Conscious Parallelism and Price Fixing Defining the Boundary

8/11/2019 Conscious Parallelism and Price Fixing Defining the Boundary

1/29

Conscious Parallelism and Price Fixing: Defining the BoundaryAuthor(s): Michael K. VaskaSource: The University of Chicago Law Review, Vol. 52, No. 2 (Spring, 1985), pp. 508-535Published by: The University of Chicago Law Review

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2/29

Conscious

Parallelism and Price

Fixing:

Defining he Boundary

Section

1

of the ShermanAntitrust ct' has

eliminatedmost

overt rice-fixing

rrangements.n order o avoid

sanctions nder

this law, firmswishing o engage

n

collusive,2

nticompetitive

practices re forced o enter nto

ecret greements

o fixprices.3

The detection

f thesecovert greementsas become

he central

focus

of

section

1

enforcement.4

irect evidence f such

agree-

mentssdifficultoobtain, owever,ndcourtsmust ften ely n

indirect r circumstantialvidence

f conspiracies

o fix prices.

Frequently,

n important actor

n

establishing

he

existence

f

such a

conspiracy

s

similar onduct y rival

firms

hat

suggests

they re attempting

o set prices

r

carveup themarket

or

par-

ticular

product.5

uch conscious

arallelism y

itself

oes not

constituteoncerted

ction

n

violation fthe Sherman

Act,6 ow-

ever,and

courts

have disagreed

ver what additional vidence

( plus factors )mustbe produced

n order o permit

trier ffact

to inferhe existencefa price-fixinggreement.7

508

'

Every ontract,ombination

n

theform

f trust r

otherwise,

r

conspiracy,

n re-

straint ftrade rcommercemong he everal tates,

r with oreign ations,

s

declared

to

be

illegal.

5

U.S.C.

?

1

(1982).

2

Professor,owJudge, ichard osnernoted he differenceetween cartel nd a

collusiverrangement:

Although

ometimesheterm

cartel'

s

used

to

refer oany ollu-

sive

arrangement,

t is

more ften imited o the kindof

formal,bove-boardgreement

among

irms

o imit heir

ompetitionhat

ne findsn

markets,ere ndabroad, ot ub-

jectto theSherman ct.

RICHARD

POSNER, NTITRUSTAW:ANECONOMIC

ERSPECTIVE

39

(1976).The most

notable xample f an overt artel s theOrganizationf Petroleumx-

porting

Countries

OPEC).

3

Posner, ligopolisticricing uits, heSherman

ct,

nd Economic

Welfare:

Re-

plytoProfessor

arkovits,

8 STAN.

.

REV. 903, 904

(1970).

4

Posner argues that this focus has virtually mptied

the

rule

against price fixing] f

any economic

content,

o

become

in

effect branch of the criminal aw of

conspiracies nd

attempts.

d.

See Delaware

Valley Marine Supply

Co.

v.

AmericanTobacco Co., 297 F.2d 199,

202

(3d

Cir.

1961),

cert.

denied,

369 U.S.

839 (1962).

6

See, e.g.,

Theatre Enters., nc. v. Paramount

Film Distrib. Corp., 346 U.S. 537,

541

(1954).

7

Compare

n

rePlywood ntitrustitig., 55

F.2d 627,634,637 5thCir. 1981) al-

lowing the inference

f conspiracyfromparallel conduct and evidence of opportunity o

conspire),

cert.

dismissed sub nom.

Lyman Lamb

v.

Weyerhauser, 62 U.S. 1125 (1983),

with Weit

v.

Continental

ll.

Nat'l Bank & Trust Co., 641 F.2d 457, 463 (7th Cir. 1981)

(holding that

parallel conduct plus opportunity o

conspiredid not permit he inference f

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3/29

Conscious

arallelism nd Price

Fixing

509

The plus

factormost

often

onsidered y

courts n determin-

ingwhether

arallel

behaviors

the result f

an agreement

s the

business-justifications

est.Under

this

test,a price-fixing

gree-

mentmaybe inferredrom arallelconduct f firmsannot how

legitimate

ndependent

usiness easons

or

ngagingn such

prac-

tices.8Once

conscious

arallelism

ufficient

o establish

n agree-

ment

hasbeen found,

he practices

re

deemed llegal

perse, with-

out an

inquiry nto

whether he

practices

are actually

anti-

competitive.9

Commentators,

n the otherhand, ncluding

ichard

Posner

and Donald

Turner, ave argued

hat

the courts' mphasis

n es-

tablishinghe existence f an agreements improper.10lthough

Posner

nd

Turner

mploy

ifferentconomic

nalyses,

othcon-

clude

that

parallelpractices

iolate heShermanAct if,

nd only

if, they

have

anticompetitive

ffects.1'

oth advocate an

in-

quiry-similar

o the rule

of

reason12-into

the economicffects

f

firms'

arallelbehavior

without

separate nquiry

nto the exis-

tence

of an

agreement

mong

firms ot

to

compete.'3

This commentrgues

that

both

the courts' reatment

f

in-

ferredgreementss perse illegal nd Posner's nd Turner's ule-

of-reason

nquiries

or

nticompetitive

ffects

re

inadequate

nd

contrary

o section

1,

which

equires

hat therebe both

an

agree-

ment

nd a

restraint

f

trade.'4

Part

I ofthecomment

xamines

the economics

f

cartelization

nd

conspiracies

o restrain rade

and

outlines he

differingpproaches

o the

subject

uggested

y

Turner nd

Posner.Part

II

explores

he

udicial

treatment

f

par-

allel behavior.

In

Part III,

the comment

rguesthat

findings

f both

an

conspiracy

henrebutted

y evidence

hat

the adoption

f the parallel

onduct

was sup-

ported y

ndependent

usiness

ustifications),

ert.denied,

55U.S.

988 (1982).

8

See

infranote

82 and

accompanying

ext.

9

See,e.g.,

n re Japanese

lec.Prods.

Antitrustitig.,

23 F.2d 238,

10 3dCir.

1983),

cert. ranted

ub

nom.Matsushita

lec. Indus.

Co. v. Zenith

RadioCorp.,

05 S.

Ct. 1863

(1985);

Weitv. Continental

ll.Nat'l

Bank & Trust

Co.,

641 F.2d457,

465 7thCir.

1981),

cert.denied,

55 U.S. 988 (1982);

n re

Plywood

Antitrust

itig.,

55 F.2d 627

(5th

Cir.

1981),

ert. ismissed

ub

nom.

yman

amb

v. Weyerhauser,

62 U.S.

1125 1983).But

see

Ambooknters. . Time nc.,612F.2d604,618n.23 2d Cir. 1979) questioningheparties'

assumption

hatper

se rule pplied),

ert.dismissed,

48

U.S. 914 (1980).

10

See infra notes

44-48,

55-57 and

accompanying

ext.

See

infra

notes 34-66

and accompanying

ext.

12

Under he

rule freason,

courtmust

ind hat

practice

santicompetitive

n effect

before

t condemns

he practice

nder

heSherman

ct.

See

infra

ote

70

and accompany-

ingtext.

13

See infranote

66

and accompanying

ext.

4

See supra

note

1.



4/29

510

The

University f Chicago

Law

Review [52:508

agreement

nd

anticompetitive

onduct re

required

n order o

es-

tablish

violation f section

1.

Thus,

parallel

conduct ound

o

constitute n

agreement

nder

the


est

shouldnot be treated s perse illegalbecause, nlikemany vert

price-fixing

greements,uch

conduct s not

anticompetitiven its

face.

Conversely,

ondemningarallel

ctivity

nder

rule

of rea-

son

inquirywithout

egard o the

existence f an

agreementx-

poses

firms

o liability

or therwise

egitimateonduct

olelybe-

cause the

conducthas an adverse

mpact n

competition. nder

sucha

standard,

irms

ouldbe

liable

under

ection notbecause

their

onduct,

tanding lone,

s

anticompetitive,

ut

because

the

interactionf theconduct f several irms as an adversempact

on

competition.uch

an

effect

annotproperlye

brought ithin

the

scopeof

section

1. In

order o

find

violation f

section1,

therefore,

ourts houldfirst

etermine,

sing he

business-justifi-

cations

est,whetherhere

s

an

agreement,

nd

should hen na-

lyze he

parallel onduct

nder he

rule-of-reason

nquiry o

deter-

mine

whether hepractices

ave

anticompetitive

ffects.

