Game Theory and the Legal Analysis of Tacit Collusion

• Author: Dennis A. Yao,Susan S. DeSanti
• DOI: 10.1177/0003603X9303800104
• Published date: 01 March 1993
• Date: 01 March 1993
• Subject Matter: Article

TheAntitrustBulletin/Spring 1993 113

Game theory and the legal analysis

of

tacit collusion

BY DENNIS A. YAO* and SUSAN S. DESANTI**

How to detect tacit collusion in oligopolistic markets has long

posed a problem for antitrust law. The law has recognized that, in

such markets, competitors necessarily are aware

of

the "inter-

dependence"

of

their decisions and therefore take into account

each other's likely reactions, which may lead to "consciously par-

allel" conduct.1Although the courts and agencies have resisted

the notion that mere "conscious parallelism" should be considered

illegal,2 they remain concerned with the possibility

of

anticompet-

*Federal Trade Commissioner and Associate Professor of Public

Policy and Management, The Wharton School, University of Pennsylva-

nia.

** Attorney Advisor to Commissioner Yao.

AUTHORS' NOTE: The authors thank Jim Anton. Jon Baker, and Joe Kat-

tanfor helpful comments and insights. The views expressedherein do not

necessarily reflect the views of the Federal Trade Commission nor

of

any

other Commissioner or Commission staff

1E.g.,

Clamp-All

Corp. v.

Cast

Iron Soil

Pipe

Institute;

851

F.2d 478, 484 (1st Cir. 1988).

2E.g., Theatre Enterprises, Inc. v. Paramount Film Distrib, Corp.,

346 U.S.

537,540-41

(1954) (" 'conscious parallelism' has not yet read

conspiracy out of the Sherman Act entirely").

e1993by Federal LegalPublications,Inc.

114

The antitrust bulletin

itive

behavior

that

results

from

tacit

agreement

among

oligopolists.

Thus,

acore

legal

question

is

whether

one

can

distin-

guish

tacit

collusion

from

independent

decision

making

that

sim-

ply

takes

into

account

the

actions

of

rivals.

This

question

is

most

commonly

understood

to

involve

two

subquestions:

(1)

whether

the

conduct

in

question

results from

an

"agreement,"

and

(2)

if

so,

whether

the

conduct

should

be

con-

demned

as

unlawful.>

This

article

will

explore

ways

in

which

game

theory

may

help

antitrust

law

answer

these

questions.

I.

The

current

state

of

the

law

Liability

for an illegal

antitrust

agreement

may

be

predicated

on

either

the

Sherman

Act-

or

section

5

of

the

Federal

Trade

Com-

In a now-classic article, Donald Turner examined the definition of

"agreement" and its relation to the issue of conscious parallelism. Turner,

The Definition

of

Agreement Under the Sherman Act: Conscious Paral-

lelism and Refusals to Deal, 75 HARV. L. REV. 655 (1962). Turner found

"considerable appeal" in simply "defining 'agreement' for purposes of

the Sherman Act law in terms of interdependence of decisions, if for no

other reason than that it seems to me to be a clearer and more workable

standard than any other standard, of acceptable scope, which requires

something more. Once one goes beyond the boundaries of explicit, ver-

bally communicated assent to a common course of

action-a

step long

since taken and from which it would not seem reasonable to

retreat-it

is

extraordinarily difficult if not impossible to define clearly aplausible

limit short of interdependence." [d. at 683. Thus, rather than a focus on

whether an "agreement" could be discerned, Turner appeared to advocate

a focus on whether the conduct involved had an anticompetitive effect

and whether an effective remedy that would not involve the courts in reg-

ulation could be devised. [d. at 681. The focus on so-called facilitating

practices by various commentators similarly indicates apreference for

dealing with the issue of whether particular conduct is anticompetitive

and remediable, rather than whether it reflects aprocess of agreement

among competitors. See note 26 &accompanying text infra.

4Section 1 of the Sherman Act, 15 U.S.C. §1, outlaws agreements

in restraint of trade. Section 2 of the Sherman Act, 15 U.S.C. § 2, goes

primarily to unilateral action-monopolization and attempted monopo-

lization-but

also condemns conspiracies to monopolize. The types of

agreements discussed in this article are typically analyzed under section 1

rather than section 2. See also note 25 infra.