Table of Contents

Summary...................................................................................................................................1
Question One:...........................................................................................................................4
Question Two:...........................................................................................................................6
End Price War.......................................................................................................................6
Win-win Situation.................................................................................................................6
Companys Capacity Cant Compete with other Companies...........................................7
Question Three:........................................................................................................................8
Question Four:..........................................................................................................................9
Conclusion...............................................................................................................................10

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Summary
Archer Daniels Midland Company (ADM) was one of the world biggest agricultural
companies in 1995. Since 1955, Dwayne Andreas led the company to greater productivity
and rapid expansion. His son, Michael D. Andreas also handed important position which is
executive vice president of sales and marketing in ADM.
In early 1989, the two Andreas decided to enter lysine business and employed Mark
Whitacre become president of ADMs new lysine division. Lysine is an undifferentiated
commodity and should be a highly competitive market but only three companies were
dominating world market of lysine and another company, Cheil tries to enter by 1991. They
are Ajinomoto, Kyowa, and Miwon. Therefore, this business was very attracted both Andreas.
ADM used an extremely short period of 17 months to build lysine production plant
which finished in February 1991. The new plant was the largest in the world which can
produce half of annual worldwide demand, 250 million tons of lysine. Its capable brought a
huge volume of product into the market, and prices ($1.30 a pound) quickly began to fall.
However, Whitacre established the lowest price about 60 cents a pound to attract customers
and this action led a grievous price war among the five companies. ADM was losing about $7
million a month.
In the price war, Whitacre knows that he has to do something or else he will lose his
job. Then, Michael asked Whitacre to go and learn ADM method of conduct business from
the president of ADMs Corn Processing Division, Terry Wilson. Then, they met and Wilson
suggested Whitacre meet with top managers of other four lysine companies. June 1992,
Wilson and Whitacre met in a Mexico City Hotel with managers of two Japanese producers,
Ajinomoto, and Kyowa. The two Korean producers managers were absent.
Wilson presides the meeting and uses a flip chart and calculation to persuade the two
competitors representatives be their friend. He showed to them about $200 million the five
companies giving away to their customers. He also declared that competitor is our friend
and customer is our enemy. Whitacre joined the conversation when Wilson and the two
representatives were discussing price setting. This meetings purpose was to end the price war
among them by setting a target price together with competitors. Their aim could be

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achieved if all five lysine producers agreed to sell at the same price. Then, two Japanese
producers representative volunteered to contact the absent Korean producers.
At the end of the meeting, Wilson suggested they should form a trade association to
let them meet with a fake public agenda to hide the real purpose. He confessed ADM has
always used this method to conduct secret price-fixing meetings. Over the next few days, the
five lysine companies start to rise price gradually which means the two Korean producers
already agreed to join them. In the United States, the price of lysine rose to $1.05 a pound by
the end of the summer of 1992 and Whitacre felt that the price wars had ended.
October 1992, the five managers of the lysine companies were meeting in Paris to
launch the newly formed International Amino Acid Producers Association. They are using a
fake public agenda to discuss a new agreement on future prices. After that, Whitacre realized
that the price keeping dropped till 70 cents by April 1993. Whitacre met with Wilson and
Michael immediately to plan an urgent meeting with other producers.
Firstly, they decided to meet Ajinomoto which was the largest lysine producer. They
met then Michael and Wilson explained to Ajinomoto the major problem was the five
producers had not agreed to limit their production quantity. They suggested establishing a
quantity agreement among five producers. The Ajinomoto representative indicated they will
consider it. May 14, 1993, they met again with Ajinomoto while the price still dropping. They
tried to convince him again to make the quantity agreement. They planned to control supply
quantity instead of price control.
Whitacre realized he needs to meet with other companies instead of just waiting for
Ajinomoto. They agreed to meet on June 21, 1993, in Vancouver, Canada but this meeting
also failed to achieve the aim of ADM. However, those companies agreed to hold their
current production level and raise their price together. On October 25, 1993, they meet again
with Ajinomoto and this time he agreed to obey the volume agreement in 1994. ADM also
threatened Ajinomoto, if he failed to comply with the agreement than ADM will use its
capacity to flood the market. Next, they want to bring other companies to join this agreement.
On December 8, 1993, four companies representatives were meeting in Tokyo except
Cheil. They agreed to join volume agreement and will send a report for official Ajinomoto
every month to ensure they were selling beyond the limited quantity. On March 10, 1994,
Cheil agreed to join them. They were meeting each other once a quarter. Lysine prices $1.20
per pound fixed from December 1993 till April 1995.
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The agreement ended unexpectedly on June 27, 1995, when FBI official raided the
offices of ADM and questioned Michael about price-fixing in the lysine market. Michael
denied everything but FBI disclosed that Whitacre becomes an FBI informer in November
1992. Afterward, Whitacre had recorded all the conversation among Andreas, Wilson,
Whitacre, and the managers of Ajinomoto, Kyowa, Miwon and Cheil. Then, Whitacre
surprisingly revealed that he had been taking $2.5 million from ADM as bonus under the
table to avoid tax.
Based on the tapes, ADM was indicated as a price-fixing company and fined $100
million. On July 9, 1999, Andreas and Wilson were each fined $350,000 and given 20
months prison. On June 26, 2000, Whitacre was sentenced to 9 years prison for
embezzlement, plus 20 months for price-fixing and forced to return the money he took.
Whitacre was released in December 2006 after spent nine years in federal prison. After that,
he had been hired by Cypress Systems, Inc., a California biotechnology company. Whitacre
confessed he very regret his horrific decisions.