I. ECONOMIC APPROACHES TO CARTELS, CONSPIRACIES, AND

CONSCIOUS

PARALLELISM

In

a

competitive arket,

o

firm

cting

lone can

affect he

market

rice

f

commodity. '

irms

ct

as price-takers

ndmaxi-

mize

profitsy

increasingheir utput

until he

cost ofthe last

unit sold

(the

marginal ost

of

production)quals the

market

price.16 y

forming

cartel, owever,

irms an affect he

market

price.'7 artels

maximize heprofitsf

their

members yreducing

totaloutput nd setting riceswellabovemarginal ost,'8 hus

achieving

market

rice

hat s

higher

han

the

price hat

would

prevail

f

the

market

were ompetitive. '

16

EDWIN

MANSFIELD,

MICROECONOMICs

20 n.2

(3d ed.

1979).

16

R.

POSNER,

supra note 2,

at 241.

17

R.

POSNER

&

F.

EASTERBROOK,

ANTITRUST:

CASES,

ECONOMIC

NOTES,

AND

OTHER

MATERIALS

1065

(2d ed. 1981).

18

See

JAMES

KOCH, INDUSTRIAL ORGANIZATION

AND

PRICES

420-22

(2d ed.

1980).

19

R.

POSNER

& F.

EASTERBROOK,

supra note17, at 1064-65.The probability feffective

collusion s not

the same

for all markets.

everal market

factors

have been

identified

hat

facilitate

ollusion; these include

product

homogeneity,

nelastic product

demand, concen-

tration

of

economic

power,fewness

f

firms,

nd

the

conviviality f interfirm

elationships.

See, e.g.,

F.M.

SCHERER,

INDUSTRIAL

MARKET STRUCTURE

AND

ECONOMIC

PERFORMANCE 199-

227

(2d ed.

1980);

Hay & Kelley,

An

Empirical Survey of

Price Fixing

Conspiracies,

17

J.L.

&

ECON.

13, 14-16

1974). The

Depression-era

igarette

ndustry

resents good

example

of

a

marketripe for

ollusion. t was

concentrated nd

dominated

by threepowerful

manufac-

turers.

Moreover, he

Big Three had

cozy

business relations.For

example, in

order

to



5/29

1985]

Conscious arallelism

nd

Price

Fixing

511

The monopoly rices20esulting

rom artelization

ave two

principal ffects. irst,

wealth

s

redistributed

rom

onsumers

o

participantsn theprice-fixingrrangement.21hilethisoutcome

is normativelyeutral rom

n economic erspective,22t

is unde-

sirable

f

ociety avors onsumers

verproducers. econd,monop-

oly prices

reduce

he

quantity

f the

good supplied

because

some

purchasers, acing higher

price, buy

less

desirable

substitute

products.23hese consumers

re thusworse ff

o

the extent hat

the substitutes inferioro the

monopolized ood,

while

producers

are better

ff, espite

he

foregoneales, only

because

they

ollect

monopoly rofits.24he

resultingnefficienttilization fresources

represents deadweightossto society.25

Formalcartels re inherentlynstable.Membershave an in-

centive o cheat

on

the cartel

by pricing elow he monopoly rice.

By reducing rice, member

an capture rofitst the expense f

other

members,

o

long

s

the

restof

the cartel dheres o the mo-

nopoly rice.28 artelsmust hereforeevelop nforcement echa-

nisms hatprotect gainst uchcheating; etection fcheating

nd

enforcement

f the cartelprice

re likely

o be

imperfect,owever,

ifthereare manymember irms r if informationboutmarket

transactions

s

difficulto

obtain.27 heating

ends

eventually o

drive

artelpricesback to the

competitiveevel.

Many economists

uggest,however, hat

in

an oligopolistic

keep

productionostsdown,

ach refrainedromuying aw obacco rades

n which thers

had

a special nterest. hus, venduring period f

falling emand, hethree, pparently

through ery

nformal

ollusion,

ere ble

to

earn

high rofits.

ee

American obaccoCo.

v.

United tates, 28U.S. 781,798-808 1946).

20

The

monopoly rice s determinedy findinghe

point t which he

cartelmarginal

cost curve

the

horizontalumof

the marginal ostcurves

f

the ndividual

irms,

f

nput

prices o not ncrease s the

cartel s formed)

ntersects ith he marketmarginal evenue

curve.The price longthe

demand urve t that

output

evel s

the oint-maximizingr

monopoly rice.E.

MANSFIELD,

supra note

15,

t

347-48.

21

See R.POSNER & F.

EASTERBROOK,

upra

note17, t 4-11;F. SCHERER,supra

note19,

at 14-20.

22

The conclusionf

neutralityssumes hat

veryonelaces he amevalueon the ast

additional ollar

received r

spent.

Posner

rgues

hat

monopoly rofits

ill

lso be

con-

verted nto ocial costs, .e.,

deadweightoss,because firmwillexpend

eal resources

n

order o become monopolistrgainadmission o a cartel.Throughhis competitive

process, irmsmight pendresourcesust equal at

the margin o the

amount f expected

monopoly rofits. . POSNER, supra note

2,

at

11-12.

23

Id.

at 242.

24

Id.

25

For a general

iscussion,

ee J.

KOCH, supra

note

18,

at 72-81.

26

Id.

at 420-22.

27

GEORGE

STIGLER,

A

Theory of Oligopoly, n THE

ORGANIZATION

F

INDUSTRY42-43

2d

ed.

1983).



6/29

512 The

University f

Chicago Law Review

[52:508

market-one

hat

hasonly few

roducers-a

formal

greements

notnecessary or

ival

firms oset a

monopolyrice, r

at least

a

price hat s significantlyreaterhan hecompetitiveevel.28ven

though

market

mayconsist f

severalfirms,

ach

mayrealize

that its

business

decisions

nteractwith those

made

by

other

firms.29ne

variant f

this

nterdependence

heory-known

s

mo-

nopolistic

ompetition-suggestshat

firms ully

ecognizehe m-

plications f

interdependence

nd realizethat

they

need not be

passive

price-takers.30

s

a

result, hey

will

et

prices

t

the

mo-

nopoly evel,

knowinghat price

cuts

will

merely rode

ndustry,

and

hence

ndividual, rofits.3'

The

theory

f

monopolistic

ompetition

as

profoundmplica-

tions

for

ection

enforcement.t

suggests

hat

firms,

erely

y

recognizingheir

nterdependencend without

heneedfor

ormal

agreement, ay

achieve he

prohibited

nds of a formal

artel.32

Since much

f

American

ndustry

onformso

the

oligopoly

odel,

presentntitrustaw

thusmaybe

incapable f

dealing

with

per-

vasivemarket

roblem.33

Professoronald

Turner,

mbracing

he

theory

f

monopolis-

ticcompetition,asargued hatoligopolistsho chieve monop-

olyprice

by

considering

he

probable

eaction fothers

n

themar-

ket,

nd

withoutmore

n

the

way

of

agreement'

han

s

found n

'conscious

arallelism,'

hould

not

be

held unlawful

onspirators

28

PETER

ASCH, NDUSTRIAL

RGANIZATIONNDANTITRUSTOLICY

1-70 (rev. ed. 1983).

29 Id.

30

Id. at 59. Edward Chamberlin, he first roponent f this theory, bservedthat:

[f]orone

competitor o

take into account the alterations f

policywhichhe forces pon

the other s

simply

for him

to considerthe

indirect onsequences

of

his own acts.

Let

each

seller, then,

n

seeking to maximize

his profit, eflect

well, and look to the total

consequences of his move.

He must consider

not merely

what his

competitor s

doing

now,but also what he will

be forced o do

in

the ight f the change whichhe

himself s

contemplating.

EDWARD

HAMBERLIN,

HE

THEORYOF

MONOPOLISTICOMPETITION

7

(8th ed. 1962) (foot-

note omitted).

31

P. ASCH, upra note 28, at

59. Only when

the individual's nfluence pon the

price

becomes

so

small that he

neglects

t will

price

fall to the

competitive

evel.

