Interstate Comparison – Use of Contribution Margin in Determination of Price Fixing

Abstract:     
For over a century, anti-trust law has been used to maintain an open and fair market economy by preventing monopolies. However, anti-trust law has never precisely defined the term “monopoly”, which makes evaluating the interactions between the prohibition of monopoly and encouraging competition increasingly challenging.

In 2006, the Hong Kong Government appointed Arculli & Associates Solicitor Firm to study issues relating to competition in the auto-fuel retail market in Hong Kong. A test based on contribution margins was recommended, leading to the conclusion that price fixing is not a crime in the industry.

This article examines the problems related to Arculli & Associates Solicitor Firm’s conclusion. First, price fixing is a per se violation (in or by itself) of the anti-trust law in the United States. Second, it is difficult for the courts to evaluate price fixing because the evidence of such activities between corporations is not easily available. Third, the test has applied non-standardized accounting principles, which clash with the accounting industry on numerous grounds.

To combat these problems, this paper proposes a revised and objective “Contribution Margin” test to measure monopolies. Based on general accounting principles, this paper presents a comparative study of contribution margins between listed companies in the United States and Hong Kong.

Number of Pages in PDF File: 42

Keywords: Antitrust, Competition Law, Contribution Margin, Price Fixing

JEL Classification: K21, K33, M4

Accepted Paper Series