Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act

Posted by D. Daniel Sokol

Bill Page of the University of Florida Levin College of Law recently posted Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act.

ABSTRACT: Successful collusion requires that rivals reach consensus on the key terms and deploy some means of detecting and penalizing cheaters, usually by tracking rivals' transaction prices. Economists have shown that firms in an oligopoly can, in certain conditions, achieve noncompetitive prices and outputs without an express agreement by making choices that anticipate each others' likely responses. "Facilitating practices" are mechanisms that enhance rival firms' ability to police such an arrangement. If firms expressly agree to adopt one of these facilitating practices, for example as a trade association rule, and the effect of the practice is to reduce competition, then that agreement may be independently illegal under Section 1 of the Sherman Act. Moreover, the Sherman Act may preempt a state law that requires rivals to use a facilitating practice. A more difficult question arises, however, where the firms each adopt the same facilitating practice without any express agreement: does parallel pricing together with parallel adoption of facilitating practices allow a court to infer the requisite agreement? Both Donald Turner and Richard Posner believed that, unlike simple parallel pricing, the parallel adoption of a facilitating practice that permits noncompetitive pricing should be unlawful, because the problem of remedy is mitigated.

But conduct is not evidence of an anticompetitive agreement simply because it can be enjoined. Facilitating practices may do more than simply facilitate rivals' efforts to achieve an inefficient oligopoly price. They also may provide certain immediate benefits to consumers by, among other things, reducing search or transaction costs. In these circumstances, the firms' adoption of the practice might well be for the benign reason rather than the collusive reason. Courts will not easily infer an agreement from the parallel adoption of facilitating practices where the practices have beneficial functions apart from facilitating price coordination.

Unfortunately, the stated legal definitions of agreement under which courts evaluate circumstantial evidence, including facilitating practices, are inadequate. In this article, I review the deficiencies of the present law governing the definition and proof of agreement under Section 1 and propose that the law should recognize that communication among rivals is necessary for concerted action. I then examine cases involving facilitating practices in a variety of Section 1 contexts, and suggest that the courts have come to recognize the importance of communications among rivals in evaluating whether the evidence warrants an inference of agreement.