E.

CHAMBERLIN,

supra note 30, at 48.

32

As

Chamberlin

xplained:

This interdependence

must,however, e

interpreted ith are, for,

n

the natureof the

case,

when

there

are

only two or a

few sellers, their fortunes

re

not

independent.

There

can be no actual, or

tacit, greement-that is all. Each

is forcedby the situation

itself o take into account

the policy of his rival

n

determining

is

own,

and

this can-

not be construed s a

tacit agreement

between

the two.

E.

CHAMBERLIN,upra note 30, at 31 (second

emphasis added).

33

See

Rahl, Conspiracy and

the

Anti-TrustLaws,

44

ILL. L.

REV.

743,

755

(1950).



7/29

1985]

Conscious

arallelism

nd Price

Fixing 513

under he

Sherman

Act. 34

urner,

eflecting

he

general pproach

of the

Harvard chool, 35otesthat

[a]s

a

legalconclusion,

his

could be stated n either ftwoways: 1) there s no violation e-

cause there

s no

agreement;'

r

(2)

there s no violation

ecause,

although

here s

'agreement,'

he

agreement

annot

properly

e

called an

unlawful\agreement. 36

From

this

premise,

Turner concludes hat

parallel

conduct

only ndicates

llegalbehavior

f

all ofthe firms'

onduct

annot

be

explained

by

consciously arallelbehavior nd

oligopoly ricing.37

Turnerwould

not,

for

xample, ondemn

ure

parallel-pricing

c-

tivitye.g.,price

eadership),38

ut

he

would

proscribe

he

adoption

of rigid one pricing e.g., a delivered-pricecheme).39n part,

thisdistinctionests

n a prudentialrgument

hat o

attack nat-

ural

oligopolisticricing ehaviorwould

require hecourts o en-

gage

in

regulatory

rate-setting unctions;40artificial

ricing

structures,ycontrast,an be

remedied

imply y an injunction.4

The

distinctionlso

rests

n

thebelief that

oligopoly

ricebehav-

ior can

be described

s individual

behavior-rationalndividual

decisions

n

the

ight

f

relevant conomic

acts-as well

as

it

can

be describedby agreement.'

142

These relevant conomic acts

include

the likely esponse f

other ligopolists o a

competitor's

pricing

decisions.43

Turner

uggests hat

parallelbehavior hould

not

be charac-

34

Turner,

he Definition f Agreement

nder he ShermanAct:

Conscious

arallel-

ism

and Refusals

To Deal,

75

HARV. . REV. 655, 671

(1962).

3b

See, e.g., AWRENCE

ULLIVAN,ANDBOOK

F

THE LAW

OF

ANTITRUST59 (1977); Rahl,

supra

note 33, at 755-56.

36

Turner,

supra note 34,

at 671.

37

Id.

at 672.

38

Id.

at

681.

39

Id. at 673-75. Under a

delivered-price ystem,

uniform rice is

charged each buyer

regardless f the

distance from

heproduction ource. F.

SCHERER,upra note 19, at

326; see

also

infra

notes

129-30

and

accompanying

ext.

40

If, for example,

defendantswere convicted of price

fixing ased

only on evidence of

parallel-pricing

practices, the court could not

effectively

njoin

an

agreement

because,

under

Turner's view of

economics, he parties

priced

in

a

profit-maximizing ay given all

the factors n the market.Turner, supra note 34, at 666. An injunction, o be effective,

would necessarily

ell

defendants: 'Always increase your

output to the

point where margi-

nal

cost

. .

.

equals the price that can be

obtained; or alternatively,

lways lower your

price

to the

point

where

it

equals

marginal

cost.'

Id.

at 670.

In

order to

eliminate

monopoly

profits, he court's analysis would have

to closely resemble

what in

theory

s

imposed by

public-utility

egulation, ausing immense

practical problems

for

the courts.

d.

41

Id. at 666.

42

Id.

43

Id. at 673.



8/29

514 The University

f Chicago aw Review [52:508

terized

s an

agreementrohibited

nder ection

;44

rather,

ligo-

polistic ricings more ppropriately

ttacked s a violation

f the

prohibitionnsection

41

ofmonopolizationr attemptsomonop-

olize,

whichdoes not

require roof

f

an agreement.46

parallel

practice hould thus be condemnednly f it protects

r aug-

mentsmarket oweror extends t into othermarkets. 47

uch

treatment

f

parallelbehaviorwould chievewhatTurner

onsid-

ers to be the

important oal

of

bringingthe

law on

oligopolists'

conduct

moreor

less

in

line

with

the

law on

monopolists'

on-

duct.

48

Professor,owJudge, ichard osnerhas suggested

differ-

entapproach o conscious arallelism,eflectingheviews f Chi-

cago

School economists n

oligopoly heory.

osner tates

that

[t]he

relationshipetween

he evelof concentration

n

a market

and

the probability

hat

pricing

n

thatmarket

ill

be noncompet-

itive an be elucidated

n

simplernd more ruitfulerms

han

n-

terdependence:

n

terms

f

thetheory

f cartels. 49

e

suggests

that

bsent

greement,

irms,ven

n

an

oligopolistic arket,

ill

act as

rivals nd set

price

nd

output

t

competitive

ather

han

monopolyevels.50 nderthisview, ligopolys a necessary,ut

not ufficient,ondition

or uccessful rice

ixing.5'

rom

his

bas-

ic

premise,

osner

rgues

hat

voluntary

ctions

y

the

ellers

re

necessary o translate he

bare condition f

an

oligopoly

market

into a

situation

f

noncompetitive

ricing. 52

uch

voluntary

c-

tion,

whether

n

the

form f

express

r tacit

collusion,

onstitutes

concerted

ction nd thusfalls

within

he mbit

f

ection

.53

Pos-

ner also

argues

hat

parallel

behavior an be useful

ircumstantial

evidence f a formal,utconcealed, artel.When heactions f a

Turner also

suggests

defining agreement

under the

Sherman Act

in

terms

of

in-

terdependence

f

decisions because the

courts have

gone beyond

the boundaries of ex-

plicit,

verbally

ommunicated ssent

to a commoncourse

of

action.

Id.

at 683.

4b 15

U.S.C. ?

2

(1982)

(making

t

illegal

to

monopolize,

or

attempt

o

monopolize,

r

combine

or

conspire

. .

to

monopolize

any part

of

.

. .

trade

or

commerce ).

46

Turner,

upra note 34,

at

682;

see also

Note,

Conscious

Parallelism and

the Sher-

man Act: An

Analysis

and a

Proposal,

30

VAND.

L.

REV.

1227,

1241

(1977)

( [C]onscious

parallelism mong

the

largest

firms

n

a

highly

oncentrated

ndustry

hall constitute

rima

facie evidenceof a [ShermanAct ? 21 conspiracy o monopolize. ).

47

Turner, upra note 34,

at 682.

48

Id.

49

Posner,

Oligopoly

nd

the

Antitrust aws: A

Suggested Approach,

21

STAN.

L.

REV.

1562,

1569 (1969) (footnote

mitted).

50

Id.

at 1566-69.

51

d. at

1571-74.

2

Id. at 1575.

53

Id. at 1576-78.



9/29

1985]

Conscious

arallelism

nd Price

Fixing

515

formal

artel

are

completely oncealed,however,

he observable

behavior

f

the cartel'smembers

s

consistent

ith

hypothesis

f

tacitcollusion.Thus, a

submerged artel should be treated

s

a

form ftacit collusion.54

In Posner's

view,

he

biggest roblem

n

applying ection

1

.

to

tacit

collusion

s that

of

proof:

How can the existence

f

noncompetitivericing e establishedwithout ny proof f

acts

of

agreement,

mplementation,

r

enforcement? 55

e

suggests

two-

step approach

o this

evidentiaryroblem: irst,

conomic

vidence

should be examined o

identify

markets

n

which

onditions re

propitious or the

emergence f collusion ; econd,market vi-

denceshould be examined o determine hether ollusionn fact

exists.56

his

techniquewould void

the

need for

xtensive, ostly

searches

or

hot-document vidence

f

agreement-what e calls

the

'cops-and-robbers'

pproach

o

price-fixinghat

has

hereto-

foredominated

he aw. 57

One drawback

n

Posner's

wo-step pproach

s

that t

would

require ramble hrough

he wilds feconomic

heory

n every

case. Once

parallel

onduct

s

shown,itigants ouldbe requiredo

producemassive nd often mbiguous conomic vidence nd to

spend large

sums on

expert nterpretationf such evidence.59

b4

Id. at 1575.

b

Id. at 1578.

be

R.POSNER,upranote

2, at 55.

