Collusion in Plain Sight: Firms' Use of Public Announcements to Restrain Competition

• Author: Joseph E. Harrington, Jr.
• Position: Patrick T. Harker Professor, Department of Business Economics & Public Policy, The Wharton School, University of Pennsylvania, Philadelphia, PA 19104
• Pages: 521-563

COLLUSION IN PLAIN SIGHT: FIRMS’ USE OF PUBLIC

ANNOUNCEMENTS TO RESTRAIN COMPETITION

J

OSEPH

E. H

ARRINGTON

, J

R

.*

Though collusion is a collective activity, it typically begins with one firm

deciding that competition is too intense and that something should be done

about it. To act on that state of mind, the firm will need to communicate with

its competitors in order to have a common understanding that they are not to

compete or are at least to compete less aggressively. The canonical approach

is for firms to secretly meet and expressly propose and agree to a collusive

plan. Though direct communication is the most effective means for obtaining

the requisite mutual understanding, it exposes the firms to almost certain pros-

ecution should evidence of such communications be discovered.

However, private unfettered communication is not the only means by which

competitors can reach an agreement. Firms can also communicate through

public announcements. Carefully constructed public announcements could en-

able firms to coordinate to reduce competition, while making prosecution

more challenging due to the absence of a nakedly expressed offer to collude.

In addition, communicating through a public announcement provides potential

cover because it suggests that the message is intended for market participants

other than competitors. Compared to private communications, public an-

nouncements trade off a lower chance of effectively colluding with a higher

chance of escaping detection and conviction if the announcements do result in

an agreement to restrain trade.

* Patrick T. Harker Professor, Department of Business Economics & Public Policy, The

Wharton School, University of Pennsylvania, Philadelphia, PA 19104. This article is signifi-

cantly improved thanks to the exceptional research assistance of Ehson Kashfipour. I gratefully

acknowledge Peter Carstensen, Paul Fischer, John Kepler, Valerie Suslow, Abe Wickelgren, and

participants in the Journal of Business Law Symposium (University of Pennsylvania Carey Law

School, Feb. 2020) and the U.S. Department of Justice Antitrust Division’s Competition Law and

Policy Seminar (Dec. 2020) for their comments. I am solely responsible for the views put forth

here.

I am working as an expert for plaintiffs in some of the Broiler Chicken and Pork cases that are

discussed in this article. The article is not funded in whole or in part, either directly or indirectly,

by a client or any other person or entity. No client or other interested party has a right to review,

or has reviewed, this article before publication.

521

522 A

NTITRUST

L

AW

J

OURNAL

[Vol. 84

While the risk that public announcements could facilitate an unlawful

agreement to restrain trade has always existed, the risk has risen in recent

years and will likely continue to rise. A recent study found that firms’ public

disclosures can substitute for private communications to coordinate with com-

petitors.

1

Another found that more effective enforcement against explicit col-

lusion was associated with an increased use in earnings calls of statements

that could facilitate coordinated conduct.

2

Given the Department of Justice

Antitrust Division’s recent enforcement success against the most egregious

cartels,

3

firms seeking to undermine the competitive process could well turn to

more subtle communication methods than the proverbial smoke-filled room.

The focus of this article is the use of public announcements by firms for the

purpose of coordinating to restrict competition.

4

Though the role of public

announcements has been discussed in some brief policy papers motivated by a

few cases,

5

this article is the first to systematically collect and analyze epi-

sodes of collusion based on public announcements. It has two primary objec-

tives. First, it categorizes different types of announcements that can embody

anticompetitive intent and populates those categories with recent cases en-

compassing conduct from 2001 to 2016. Second, it investigates the manner in

which these announcements act as a coordinating practice and identifies when

one can expect them to be effective. It is my hope that this article will serve as

a basis for developing a more effective treatment of this type of collusion by

courts and competition authorities.

1

John D. Kepler, Private Communication Among Competitors and Public Disclosure, 71 J.

A

CCT

. & E

CON

. 1, 1 (2021).

2

Thomas Bourveau, Guoman She & Alminas Zaldokas, Corporate Disclosure as a Tacit

Coordination Mechanism: Evidence from Cartel Enforcement Regulations, 58 J. A

CCT

. R

SCH

.

295, 295–96 (2020).