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Question One:
According to the case, the ADM plant could produce 250 million tons of lysine a year
enough to supply half of the annual worldwide demand. So the average worldwide
demand for lysine was about 41.7 tons a month. Calculate how much the lysine
companies were making each month their price-fixing scheme was actually working
(i.e., when lysine was selling for $1.20 per pound).
When lysine was selling for $1.20 per pound while their price-fixing scheme was working,
the lysine companies were making $100,080 million.
(41.7 million tons x 2000 pounds) x $1.20 = $100,080 million
Next, based on the price lysine sold when the price-fixing schemes broke down, estimate
what you think equilibrium price of lysine was during the period of the case. Calculate how
much the lysine companies would have made each month if lysine had sold for the
equilibrium price.
Whitacre started to sell lysine for $1.30 per pound. But when they started selling it, the price
began to fall and there was a price war happened. Lysine went from around $1.30 a pound
down to around 60 cents a pound. Due to this conflict, an agreement had emerged, the price
has dropped to 60 cents per pound and the agreement that limit the volume of lysine each
company can require an agreement between four companies. So the equilibrium price is
$0.60.
Lysine companies would have made $50,040 million if lysine had sold for the equilibrium
price.
83,400 million pounds x $0.60 = $50,040 million
Now calculate the difference between what the companies made each month their pricefixing scheme actually worked, and what they should have made each month if lysine had
sold for the equilibrium price, in order to get the monopoly profit the companies made each
month they successfully fixed prices.
The difference between what the companies made each month their price-fixing actually
worked is $50,040 million.
$100,080 million - $50,040 million = $50,040 million
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Year
Month
1992 September December

83,400 million pounds x 4

Profit
$150,120 million

1993 July December

month x ($1.05 - $0.60)

83,400 million pounds x 6

$225,180 million

1994 January December

month x ($1.05 - $0.60)

83,400 million pounds x 12

$600,480 million

1995 January April

month x ($1.20 - $0.60)

83,400 million pounds x 4

$200,160 million

month x ($1.20 - $0.60)

Total monopoly profit $1,175,940 million
Finally, estimate the total number of months that you think the price-fixing scheme was
actually working.
The price-fixing scheme was actually working through when the price of lysine is going up.
So, we can notice that the price of lysine is gone up when,
The year 1992 (September December)
The year 1993 (July December)
The whole year of 1994
the first 4 months of the year 1995
Did the U.S. and European government fines fully recover the total amount of monopoly
profit the companies made?
The U.S. and European government fines were:
$100,000,000 + ($350,000 x 2) + $2,500,000 + ($75,000 x 2) + $46,000,000
= $149.35 million
So from the previous part, we found that the total amount of monopoly profits the
companies made were $1,175,940 million.
$149.35 million
$1,175,940 million X 100% = 0.013%
The fines could not fully recover the total amount of monopoly profit the companies made, it
can only recover 0.013 % from the whole market.

Question Two:

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This chapter of your text cites a number of factors that cause companies to engage in
price-fixing. Identify the factors that you think were present in the ADM case. Explain
your answer and be specific.

End Price War

Companies will engage with the price fixing is because they want to end price war as soon as
possible. A price war is all the companies compete together by lower the selling price to
enjoy the bigger market share. If all the companies keep lower their selling prices, what they
can earn? Is nothing, sometimes they will sell their product near with the cost because they
just want to compete with other companies in total sales. Maybe their sales volume is high,
but the profit that they can enjoy is very low due to the selling price is almost the cost. They
work so hard and fight with another competitor by lower the selling price went nothing. So
that they engage with the price- fixing, they can enjoy the higher profit. When all the
companies engage with the price fixing, they can set the selling price higher to enjoy
maximum profit together. The consumer wont choose to buy their product even the selling
price is higher than the market priced.

Win-win Situation
Next, all the companies engage in price-fixing just because they want to have a win-win
situation between competitors. If they set the selling price on their own, it will have occurred
different selling price of lysine in the market. Of course, the consumer will only choose the
product that has low selling price. The company that set the lower selling price will enjoy the
bigger market share, but in reality every company wants to earn the bigger market share. As
Wilson said "we believe the competitor is our friend and the customer is our enemy, they
would like to corporate with another competitor to increase the selling price for enjoying the
huge profit. Price- fixing also can guarantee them to have same market share between each
other. The consumer wont choose to buy lysine product based on price because they have the
same selling price.