Conditionsavorableo collusion

nclude: 1)

concen-

tration

f

ellers; 2)

lackof

fringe

f mall

ellers; 3)

inelastic

emand t the

ompetitive

price; 4)

lengthyimerequired or

new entrynto

themarket;5)

many ustomers;6) a

standardizedroduct;7)

theprincipal irmsell at the same evel n

the chain

f

distribu-

tion; 8) emphasis nprice ompetitionver ther ormsfcompetition;9) a high atio f

fixed ovariable

osts

of

production;

10) static

r

decliningemand

ver

ime; 11)

award

of

business

n

the basis

of

sealed

bids; 12)

a

poor

ntitrustecord or he

ndustry.

d.

at

55-62.

Evidence f

collusive ehavior

ncludes: 1)

fixed elative

market hares; 2) pricedis-

crimination;

3) exchanges

f

price nformation;

4) regional

ricevariations;5) identical

bids; 6) price, utput,

nd

capacity

hanges

t the formation

f

a

cartel; 7)

industry-wide

resale pricemaintenance;

8)

decliningmarket hares

of

eaders; 9)

high mplitude

nd

fluctuation

f

price

hanges; 10) elasticdemand

t the market

rice;

11) consistent

evels

and

patterns

f

profits;12) basing-point

ricing.

d.

at

62-71.

Proving

greement y

the use of economic

vidence s also

discussed

n

Kamerschen,

An EconomicApproach o theDetection nd ProofofCollusion, 7 AM.Bus. L.J. 193

(1979);

Markovits, ligopolistic

ricing uits, the Sherman

Act,

nd

Economic

Welfare.

(pt.3),

27 STAN.L. REV.307

1975);Comment, Structural

pproach

o the

Application

f

Section One

of

the

ShermanAct to

Oligopolistic

nterdependence,

5

ME.

L. REV.

181

(1983).

57

R.

POSNER, supranote ,

at 47.

b8 This

description

f

economic

nalysis

n

antitrust ourtroomss found

n

United

States

v.

Topco

Assocs.,

05 U.S.

596,

610 n.10

1972).

b9

Posnerhimself

ccepts

he

proposition

hat conomic vidence

frequently

s

ambig-



10/29

516 The University f Chicago Law Review [52:508

Moreover, ecausePosnerwould etain he ruleof per se illegality

forovert cts of conspiracy, t is unlikely hat plaintiffs ould

abandon ll effortso uncover smoking un evidence. hus, t is

notclear hat udicial conomy ouldbe enhanced nder his wo-

step approach.Posner's positionmay also be criticized n the

ground hat t might ondemn, nder ection1, firms hat have

achieved monopolymarket ricemerely y consideringheir i-

vals' behaviorn setting rices-a result hat Turner inds oth

contrary

o

the

statute

nd unsound s

a

policy

matter.6'

Posner

rgues, owever,

hat a

firm

hatraises

price

nd re-

stricts

utput,

with

he

mere

xpectation

hat other

irms illdo

the ame, ngagesn a form fconcertedction nalogouso a uni-

lateral ontract.62

e

admits hat,

f

pressed

oo

far,

his

pproach

might ondemn irmshatdo not

n

fact ngage

n

anticompetitive

conduct-for xample, hosefirms

hat

consider

he

probable

e-

sponse

of

competitors

n

setting rices

fter

common ost

in-

crease.63hus,

Posner oncludes hat the aw shouldnot

always

equate

tacit

nd

explicit ricing greements. 64

acit

agreement

s

objectionable

nd shouldbe condemned

nly

when ts effect

s

to

limit utput nd raise prices bove the competitiveevel.65

uous. Posner, upra note

3, at 910.

60

R.POSNER,

upra

note ,

at

76. Posner tates

hat

he

would

pply

his ule

t

least

n

marketsthat xhibit he

predisposingharacteristicsoward ollusion.

d.

6'

Posner ummarized

isunderstandingf thedifferencesetween he Harvard

nd

Chicago chools f antitrust

n

Posner,

he

Chicago

chool

of

Antitrust

nalysis,

27

U.

PA. L.

REV.

925 (1979). He notes hatwhile ach accepts he conclusion,ound

n

many

studies, hatthere s a

positive orrelationetweenoncentrationnd profitability

n

an

industry,hetwo chools iverge ver hereason or his orrelationnd thus ver he p-

propriateegalresponse.

d. at 944.The Harvard chool,

osnerwrites,contendshat he

correlation

s

explained

ythefact hat

he

eading

irms

n

highly

oncentratedndustries

employ

conscious

arallelism'o avoidprice ompetition

nd therebyarn

bnormal

rof-

its.

d. The

Harvard chool's

esponse o thisproblem

s to seekdeconcentrationfthese

industriesy breaking p the arger irms.

d.

at

944-48.

The Chicago chool,

n the other and, does notdeny hat oncentration

s

a factor

thatfacilitatesollusion

f sort ifficulto detect, lthough

t attachesesssignificance

o

concentrationerse thando the oligopolyheorists.

d. at

944-45.

Above-average

rofit

levelswill ither ncourageew ntrynto hemarket,

r

fno

entry

s

forthcoming,mply

that

he

market

simply

oes nothaveroom ormany

irms ueto economies

f

scale

n

productionr consistentnnovationy ncumbentshatnew ntrantsannot uplicate.d.

at

945.

n

either

ase, public

ntervention

esigned

o

change

he

markettructure s not

warranted.

d.

[A]n

orthodox hicago osition

.

.

had crystallized:nly xplicit rice

ix-

ingand very argehorizontal

ergersmergerso monopoly) ereworthyf serious

on-

cern.

Id.

at

933.

62

R. POSNER,

upra

note2, at 71-72.

63

Id. at 72.

84

Id.

85

Id.



11/29

1985] Conscious Parallelism

and

Price Fixing 517

Although

osner and

Turner address conscious

parallelism

fromdifferentheoretical erspectives,

heyshare the view that

section

enforcementhouldbe concernedmorewith he effectsf

parallel conduct n the market hanwithprovinghe traditional

elements

f

agreement. oth believe that

it is

important

o ex-

amine

markets

n

which

parallel

onduct

ccursfor

ndications

f

anticompetitiveonduct, nd

each

advocates

the

examination f

parallelconductunder eststhat are akin

to

the rule of

reason.66

Their analysesindicate that there are two

principalquestions

raised by thephenomenon f conscious

arallelism:When may a

practice e said to reflectn agreement?

nd f t reflectsn agree-

ment,when hould t be characterizeds an agreementnrestraint

of

trade?

II. JUDICIAL

REATMENT

F CONSCIOUSARALLELISMNDER HE

SHERMAN

CT

Section1 of the

ShermanAct refers othto

prohibited

means

and

to

a

prohibitednd.67

he

means- contract,

ombination

r

conspiracy -has been

interpretedo

requireonly some form f

concerted ction, ather hanone ofthe three pecified rrange-

ments.68

oreover, he agreement eed

not be formal-itmay be

either tacit

or

express. 69

he

prohibited nd- restraintof

trade -refersboth

to practices hat,underrule-of-reasonnaly-

80

This characterizationas been

made by theFederalTrade

Commission,

ee infra

note 151

andaccompanyingext, nd

acknowledged

y Posnerhimself henhe

noted he

family esemblance etween is

proposal

nd an earlier rule of

reason tandard

ro-

posed in Conant, ConsciouslyParallel Action in Restraint of Trade, 38

MINN.

L.

REV.

797

(1954).

See Posner, supra

note 49, at 1562 n.l.

87

Section

1

specifiesmeans s well

s ends.Perhaps s a matter

f public

policy e-

straint f trade

per

se

shouldbe

controlled ut

conspiracy

s

required

n

this

ase.

Dela-

wareValleyMarine

Supply

Co. v.

