the United States against manufacturers in the 1940s and 1970s.

The manufacturers’ price fixing practices, and the nature of the gypsum board market, allegedly forced the plaintiff indirect purchasers of gypsum board to pay artificially inflated prices for the product. The complaint seeks to represent a putative class of thousands of such purchasers in 27 states, the District of Columbia, and Puerto Rico.

The complaint alleges violations of Section 1 of the Sherman Act; the antitrust and restraint of trade laws of 21 states, the District of Columbia, and Puerto Rico; the consumer protection and unfair competition laws of ten states and the District of Columbia; and common law principles of unjust enrichment in 24 states, the District of Columbia, and Puerto Rico.

The case is No. 2:13-cv-00384-MMB.

Attorneys: Kenneth I. Trujillo (Trujillo Rodrieuz & Richards, LLC) for Robert Pitter.

Companies: CertainTeed Corp.; USG Corp.; United States Gypsum Co.; New NGC, Inc.; LaFarge North America, Inc.; Georgia-Pacific LLC; American Gypsum Co. LLC; TIN Inc.; PABCO Building Products, LLC

Cases: Antitrust PennsylvaniaNews