Wednesday, August 29, 2012

Should Economic Theory Control Price Fixing Analysis?

Posted by D. Daniel Sokol

Malcolm Coate (FTC) asks Should Economic Theory Control Price Fixing Analysis?

ABSTRACT: At first glance, lawyers appear to remain in control of price fixing analysis. Agreements to raise price are per-se illegal, and the economist only seems needed to estimate damages. However, economic insights are relevant, as not all price fixing agreements are driven by pricing issues and some price agreements have to be inferred from the totality of the evidence. In a few recent papers, authors argue for increasing the role of economic theory, with the potential to transform the process into a question of economics.

Looking over the case law, it appears clear that the common law process has evolved efficiently to slowly inject economic concepts into the analysis. This paper provides a background for both the per-se standard for price fixing and the evolution of the meaning of the term “agreement.” The Plus Factor concept is addressed, with a suggestion to first consider the evidence for an agreement and then determine whether the alleged agreement is a more likely explanation for the market behavior than conscious parallelism (tacit collusion). A generic structure for evaluating Plus Factors is also proposed. A follow-on analysis reviews the recent insights by Kaplow, Kovacic and his co-authors, and Harrington. While each economic study is seen as supplementing the standard Plus Factor analysis, none of the papers justify a new direction for price fixing.

Kaplow’s idea to re-consider Posner’s recommendation to broaden price fixing analysis to attack even tacit collusion is seen as particularly suspect, because it over-emphasizes theory. The paper concludes with suggestions for further research linked to the analysis of efficiency considerations potentially driving an agreement, Minus Factors that negate the ability to infer an agreement, and game theoretic analysis to further explore the economic foundations of price fixing.

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