American obaccoCo., 297 F.2d

199, 207-08 3d Cir.

1961)

footnotemitted),ert.denied,

69 U.S. 839 (1962).

68

As the Third

Circuit as

observed:

[T]he

cases have

nterpretedhe

tatute s presentingsingle

oncept bout ommon

action, ot three

eparate

nes:

contract

.

.

combinationr

conspiracy'ecomes n

alliterative

ompound oun,

roughly

ranslated o

mean concerted ction.'There s

little

need to grapplewith ssues

about themeanings f the

particular ords

f the

statute or omarknicedistinctionsmong hem.

Bogosian .GulfOil

Corp., 61 F.2d434,445-46 3d

Cir. 1977)

quoting . SULLIVAN, upra

note 35, at 312), cert.

denied, 434

U.S. 1086 (1978);

see also

Wirtz,

Purpose

and

Effect

n

Sherman Act

Conspiracies,

57WASH.

L.

REV.

1,

42

(1981) Perhaps he one generalization

the

Supreme

Court's

decisions

n

this ssue

will

support

s

that

to

make out a section

violation

here mustbe proofof

the kind of mutual assent

suggested y the

word

'agreement.'

).

8

See

Theatre

nters.,nc.

v.

Paramount ilm

Distrib. orp., 46 U.S. 537,540

1954);

United

tates

v.

Paramount ictures,

nc.,334 U.S.

131,

142

1948).



12/29

518

The

University

f

Chicago

Law

Review

[52:508

sis,

are found o

be

anticompetitive

n

effect,70nd to

a limited

class of

conduct

hat

s

treated s per se

illegal

because

t

is

con-

clusively

resumed obe

unreasonable. '7'n

determining

hether

toapplyper e illegality,s well s inapplying

ule-of-reasonnal-

ysis, the

nquiry

s

confined

o

a

considerationf

mpact n

com-

petitive

onditions. 72

n

contrast

o

theruleof

reason,

here

s

no

defense o

per

se

illegalitynce

an

agreement

s

demonstrated.73

Price-fixing

greements,hether

o

raise,

epress, ix,

r

stabilize

commodity's

rice, re

per se illegal

egardlessf their

nticompe-

titive

ffects.74

Conscious

arallelism

irst

merged

s a

theory

f

antitrust

i-

ability n actionsbrought nder ection5 of theFederal Trade

70

See, e.g.,

National Soc'y of

ProfessionalEng'rs v.

United States, 435 U.S.

679, 690

(1978). Professor,

ow Judge,

Frank Easterbrookhas

criticized his formulation

f the rule

of

reason as

empty. Easterbrook,

The

Limits

of

Antitrust,

3 TEX. L.

REV. 1,

12

(1984). He

argues that the

definition f the rule of reason

currently

mployedby the courts s too

vague

to

offer

seful guidance to

judges.

Id.

He

suggests

s an

alternative he use

by

courts of

a

series of

presumptions,

ased on economic

theory,

o

aid in

deciding

whether

onduct is

anticompetitive.

d.

at

14-39.

71

Northern ac. Ry.

v.

United

States,

356

U.S.

1,

5

(1958). Several

categories

f

con-

duct have been labeled

per

se

illegal,

ncluding 1)

price-fixing,

oth vertical nd

horizontal;

(2)

tying rrangementswhere

seller permits

buyer

o

purchase a desired tem

the tying

product) over

whichthe seller has market

power only

f

the buyer lso agrees to

purchase

second item

(the tied

product)

from

he

seller; 3)

group boycotts

r

concertedrefusals o

deal; and

(4)

horizontal

marketdivisions. ee

2

JULIAN VON

KALINOWSKI, NTITRUST

LAWS &

TRADE

REGULATION ?

6.02[1]

(1984). Nonetheless, he

applicationof

the per se rule to verti-

cal

price-fixingnd

tying rrangements as come under attack

recently. ee,

e.g.,

ROBERT

BORK,

THE

ANTITRUST PARADOX

372-74

(1978) (tying

rrangements); aker, nterconnected

Problems of

Doctrine and Economics in

the Section

One Labyrinth: s

Sylvania a Way

Out?, 67 VA. L.

REV.

1457, 1465-66 1981) (vertical price restrictions).n Monsanto Co. v.

Spray-Rite

Serv.

Corp.,

104

S.

Ct. 1464,

1469

n.7

(1984), the Court took note

of the

argu-

ments

against

application

of

the

per

se rule to vertical

price fixing. ndeed, the Solicitor

General

of the

United States submitted n amicus

briefurging he Court to

reconsider he

rule. See

Brief

for

the United States as

Amicus Curiae

in

Support

of Petitioner

t 19-29,

Monsanto. The

Court

refused his

invitation, owever,

ee 104

S. Ct. at 1469

n.7, and de-

cided

the

case

on

the

evidentiary

ssues

presentedby

the

parties.

In

Jefferson arish

Hosp. Dist.

No.

2

v.

Hyde, 104 S. Ct.

1551,

1560-61

1984), a bare

majority

f

the Court

affirmed he application of the

per

se

rule

to

tying rrangements

n

cases

in

which the seller has

marketpower over the

tyingproduct.

But

Justice

O'Connor,

joined

by

three

othermembers f

the

Court, rgued

that the

per se rule should be

scrapped.

Id. at 1570-74 O'Connor, J., concurring).

72

See

National

Soc'y of Professional

ng'rs

v.

UnitedStates, 435

U.S. 679, 690 (1978).

As

one lowercourt

explained:

The ultimate est of

egality,

f

course, s

whether he partic-

ular

restraint

romotesor

impairs competition. ut . . .

the intentor

purpose underlying

the restraint s

a crucial

variable

n

aiding

the

court to assess the

competitive ffects f the

restraint.

Martin

B.

Glauser

Dodge Co.

v.

Chrysler orp.,

570 F.2d

72,

82-83

3d

Cir.

1977),

cert.

denied, 436 U.S. 913

(1978).

73

See

R.

BORK,

supra note 71, at 66.

74

United

States

v.

Socony-Vacuum

Oil

Co.,

310

U.S.

150,

223-24

(1940).



13/29

19851

Conscious arallelism nd Price

Fixing

519

CommissionAct (FTCA).75

The textual

basis for this

theory

s

much tronger nder he FTCA than under

ection of the Sher-

man Act because section does not nclude

concerted-actione-

quirement.76ommentatorsavesuggested, owever,hateven n

early hermanAct cases recognizing

he

doctrine,

ourts eemed o

equate consciousparallelismwith agreement.

These decisions

permittedhe

nference

f

a

price-fixing

onspiracy

ithout irect

evidence hat formal greement

o

adopt

parallelmarketingrac-

tices had been reached.78

n Theatre

Enterprises,

Inc.

v. Para-

mount Film Distributing Corp.,79

however, he Supreme Court

held that consciousparallelismwas not equivalent o agreement

for he purposes f section1:

[B]usiness behavior is admissible

circumstantial vidence

fromwhich the fact findermay infer

greement. . . But this

Court

has never

held

thatproof

f

parallelbusinessbehavior

76

15

U.S.C.

? 45(a)(1)

(1982) ( Unfair

methods fcompetition

n

or

affectingom-

merce, nd

unfair r deceptivects or

practices

n

or

affectingommerce,re declared n-

lawful. ).

ee, e.g.,Triangle

onduit

Cable Co.

v.

FTC,

168 F.2d

175,

176

7th

Cir.

1948),

afj'd sub nom. Clayton Mark & Co. v. FTC, 336 U.S. 956 (1949). In Triangle Conduit, the

second ount f the

FTC's complaint,nlike he first

ount,

id

not

allege

n

agreement,

but alleged violation f ection

'throughthe

defendants']oncurrent

se

of formula

method f

making elivered ricequotations

with heknowledgehat

each did likewise,

with the result

hat price competition

etween nd among hemwas

unreasonablye-

strained.' 68 F.2d at 176.

The Seventh ircuit pheld heFTC's

findinghat hese

paral-

lel practices,

ven bsent n

agreementmong heparties,

ere

n

unfairmethod f ompe-

tition

nder ection oftheFTCA. Id. at 181.