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Companys Capacity Cant Compete with other Companies

From this ADM case, we know that ADM, Ajinomoto, and Kyowa controlled most of the
world's lysine market. ADM have capable of producing 250 million ton of lysine per year, it
is enough to supply half of the annual worldwide demand. Since other companies don't have
enough capacity to compete with them, they can't sell their product in low selling price
because they want to enjoy their maximum profit. ADM Company can control the market and
enjoy the market share if other companies didnt engage with the price-fixing. So that they
will agree with the price-fixing suggestion to prevent ADM Company enjoy the big market
share.

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Question Three:
In your view, was Mark Whitacre to blame (i.e., morally responsible) for what he did?
Explain. Were any of the obstacles to moral behavior (see chapter 1) operating in his
situation? Explain. Do you agree with Whitacre's own assessment that although others
have said that ultimately the operate culture of ADM played a primary role in my
decision-making at the time this is, alas, not true?

In my opinion, yes Mark Whitacre was to blame for the organizer to determine pricefixing with four competitors and embezzlement around 2.5 million dollars from the company.
Mark Whitacre's ego and greed had to make Mark Whitacre lost his moral compass and a 9year jail sentence.
There are some obstacles to moral behavior operating in Mark Whitacre situation.
Velasquez said that the culture of an organization will affect peoples decisions to do what is
ethical. Moral seduction is a method that is generated by organizations to exert subtle
pressures that can lead an ethical person into making a decision that he or she knew is wrong.
The care, ADM told Mark Whitacre that they developed a method price fixing and that is how
business does. This created a seduction for mark Whitacre to follow the method although
Mark Whitacre knew that this is wrong.
Yes, I disagree with Whitacres own assessment that although others have said
that ultimately the operate culture of ADM played a primary role in my decision-making at
the time. From the conversation of Mark Whitacre with the feedinfo, he revealed that he
lost his moral compass in this case. Information from herald-review, Mark Whitacre said
he doesnt know who he was working for and he started working for himself. From these
two conversations, we can know that all these decisions were based on his mind and were
not controlled. Mark Whitacres ego and greed were behind the poorly made decision by
the culture of the organization.

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Question Four:
Do you believe that in the end Mark Whitacre was treated justly? Explain your answer.
In my opinion, in the end, the punishment for Mark Whitacre was fair and justly. This
is because what he did was unaccepted and illegal. Mark Whitacre was the president of
ADMs lysine division, the one who learned the price-fixing from Terry Wilson and
determined price-fixing with another four competitors. In November 1992, he worked out
with the FBI by recording all the conversations of the price-fixing meetings and gets the
immunity agreement from FBI. However, he secretly took around 2.5 million dollars from
ADM under the table nullified the immunity agreement. After the investigation from FBI,
Mark Whitacre was sentenced 9 years in the prison for embezzlement, plus 20 months for
price-fixing and forced to return the money he took from the company. He spent eight and
half years in prison and was released in December 2006.
Besides that, he admitted his mistakes and feel very regret on his action during the
interview in 2009 by saying I made some horrific decision and broke some serious federal
laws. In fact, ego and greed were behind many of these decisions poorly. Others have said
that ultimately the corporate culture of ADM played a primary role in my decision-making at
the time. Alas, not true. These were decisions of my own making. When trying to win so hard
that truth and ethics do not matter anymore, then one is in a bad place in his or her life. That
is exactly where I was in the early and mid-1990s. I cannot explain how I lost my way, but I
did. This fact that he admitted his mistake reinforced the opinion.
Although what Mark Whitacres done is unforgivable, in the end, he had taken the
responsibility for his action which is spent 9 years in prison and returned all the money he
took from the company. Therefore, I believe that in the end Mark Whitacre was treated justly
based on the federal laws and he did repent on what he did.

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Conclusion
In our opinion, we agree that mark Whitacre was unethical. We can see Mark
Whitacre making an unethical decision as the president of the Lysine Division. Mark
Whitacre. Altogether he had taken 2.5 million dollars from the company, Whitacre claimed
that this was a bonus and that the company often let its executives pay themselves such
bonuses under the table to avoid taxes. Mark Whitacres ego and greed had make he lost his
moral compass and eight and a half years jail sentence.
We believe that Mark Whitacre was treated justly in the end. Mark Whitacre spent
eight and a half years in federal prison and was released in December 2006. He was given
what he calls a second chance when Cypress Systems, Inc., a California biotechnology
company, agreed to hire him. He is now chief operating officer for the company. And he
greatly regrets what he did.
Lastly, in a 2009 interview Whitacre said. He made some horrific decisions and broke
some serious federal laws. In fact, ego and greed were behind many of these poorly made
decisions. Others have said that ultimately the corporate culture of ADM played a primary
role in my decision-making at that time, Alas, no true. These were decisions of my own
making. When trying to win so hard that ethics do not matter anymore, then one is in a bad
place in his or her life. That is exactly where I was in the early and mid-1990s. I cannot
explain how I lost my way, but I did.

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