3

Studies measuring the increased enforcement success of competition authorities in the

United States and elsewhere include, for example, Nathan H. Miller, Strategic Leniency and

Cartel Enforcement, 99 A

M

. E

CON

. R

EV

. 750, 762 (2009); Ailin Dong, Massimo Massa & Al-

minas Zaldokas, The Effects of Global Leniency Programs on Margins and Mergers, 50 RAND

J. E

CON

. 883, 906 (2019).

4

For one of the first discussions of the public announcement issue described in this article,

see Richard A. Posner, Oligopoly and the Antitrust Laws: A Suggested Approach, 21 S

TAN

. L.

R

EV

. 1562, 1572, 1582–83 (1969) (reasoning that tacit collusion through a public announcement

should violate the Sherman Act § 1). See also John E. Lopatka & William H. Page, Posner’s

Program for the Antitrust Division: A Twenty-Five Year Perspective, 48 S.M.U. L. R

EV

. 1713,

1717–23 (1995) (discussing Posner’s proposal for tacit collusion, and the subsequent history of

enforcement of tacit collusion. Richard A. Posner, A Program for the Antitrust Division, 38 U.

C

HI

. L. R

EV

. 500 (1971)); Donald F. Turner, The Definition of Agreement Under the Sherman

Act: Conscious Parallelism and Refusals to Deal, 75 H

ARV

. L. R

EV

. 655, 655 (1962) (arguing

that tacit collusion does not violate the Sherman Act § 1).

5

See, e.g., Howard Rosenblatt & Tomas Nilsson, Analyst Calls and Price Signaling Under

EU Law,A

NTITRUST

S

OURCE

(June 2012); Chris MacAvoy, “Are You Talking to Me?”: Antitrust

Risks and Guidelines for Earnings Calls and Investor Presentations, L

EXOLOGY

(Mar. 13, 2015);

Peter C. Carstensen, Information Exchange—An Underappreciated Anticompetitive Strategy,

CPI A

NTITRUST

C

HRON

. (Jan. 9, 2020).

2022] C

OLLUSION IN

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LAIN

S

IGHT

523

Part I defines public announcements and collusion. The core of the article is

Parts II–IV, in which cases are described and analyzed. Part V discusses some

enforcement challenges and possible steps forward.

I. ANTICOMPETITIVE PUBLIC ANNOUNCEMENTS

A. D

EFINING

P

UBLIC

A

NNOUNCEMENTS

In this article, “public announcement” refers to the conveyance of infor-

mation by a firm or one of its employees using a medium that is widely acces-

sible to individuals outside the firm. Firms routinely make public announce-

ments through a variety of media. For a publicly traded company, its annual

report and 10-K provide information to shareholders, financial analysts, and

the public at large regarding financial measures, the products and services the

company offers, corporate strategy, and other high-level information. Earn-

ings calls, typically conducted on a quarterly basis, provide myriad financial

and market data to analysts and anyone else inclined to listen in. The calls

often go well beyond reports of earnings to include forecasts of cost and de-

mand, discussions of the status of investment projects, and, in principle, any

and all matters pertinent to the company’s future performance. A firm’s exec-

utives can provide information through speeches and panel discussions at

semi-public industry meetings that include competitors as well as analysts,

journalists, and other parties, and by executives participating in interviews

published in trade journals. These venues are often used to assess future in-

dustry developments and trends such as entry and exit, innovation, and regula-

tion. Most of the media just described are easily accessible to industry insiders

such as analysts, journalists, input suppliers, industrial customers, and com-

petitors. A firm can inform the broader public—including consumers—

through press releases and interviews carried in the general press as well as

through advertisements.

Announcements vary in their content and the medium used to convey that

content. Subtler than an announcement’s content is its meaning. By “mean-

ing,” I refer to “the thing one intends to convey.”

6

Putting aside

announcements that a firm is legally obligated to provide (e.g., a 10-K as

required by the Securities and Exchange Commission) and accidental an-

nouncements (e.g., unintended slips of the tongue at a public gathering), an

announcement by a firm or a firm’s executives is done for the purpose of

potentially influencing the conduct of some actors who could affect the firm’s

future performance. Thus, an announcement has both an intended audience as

well as a message that the announcing firm would like the audience to infer

which could affect the audience’s conduct and, consequently, the firm’s

performance.

6

Meaning, M

ERRIAM

-W

EBSTER

, www.merriam-webster.com/dictionary/meaning.