For a discussion

f

Triangle onduit nd ts

implications

or ection of theFTCA, see

Note,

Conscious

Parallelism in the Use of De-

livered

Pricing Systems: A Modified Per Se

Standard of

Review Under the Federal Trade

Commission

Act, 66 CORNELL

L.

REV. 1194

(1981).

76

See

Note,

upra note

75,at 1203-11.

77

See

Blechman, Conscious

Parallelism, Signalling and

Facilitating Devices: The

Problem of Tacit Collusion

Under the AntitrustLaws,

24

N.Y.L. SCH. L. REV.

881,

882-85

(1979);

Rostow,

The New Sherman Act: A

Positive Instrument

of Progress,

14

U. CHI. L.

REV. 67,

584

1947) Parallel ctionbased on

acknowledgedelf-interestithin

defined

market tructure

s

sufficientvidence f

llegal ction. ).

78

For

example,

n

Interstate

ircuit,

nc. v.

United tates,306 U.S. 208

(1939), the

alleged

onspiracy

as

between

wo

Texas motion

icture

xhibitors

nd

eight

ational ilm

distributors.

lthough

he

distributors et

ndividually

ith he

exhibitors,

nd each

was

aware hat heother

evenhad receiveddentical

etters

rom hefilm

xhibitors

roposing

the

marketinghanges hat

were

ventually

dopted,

o

evidencewas

offered

hat ll

eight

distributorsvermet o discuss henewmarketingrocedures.n affirminghe llegalityf

the

arrangement,

he

Supreme ourt easoned:

It is

elementaryhat nunlawful

onspiracy aybe

and oftens formed ithoutimul-

taneous ction r

agreement

n the

part

of the

conspirators.

. .

Acceptance y

com-

petitors, ithout

revious greement,

fan

invitation

o

participate

n

a

plan,

he nec-

essary

onsequence

f

which,

f

carried

ut,

s restraint f

interstate

ommerce,

s

sufficiento

establish

n unlawful

onspiracy

nder he Sherman ct.

Id. at

227

(citations

mitted).

78

346 U.S. 537

(1954).



14/29

520

The

University

f Chicago

Law Review

[52:508

conclusively stablishes agreement r

. . . that such

behavior

itself onstitutes Sherman

Act offense.

ircumstantialvi-

denceof consciously

arallelbehaviormayhave

made heavy

inroads nto the traditionaludicialattitude oward onspir-

acy;

but conscious arallelism as

not yet read

conspiracy

out of

the

Sherman

Act

entirely.80

After

heatre

nterprises,

ower ourts ave heldthatparal-

lel conduct

s sufficientvidence f agreement

nly

whenaddi-

tional vidence,r plus

factors, spresented.81he

most onsist-

ently

used

plus

factor s

proof

hat the

parallel practices

were

contraryo each firm'spparent elf-interest,82fact hat s usu-

ally established

yexamining

hether here

were

ny

legitimate

business ustifications

or

he

conduct. therplus

factors

nclude

high-level

nterfirmommunication,83

rtificial

tandardizationf

products,84

nd

price

ncreases uring

imes

f

ow

demand.85

Under he

business

ustifications

est,

ourts ave ddressed

the propriety

f a broad

range

f conduct

hat falls

between

he

Id. at 540-41 (citations and footnote mitted).

See, e.g.,

Weit

v.

Continental

ll. Nat'l

Bank & Trust

Co.,

641

F.2d

457,

462-63 7th

Cir. 1981), cert. denied,

455 U.S. 988 (1982);

Delaware

Valley

Marine

Supply

Co.

v. Ameri-

can Tobacco

Co., 297 F.2d

199,

202-03 3d

Cir.

1961),

cert.

denied,

369 U.S. 839

(1962).

The

term plus factor

ctually was employed

before

he Theatre Enterprises

decision.

See

C-

0-Two

Fire Equip. Co. v. United States,

197 F.2d

489,

497

(9th Cir.),

cert.

denied,

344 U.S.

892 1952).

82

See,

e.g., Milgram

v.

Loew's, Inc.,

192 F.2d 579,

583

(3d

Cir.

1951) (conduct

n

ap-

parent contradiction

o [each

defendant's]own

self-interest

.

. strengthens

onsiderably

the

inference

f

conspiracy )

emphasis added),

cert. denied, 343 U.S.

929

(1952).

Taking

plus-factor nalysis

one step further,

he Ninth

Circuitreasoned that

the inference f con-

spiracyfrom arallelbusiness behavior mighthave beenpermissible n the absence of evi-

dence showing hat their

respective ctions

were prompted

by some fact

otherthan mutual

understanding

r

agreement.

ndependent

ron Works, nc.

v.

United

States

Steel Corp.,

322

F.2d 656, 661 (9th Cir.)

(emphasis added), cert.

denied,

375 U.S. 922 (1963).

Numerous

decisions

have held that the

inference f conspiracy

from

parallel conduct is

permissible

where

the pattern f action

undertaken s inconsistent

with

the self-interest

f

the

individ-

ual

actors,

were they cting

alone. AdmiralTheatre

Corp.

v. Douglas Theatre Co.,

585 F.2d

877,

884 (8th Cir.

1978); accord Proctor

v.

State Farm Mut.

Auto. ns.

Co., 675 F.2d 308, 327

(D.C.

Cir.), cert. denied,

459 U.S.

839

(1982);

Pan-Islamic

Trade

Corp.

v. Exxon

Corp.,

632

F.2d 539,

559 (5th Cir. 1980),

cert.denied,

454 U.S. 927 (1981);

Modern Home

Inst.,

nc.

v.

HartfordAccident

& Indem.

Co., 513 F.2d 102,

111 (2d Cir.

1975).

83

See, e.g., n re PlywoodAntitrust itig., 655 F.2d 627, 633-34 (5th Cir. 1981), cert.

dismissed

sub nom. Lyman

Lamb v. Weyerhauser,

62 U.S.

1125 (1983); Gainesville

Util.

Dep't

v.

Florida

Power & Light Co., 573

F.2d 292,

301 (5th Cir.), cert.


(1978).

84

See C-O-Two

Fire Equip. Co.

v.

United States, 197

F.2d 489,

497 (9th Cir.),

cert.

denied,

44 U.S. 892 1952).

85

See

American

Tobacco Co.

v.

United States,

328 U.S. 781, 805

(1946);

C-O-Two Fire

Equip.

Co. v. United States,

197 F.2d 489, 497 (9th

Cir.),

cert. denied,

344 U.S. 892 (1952).

For a list of additional plus

factors, ee Blechman,

upra

note 77,

at 885-87.



15/29

1985]

Conscious Parallelism and Price

Fixing

521

two extremes

formal artel

and

monopolisticompetition)

hat

may constitute

oncerted ction.

n

accord

with

the view

of

the

Harvard chool

thatfirms ecognize nd act

upon theirmutual

n-

terdependence,

ourtshave

held that

[s]imilarity

f

prices

n

the

sale of

standardized roducts

.

. willnot

alone makeout a

prima

facie case of

collusiveprice-fixing,

86

and that

price eadership,87

standing lone,

does not constitute

n

agreement

n

restraint f

trade.88ndustry-widedoption

f

such mechanisms

s delivered89

and two-tiered

ricing,90owever,

as been

deemed sufficient

o

support he

inference

f

agreement.91

Courts

have differed ver the

meaning

f conduct

gainst

self-interest nder the business-justificationsest. The general

standard,which equires 'a showing f

acts by defendantsn con-

86 FTC

v.

Lukens Steel Co., 454 F.

Supp. 1182, 1190 n.9

(D.D.C.

1978);

accord

Weit

v.

Continental ll. Nat'l Bank

&

Trust Co.,

641

F.2d

457,

463

(7th

Cir.

1981),

cert.

denied,

455

U.S.

988

(1982);

Independent

Iron Works,

nc.

v.

United

States

Steel Corp., 322

F.2d 656,

665

(9th

Cir.),

cert.


(1963). The

Lukens

court

noted that

price

iden-

tity

may be the

expected

and

normal

result when the

product

s

identical or

fungible, ven

thoughthere is no agreement and the costs for the participating ompanies are not the

same.

454 F.

Supp. at 1190.

