Collective facilitating practices

Facilitating practices: practices that firms adopt to make collusion more likely

When firms adopt practices that may facilitate collusion, consider their relevance as

1. a plus factor: facilitating practices could be evidence of price-fixing or another prohibited agreement that is illegal per se
2. an unreasonable restraint of trade: if there is an agreement to adopt the practice, the practice can be condemned on its own under the rule of reason
   • This would be treated as an independent violation of Sherman Act Section 1

Example facilitating practice: anything that helps firms arrive at an agreement

• Information exchange (helps cartels check cheating and maintain agreements) (most common)
• Most favored nation clauses: firms are required to give all customers a discount if one customer is given a discount (discourages discounts across the board)
• Competitor price matching: promise to match any price of a competitor (firms won't get much benefit from lowering price, will keep prices higher)

Exceptions for information sharing: courts are more likely to approve information sharing if firms

• Have little market power
• Share information concerning past transactions (as opposed to current or future)
• Avoid exchanging information about prices or key cost elements
• Share aggregate rather than individualized information
• Share information with customers and suppliers

Conclusions from cases:

• Facilitating practices may have anticompetitive effects
  • Echange of sales information (Williamson)
  • Price verification (Container)
  • Industry conducive to collusion (Type 2 plus factor)
• Modern courts are likely to require proof of anticompetitive effects to prove the facilitating practices are a violation of Section 1
  • Williamson: proof was plausible
  • Container: evidence was weaker, but still possible

Caselaw:

American Column & Lumber (1921) (illegal information sharing, compare to Maple Flooring)

• Holding: price sharing agreement was a violation of Section 1
• Facts:
  • Members' market share: 33%
  • Types of information disseminated: company by company
  • Distribution of data: to Association members only
  • Commentary on trends: reports to members proposed future output and pricing levels
  • Meetings: members met monthly or weekly by area for "discussion of all subjects of interest"
  • Effects evidence: information exchanges raised prices

Maple Flooring (1925) (legal information sharing, compare to American Column & Lumber)

• Holding: information sharing didn't violate the Sherman Act
  • Provided aggregate, anonymized data with no attempt to forecast/propose future output/prices
  • Courts thought this was an information exchange to help firms optimize output
• Facts:
  • Members' market share: 70%
  • Types of information disseminated by the Association (monthly or weekly): past sales (no current prices); output data; inventory data; no data on purchasers
  • Form in which data was disseminated: aggregated on Association-wide basis (specific sellers not identified)
  • Distribution of data: made available to the public
  • Commentary on trends: no effort to propose future output or pricing levels
  • Meetings: members met regularly, but no record evidence that meetings were occasions to fix prices
  • Effects evidence: no evidence that information exchanges raised prices
  • Freight book: provided rates on shipment of flooring to over 5000 destinations in the U.S. - no evidence that it was used to fix prices

Williamson Oil v. Philip Morris (2003)

• Holding: grant D's motion for summary judgment under Rule 56
  • D's behavior/plus factors are just as consistent with parallel conduct as agreement
    • Firms could have just accepted the consultant's service to keep tabs on each other at a cheaper rate than they could otherwise, equivalent to paying an ante at a poker table to get access to the game
    • Ds exchanged sales data, but not price data
• Facts:
  • Limited set of facts: cigarette oligopoly of 5 with 97% market share
    • Discount brands enter (Williamson), premium brand price cut (Marlboro Friday), price points reduced from 10 to 2
    • Signaled the end of price war through trade press
    • One firm increases premium and discount brand price, others follow - 11 parallel increases from 1995-2000
  • Additional facts (facilitating practices): cigarette manufacturers exchange sales data through a common consultant that tracks shipments from manufacturers to wholesalers and reports to each firm on competitor shipments
    • Philip Morris initially collects sales data on competitors through consultant, but shares the system with competitors, who agree to contribute their sale information
• Note: under limited set of facts, would P survive
  • Rule 56 motino for summary judgment? No, these facts are just as consistent with parallel behavior as with agreement (doesn't meet the preponderance standard)
  • Rule 12(b)(6) motion to dismiss? Could go either way, although most courts would let the case go forward
    • Don't dismiss: reducing the number of price points to two indicates a more complex series of unraveling changes that differ from simple parallel price increases
    • Dismiss: this is just parallel conduct, no showing of a Type 1 plus factor
    • Note that most courts would say that the full set of facts would be sufficient to show some explicit agreement between the firms at the pleadings stage
      • Grant Ps opportunity to get docs to show some explicit agreement between the firms
  • If anallyzing the data sharing agreement alone:
    • Likely not per se illegal: not sharing prices, just sales
    • However, likely anticompetitive effects: firms look like they're better at solving their oligopoly problem, likely meets pleading standard from Twombly

U.S. v. Container Corp. of America (1969)

• Majority Holding: facilitating practice is per se illegal under Section 1
  • The industry is conducive to oligopoly
  • The facilitating practice stabilizes prices, which is illegal per se under Socony
• Concurrence: practice is illegal under the rule of reason
  • Since this is not an agreement on price, it should be analyzed under the rule of reason
• Dissent: the practice is not illegal
  • There is no proof that the practice restrained price competition
  • The frequency of price cuts, downward price trend, and absence of uniformity do not suggest anticompetitive effects
• Facts: Defendants account for 90% of corrugated container shipments in southeastern U.S. and compete mainly on price
  • Defendants request competitors for information on most recent price charged or quoted to customers
  • Prices have tended downwards with excess capacity
• Note: current law stands somewhere between the concurrence and the dissent