ATLANTA (CN) — Home Depot claims in court the nation’s largest suppliers of drywall are engaged in a conspiracy to artificially inflate prices and prevent competition inside the $3 billion industry.
According to a federal complaint filed in Atlanta on Monday, Home Depot, the nation’s largest buyer of drywall, claims it bought “hundreds of millions of dollars” of drywall annually while the alleged price-fixing conspiracy was ongoing.
The home improvement giant says that as a result, it has been overpaying for drywall for years.
Home Depot alleges the conspiracy began in September 2011 when defendant Lafarge North America and other drywall suppliers agreed to dramatically raise drywall prices in the United States “at artificial levels.”
The retailer claims the drywall market is exceptionally susceptible to corruption due to its high concentration of suppliers, high barriers to entry and “product price inelasticity.”
Home Depot says the motive for the conspiracy was the collapse in drywall demand — and therefore prices — following the 2002 housing slump.
The complaint states that the demand for drywall declined by over 50 percent between mid-2006 and September 2011, causing drywall prices to fall by 35 percent.
Individual drywall manufacturers who attempted to raise their prices during this time lost business to their lower-priced competitors.
According to the complaint, the loss in profits motivated Lafarge and its alleged co-conspirators to engage in a “multi-faceted anticompetitive scheme” to violate anti-trust laws and maintain a price-fixing conspiracy.
The lawsuit names National Gypsum Company, American Gypsum Company, CertainTeed Gypsum, PABCO Building Products, United States Gypsum and Temple-Inland Inc. as Lafarge North America Inc.’s alleged co-conspirators.
According to the complaint, Lafarge and its alleged co-conspirators control more than 90 percent of the $3 billion drywall market, and that as part of their scheme, the companies hared “confidential and competitively-sensitive information,” including information on “supply and demand, market trends, capacity, sales forecasts, customers, and current and future pricing for drywall.”
Home Depot says that between October 2011 and January 2012, Lafarge and its alleged co-conspirators raised drywall prices by 35 percent. The complaint alleges that this was the single largest increase ever in drywall prices.
The complaint states that an additional 30 percent increase followed in 2013.
“This price increase reflected a historically unprecedented means both of pricing drywall and of announcing price increases. It is implausible that Lafarge and its co-conspirators each independently decided to implement this wholly new practice to the industry,” the complaint says.
Home Depot describes the alleged conspiracy as a “cartel,” claiming that the extreme concentration of drywall suppliers in the United States (eight companies manufacture nearly all of the drywall in the country) enabled the alleged conspiracy.
“Basic industrial organization economics teach that higher levels of concentration foster the formation and operation of cartels by reducing the number of firms needed to agree to fix prices and monitor a cartel,” the complaint states.
The complaint also states that the drywall suppliers banded together to implement supply restrictions and monitored customers’ purchases to prevent customers from evading future price increases by stocking up on drywall.
Home Depot seeks declaratory and injunctive relief, as well as unspecified damages.
A representative for Lafarge North America did not immediately respond to a request for comment.