87

Price

leadership is an

industry

practice

in

which

one firm's

pricing

movements re

followed

by

its

rivals. See P.

ASCH,

upra

note

28,

at 66-69.

88

An

accidental or

incidental

price uniformity,

r

even pure'

conscious

parallelismof

prices

is,

standing alone,

not

unlawful. Nor

is an

individual

competitor's

ole decision to

followa

price

leadership,

standing alone, a

violation of

law. Esco

Corp.

v.

United

States,

340

F.2d

1000, 1007 (9th Cir.

1965);

see

also

United

States v.

International

Harvester Co.,

274

U.S.

693, 708-09

(1927) ( [T]he

fact that

competitors

may see

proper,

n

the exercise of

their

own

judgment,

to

follow the

prices of another

manufacturer, oes not

establish

any

suppression of

competitionor

show

any sinister

domination. )

(citations omitted).

8e In

re

Plywood

Antitrust

itig., 655 F.2d

627, 631-32,

634

(5th

Cir.

1981),

cert.

dis-

missed

sub nom.

Lyman Lamb v.

Weyerhauser, 62

U.S. 1125

(1983).

90

Ambook

Enters. v.

Time Inc., 612

F.2d 604,

611-18

(2d Cir.

1979), cert.

dismissed,

448

U.S.

914

(1980).

I

In

establishing he

existence of

conscious

parallelism,

showing

of

exact

uniformity

of action is

not

required.

Nevertheless,

more

than a

general

similarity f action

must

be

shown.

Harlem River

Consumers

Coop.,

Inc.

v.

Associated

Grocers,

408

F.

Supp. 1251,

1277

(S.D.N.Y.

1976);

see also

Delaware

Valley

Marine

Supply

Co.

v.

American

Tobacco

Co.,

297

F.2d

199, 204

(3d Cir.

1961) (requiring

nly

uniformity f

action on a

crucial

point ),

cert.

denied, 369

U.S. 839

(1962).

Courts have not articulated the reason forthis distinction, lthoughthe Ninth Circuit

has

indicated that

'pure'

conscious

parallelism of

prices is,

standing alone,

not

unlawful.

Esco

Corp.

v.

United

States, 340 F.2d

1000, 1007 (9th Cir.

1965). This

suggests difference

in

treatment

onsistentwith

the

theory

f

monopolistic

ompetition.

Chamberlin

theorized

that once

monopolistic

competitors

recognized

their

nterdependence,

hey would, without

communication,

et

prices

at

the

monopoly evel.

See

supra notes 30-31

and

accompanying

text.

Conduct beyond

such

pure

parallelism,

such

as the

adoption

of

practices

that facili-

tate coordination

to reach

the

monopoly

price,

would be

unnecessary

and

cannot

be

ex-

plained

as the

expected

result

of

monopolistic

ompetition.



16/29

522

The

University

fChicago Law

Review

[52:508

tradiction f

their wn

economic nterests,'

92

is

particularlyn-

helpful. conomistsssume

hat firm

lways cts n itsownper-

ceived

elf-interest,93ndthere

s

no

apparent eason

why court

should eject his ssumption. oreover,t s ina firm'snteresto

maximize rofits y

enteringnto a

cartel rrangement. firm

couldtherefore

rgueunabashedlyhat

nypractice hat ncreases

prices,

ncluding cartel,would lso

furtherhe firm's

wn nter-

ests

by ncreasingts profits.

A

more

useful ule,which asbeen

adoptedby

several ourts,

avoids

these

difficultiesy

allowing he

inference

f

agreement

[o]nlywhere hepatternf

ctionundertakens inconsistent

ith

theself-interestfthe ndividualctors,were hey cting lone. 94

This testmesheswellwith

artel heory, hichuggestshat

group

action ontrary

o

each firm's

ndependent

rofit-maximizing

on-

duct s needed

n

order

o

attain

monopoly rice.95

92

Bogosian

v.

Gulf Oil Corp., 561

F.2d

434,

446

(3d Cir. 1977) (quoting Venzie Corp.

v.

United States Mineral Prods.

Co.,

521

F.2d

1309,

1314

(3d.

Cir.

1975)),

cert.

denied,

434

U.S.

1086 (1978).

9

See E.

MANSFIELD,

supra note 15,at 141-43.

9 AdmiralTheatre Corp.

v.

Douglas Theatre Co., 585

F.2d

877, 884 (8th Cir. 1978);

see

also Proctor

v.

State

Farm Mut.

Auto

Ins.

Co.,

675

F.2d

308,

327

(D.C. Cir.) (agreementmay

be inferred [o]nly when the observedparallel behavior

s

inconsistent

with

the behavior

o

be

expected

from ach actor

ndividually ursuing

ts own economic

nterest ),

ert.

denied,

459 U.S. 839

(1982);

Modern

Home

Inst.,

nc. v. Hartford

Accident

& Indem.

Co.,

513

F.2d

102,

111

(2d

Cir.

1975) (basis

for nference f

conspiracymay be actions that are

in

one's

self-interest nly

f

done in concertwith

others).

91

See

supra notes

17-19

and accompanying ext. The business ustifications roffered

by

firms ave been as

varied

as the

products hey

ell. In

Weit

v.

Continental ll. Nat'l

Bank

&

Trust Co., 641 F.2d

457

(7th Cir. 1981), cert. denied, 455 U.S. 988 (1982), three ustifica-

tionswereoffered y the defendant ommercialbanks in response to the plaintiffs' laim

that the

industry-wide .5%oper

month

nterest

fee on

an inter-bank harge

card

system

was the productof a price-fixingonspiracy: ach of the banks had parallel costs for perat-

ing their hargecard systems; ach had identical problems f fraud, redit osses, and large

initial expense, to which reasonable businessmenwould react

in

the same fashion ; and,

1.5%(,

was the rate then charged on otherconsumer reditcards. 641 F.2d at 461. The Sev-

enth Circuit found

that

these

explanations

were

sufficient

o

preclude

the inference f un-

lawful onspiracy, espite evidencethat the banks had adopted the nter-bank ystem t the

same time and had met frequently o discuss its operation.

d.

at

463.

In

Proctor

v.

State Farm Mut. Auto.

ns.

Co.,

675 F.2d 308

(D.C. Cir.),

cert.

denied,

459

U.S.

839

(1982), several automobile repair shops alleged that

five

nsurance ompanies

had

conspiredto fixthe price of automobile damage repair work.The repair shops offered vi-

dence

of

parallel conduct that ncluded the use of the same labor rate

in

writing stimates,

similar

rrangements

ith

repair hops that agreed

to

do volumework t lowerrates,use

of

surveys

f

repair shops

to

determine

he

average

rate

chargedby shops

in

particular reas,

and a

tendency o resist price increases by repair shops. 675 F.2d at 311, 330. The court

found

that

these

practices did

not

support

an

inference

f

conspiracybecause they

served

the

economic self-interest

f

each

insurance company by reducing he costs

Ol automobile

repair.

d. at 330. The court

observed

that

surveys

re

a

means of

locating ow-price epair

shops.

Id.

Similarly,

he

use of

repair shops willing

o

charge

rates set

by

insurance

ompa-



17/29

19851

Conscious

arallelism nd

Price

Fixing

523

The most laborate ormulation

f

the

test,however,

as

pro-

vided by the Third Circuit

n

Venzie

Corp.

v.

United

States

Min-

eral Products

Co.,96

where he court ynthesized

rom

rior

deci-

sionsa two-prongedestforpermittinghe nferencefagreement

from onscious arallelism: heremustbe (1) a showing f acts by

defendants

n

contradiction

f theirown

economic nterests nd

(2) a satisfactory emonstration

f

motivation

o enter

nto

an

agreement.97

he

Venzie

test s based

upon

the

observationhat

business ehavior

oes not

permit

he nferencef

agreement

un-

less the circumstancesnderwhich t occurredmakethe nference

of

rational, ndependent

hoice ess attractive han that

of

con-

certed ction. 98

The

Venzie test differs

rom

tandards

developedby

other

courtsbecause

it

requires roof hat therewas a motive o con-

spire.99

he

motive or

nteringnto

a

price-fixingrrangements

usually straightforward-theigher

artel

price allows a

firm

o

capture

share

of

the

monopoly rofits. he motive lement fthe

Venzie

test,however,s

not

designed o showwhy cartelmight

have

been

formed. ather, t

is

used to demonstratehat an indi-

vidualfirmwas in a position o benefit rom pecified oncerted

action.'00

s

the

Supreme

Court

has

suggested,

he

motive nalysis

may provide

n

escape by way

of

a

summaryudgment

or

defen-

dants

who

have

adopted ndustry-widearallel

business

ractices,

but

who nonetheless

have

nothing

o

gain

from

the

alleged

agreement.

