Articles

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

Tat Chee Tsui, University of California - Berkeley

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 law and its object increasingly challenging.

The Hong Kong Government has 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, and the test concluded that price fixing is not a crime.

A few problems immediately arise, which will be examined in this article. 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 evidences of such activities between corporations are not easily available. Third, the test has applied non-standardized accounting principles, which thereby clashes 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, the paper presents a comparative study of contribution margins between listed companies in the US and Hong Kong.

Suggested Citation

Tat Chee Tsui. "Interstate Comparison - Use of Contribution Margin in Determination of Price Fixing" Pace Int’l L. Rev. Online Companion, Apr. 2011, at 1. (2011).
Available at: http://works.bepress.com/tatchee_tsui/2