The Law, Economics, and
Law of Collusion
I. Rule of Reason vs. per se treatment:
Section 1, 1899-1940
II. The collusion hypothesis
III. Collusion and its organization
IV. Realistic possibilities:
V. Some modern examples
I. Rule of Reason v. per se
treatment: Section 1, 1899-1940
A. Recap
1. Rule(s) of Reason
2. Unpopularity of enforced competition
3. Board of Trade v. U. S., 1919
B. Trenton Potteries v. U. S., 1927
1. A cartel with “reasonable” prices
2. Are “reasonable prices” relevant?
3. Per se v. Rule of Reason--or its result.
I. Rule of Reason v. per se
treatment: Section 1, 1899-1940
C. Uncertain interlude
1. Cartelization as a depression remedy
2. Appalachian Coals v. U. S., 1932
3. Sugar Institute v. U. S., 1936
4. Continued unpopularity of enforced
competition, leading to
I. Rule of Reason v. per se
treatment: Section 1, 1899-1940
D. End of the line: Socony-Vacuum Oil Co. v.
U. S., 1940
1. “Overcapacity” and “overproduction”-now and then.
2. The gasoline buying program.
3. Issue: is this enough like price fixing to
be price fixing?
4. Issue: and if it is price fixing, what then?
II. The collusion hypothesis
A. Strictly a point of departure: sellers will
consciously collude on a price and an output
allocation that eliminates uncertainty,
making higher prices and profits possible
than would occur under continued
competition, BUT:
1. Requires a cut in total industry output.
2. How to cut? and whose output?
II. The collusion hypothesis
B. The monopoly limit: joint maximization
1. Requires minimum total cost of output.
2. Requires matching of buyer prefs
3. Must be satisfactory to all participants
C. The basic decision: go along or cheat?
D. What facilitates / hinders collusion?
III. Collusion and organization
A. Recap: the problem of cheating
1. Issue: Profits vs. member retention
2. Issue: Profits vs. stability
3. Issue: Profits vs. simplicity
B. The critical role of market sharing
C. Price leadership: 3 types
D. Non-price competition: “cheating” and
commitment.
IV. Realistic possibilities
1. Collective price setting (fixing)
2. Credible price communication
3. Market sharing or division
4. Standardizing methods of price quotation
5. Standardizing products or services
• Justice Douglas on enforced competition
and the per se rule
• Antitrust as “regulation without regulation”
V. Some modern examples
A. Simple price fixing
1. “Big business” cases
2. Some things to watch for
3. Bid-rigging forms of collusion
B. Market division
C. Inferring collusion from parallel conduct
VC. Inferring collusion from
parallel conduct
1. Price leadership and interdependent
behavior: a simple example.
2. Two extremes:
Interstate Circuit v. U. S. (1939)
Theatre Enterprises v. Paramount Film
Distributing Co. (1954)
KEY ISSUE: independent action
--or agreement?
VC. Inferring collusion from
parallel conduct
3. Where “conscious parallelism” spelled
illegality: a. American Tobacco (1946)
b. Basing-point cases, 1948-50
c. Steam turbine generators (? 1970-71)
4. Where “conscious parallelism” was OK:
a. U. S. v. Charles Pfizer (1961)
b. Basing-point cases in lumber and
plywood, 1980
VC5. Difficulties with
“conscious parallelism”
a. Detection
(1) Not a “smoking gun,” but “plus factors.”
(2) Need to refute the hypothesis of
independent action
b. Providing relief:
(1) The general problem
(2) Airline fares as a specific example.
VD. Cracks in the per se
doctrine?
1. The professions: no exceptions
2. Regulated industries: only where the state
takes an active interest or grants an exception.
3. Where agreement is necessary
a. NCAA v. ... University of Oklahoma (1984)
b. BMI v. CBS (1979)
4. Joint ventures: considered later