10

nies in exchange for

volume referrals

s

also

in

the

self-interest

f

each insurance company

since it reduces costs. Id. at 331-33.

96

521 F.2d 1309 (3d Cir. 1975).

97

Id.

at 1314;see

also

Schoenkopf

v.

Brown & Williamson

Tobacco Corp., 637 F.2d 205

(3d

Cir.

1980) (using the

same

approach); Bogosian

v.

Gulf

Oil

Corp.,

561

F.2d

434,

446

(3d

Cir.

1977) (same),

cert.

denied,

434

U.S.

1086

(1978).

98

Bogosian v. Gulf

Oil Corp., 561 F.2d 434, 446 (3d Cir. 1977), cert. denied, 434 U.S.

1086 1978).

99

See, e.g., Pan-Islamic Trade Corp. v. Exxon

Corp., 632 F.2d 539, 559 (5th Cir. 1980),

cert.

denied,

454

U.S.

927

(1981); Admiral Theatre

Corp.

v.

Douglas

Theatre

Co., 585 F.2d

877, 884 (8th Cir.

1978).

'00

See

First

Nat'l

Bank v.

Cities Serv.

Co.,

391 U.S.

253,

287

(1968), where,

n

discuss-

ing its prior decision in Interstate Circuit, nc. v. United States, 306 U.S. 208 (1939), the

Court wrote:

The reason

that the absence

of

direct evidence of agreement . . was not

fatal is that the

distributors ll had the same motive to enter nto a tacit

agreement. Pre-

sumably that motive was

greaterprofits

rom

monopoly prices.

101

See First Nat'l Bank v. Cities

Serv. Co., 391

U.S. 253, 287 (1968).

In

fact, the Su-

preme Court

in Cities Service

upheld

a

dismissal from n action

alleging concerted

refusal

to

deal

on a motion for

ummary udgment

for ack of

motive.

d. at 287-88. For a

discussion

of

the appropriate test for

weighing ompeting nferences

rawn

from he

independent

elf-

interest est for a

summary udgment motion, ee

Note, Conscious

Parallelism:

The

Busi-



18/29

524

The

Universityf Chicago

aw

Review

[52:508

An

example of

this use of the

motive inquiry s

Japanese

Electronic

Products

AntitrustLitigation,'02

where one

of the de-

fendants,

ony, was granted ummaryudgmenton chargesof en-

gaging

n

a

price-fixingonspiracywith

other

Japanese television

manufacturers,n the ground

hat no motive o

conspire

had been

shown.'03

The

plaintiffs,

mericantelevision

manufacturers, ad

asserted

that the Japanese

defendants had

conspired to raise

prices

in

their domestic

market and to dump

televisions n the

United States at

below-cost

prices.'04

Although ony

had

engaged

in

the

practice

of

selling

television sets

in

the

United States at

prices

significantlyelow the

pricescharged n

Japan for

ompara-

ble sets,theThirdCircuitfound hat,unlike theotherdefendants,

Sony

did

not

compete

in

the

low-pricesegment

of the market

where the

plaintiffs old their

televisions.'05 he court thus held

that

[a]bsent

some evidence

suggesting

.

.

.

a

motive [to

join

the

conspiracy]

the

remaining

vidence

is

entirely

oo

speculative

to

support

a

prima facie

case against

Sony. '106

One

problem

hat

arises under

the second

prong

of the

Venzie

test

is

identifying

hat

motiveswould

be

sufficiento defeat

a

de-

fendant's motion for summary udgment. For example, the re-

quired motive could be a

desire to earn

monopoly

profits,

r it

mightonly be some less

objectionable

nterest,

uch as a

desire to

cultivate

good

business

relations

with the cartel.

Perhaps any po-

ness

JudgmentDefense

in

a

Summary Judgment

Context,

35

HASTINGS

L.J.

115

(1983).

The Seventh

Circuit has found the

similarities

between the per se

test employed under

section 1

conspiracy-to-fix-pricesnd

group-boycott ases

sufficiento warrant

pplication

of

the

Cities Service

standard

in

the

former.Weit v.

Continental ll. Nat'l Bank &

Trust

Co., 641 F.2d 457, 465 (7th Cir. 1981), cert.denied, 455 U.S. 988 (1982).

102

723

F.2d

238

(3d Cir.

1983),

cert.

granted sub nom.

Matsushita Elec. Indus. Co. v.

Zenith

Radio Corp., 105 S. Ct.

1863

(1985).

103

723 F.2d at 313.

104

Id.

at 305-06. Among

the practices lleged

were

agreements

hat each

manufacturer

would confine tself

o sales to

fivecompanies in

the United States

(i.e., market

division),

secret rebates to

retailers,

nd sales

at

prices

that

produced

osses. The Third Circuitheld

that a trier f

fact could infer hat

the

Japanese

had a

strongmotive o sell their

product

t

low prices because

they

had

higher ixed

osts, providing

n

incentive

o use

manufacturing

capacity

at the

highest

possible

levels.

The fact that

Japanese

manufacturersre

expected

to

maintain

he

permanence nd

stability

f their

workforce as

cited

as one source of the

higherfixedcosts. d. at 307.

105

Id. at

313.

206

Id.

Another

defendant, ears

Roebuck,

was

also

dismissed

on

summary udgment

despite

evidence that it had

solicited and

then concealed

from

he

Japanese

and

United

States

governments

umping

prices in

apparent contradiction

o its own

interest

s a

one-

fourth wner

of

an

American elevision

manufacturer).

d.

at 312-13. Because the solicita-

tion

of

low

prices was consistentwith

Sears' economic nterest s a

retailer,

he court held

that circumstance s so

slightly robative f

a motive o oin a

conspiracy s,

on this

record,

to be

valueless.

Id.

at 312.



19/29

1985]

Conscious arallelism

nd

Price Fixing

525

tential

benefit o the

defendant,

o matter ow

slight,

hould

be

enough.But

if

the

motive

requirement

s

read too

broadly,

he

benefits f udicialeconomy ccruing rom he testwoulddisap-

pear;a broad

reading

would

also increase

he risk

hat

firms

ho

have

not n

fact olluded

will

be held iable

for

pricefixing.

hus,

plaintiffs

ust

be

required o

suggest plausiblemotive

o collude

on

the part of

each

defendanthat

is

of such

importance

hat

[they]

wouldrisk

possible

ntitrust

iability. 1107

The Venzie

formulationfthe


est s

an

appropriate

tarting ointfor

nalyzing

arallel

practices ecause

it

screensout mere

parallel

pricing, ehavior

hat

is

consistent

with natural monopolisticompetition,nd because t requires,

as a first

pproximation,

ome

indication

of

interdependence

among

firms

hatmay

rise

to the

evel of

concerted

ction.

n

this

sense, t meets

he concerns f

the

Harvard chool,

which

uggests

that

behavior hat s

consistent

ith

monopolistic

ompetition

n

its pure

form

should not, by

itself,

be a basis

for finding

agreement.108

The

Venzie

testalone,

however,may be

inadequatefor on-

clusively eterminingiability nder ection1. The test s aimed

solely

t

finding

greement,ot t

identifying

arallel onduct

hat

is

anticompetitive;ection

,

however,equires

otonly

greement,

but also a restraint

f

trade-that

s,

an

anticompetitive

ffect-as

a

consequence

f

the

agreement.

urthermore,he theories f

both

the

Chicago nd Harvard

chools

uggest hat he

validityf

coor-

dinated conduct

going

beyond pure

pricing

ractices oes not

depend

on whether

ndependent

usiness

ustifications

xist;

it

must lso be shown hat hemarket oes notbehave s itwo

Conscious Parallelism and Price Fixing Defining the Boundary

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