Great Electrical Equipment Conspiracy

IN SEPTEMBER 1959, the U.S. Senate began committee hearings into allegations that the largest electrical-equipment makers in the United States were conspiring to fix prices. Among the manufacturers were major providers General Electric, Westing-house, Allis Chalmers, Federal Pacific Electric, and smaller companies including ITE Circuit Breakers, AB Chance, Southern States Electric, and Cutler Hammer.

Since the 1940s, General Electric had feared competition—and had already accrued a long list of violations. In 1950, the company began to work to minimize competition and preserve its share of the market, and the other companies cooperated with the industry leader. General Electric dominated the heavy electrical equipment markets, with a market share of 40 to 45 percent. Westinghouse was next with 30 to 35 percent, and Allis-Chalmers and Federal Pacific each had 10 percent. During the 1950s, sales of heavy equipment brought these four companies an average $1.75 billion a year.

That was too much of a temptation for executives under pressure to maximize profits and hold market share. Thus, leaders of the companies colluded to fix prices on turbines, switchgear, and other heavy equipment that they sold to the various governments.

Although the practice went on for years, the investigation began only when the Tennessee Valley Authority (TVA) noticed that it had been receiving identical bids from 47 manufacturers for three years. The bids were supposed to be secret, but the dollars were identical. Other government agencies—at the state, local, federal levels—had the same experience, but TVA was the first to disclose it. The TVA had a huge stake in the outcome because it had the largest electrical generating capacity in the United States and was a massive purchaser of electrical power equipment. Tennessee was also home to Senator Estes Kefauver, chair of the Senate Subcommittee on Antitrust Activities.

The investigation revealed that the companies had worked together for some time to divide the market in line with the market shares each company had at the onset. Executives met secretly to discuss bids, leading all companies to tender exactly the same dollar bid. For instance, when the TVA asked for bids on 4,200 insulators, it received eight bids—all for exactly $12,936.

The process was simple: Chiefs of various divisions of the companies would meet at public locations, such as sporting events or country clubs, and would establish the amount of the winning bid, the mid-range bid that most would offer, and a low bid for each solicitation under the government sealed bid process. To avoid charges of price fixing, the officials would not assign winning bidders. That would be determined under a pre-arranged schedule, with the winner rotating on the phases of the moon.

The bids could be significant. In one case, the colluded bid was $198,438.24, and the winner undercut seven identical bids. Over time, each company maintained its market share. The strategy worked for decades until the coincidence in prices brought on an investigation. It is estimated that the conspiracy cost taxpayers $175 million for each year of its existence.

Federal indictments came down in June 1960. More than 50 executives pleaded guilty or no contest and received large fines. Most individuals received prison sentences, later suspended. Many, naturally, lost their jobs. Seven vice presidents and division general managers at General Electric, Westinghouse, and two smaller companies served 60-day prison sentences. GE received a fine of $437,500, and two executives went to jail for 30 days after paying fines of $16,500.

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