Pricing Issues

• Pages: 113-128

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CHAPTER VI

PRICING ISSUES

A. Agreements Among Competitors Affecting Price

Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits “[e]very

contract, combination in the form of trust or otherwise, or conspiracy, in

restraint of trade or commerce among the several States, or with foreign

nations . . . .” In other words, Section 1 prohibits agreements that

unreasonably restrain competition. These agreements are also prohibited

under Section 5 of the FTC Act, 15 U.S.C. § 45, as “unfair methods of

competition.”

The Sherman Act prohibits not only explicit agreements, but also

implicit understandings among competitors. However, mere parallel

conduct does not constitute an unlawful conspiracy.392 “[T]here must be

direct or circumstantial evidence that reasonably tends to prove that [the

parties] had a conscious commitment to a common scheme designed to

achieve an unlawful objective.”393

1. Per Se Illegality

While some agreements require a detailed economic analysis to

determine their competitive consequences, agreements among

competitors to restrain price competition have long been illegal per se—

that is, these agreements are deemed illegal without an assessment of the

economic consequences of the agreement.

The Supreme Court has emphasized that restrictions on free and

open price competition pose an “actual or potential threat to the central

392. See Columbia River People’s Utility District v. Portland General Electric

Co., 2000-2 Trade Cas. (CCH) ¶72,970 (9th Cir. 2000) (local utility

district failed to state a claim under Section 1 in its challenge to a

settlement agreement with an investor-owned utility that set terms for the

utility district’s condemnation and transfer of facilities used to supply

electric power to a large factory , because the agreement merely set

financial terms that might determine which party would be the monopoly

supplier to the factory, but did not create any monopoly power); Theatre

Enters. v. Paramount Film Distrib. Corp., 346 U.S. 537 (1954).

393. Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984).

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nervous system of the economy.”394 Therefore, agreements among

competitors to raise, lower, stabilize, or otherwise set or determine prices

are per se unlawful. Under this per se rule, agreements between

competitors to fix prices or rig bids are conclusively presumed to be

unlawful without any inquiry into their competitive effects, the agreeing

parties’ intent (except in criminal cases), or whether the prices agreed to

were “reasonable” or otherwise set at allegedly appropriate levels.

With deregulation of the energy industry, price fixing and other

forms of collusion may occur: “[w]hile firms under regulation may be

used to coordinate pricing and tactics that restrict entry, such practices

may be illegal under competition. Firms in recently deregulated

industries may be especially susceptible to relapses into problematic

conduct.”395

2. Types of Price Fixing

a. Agreements on Price

In its most blatant and obvious form, price fixing reflects an

agreement setting the price of a product that two or more independent

companies otherwise would sell in competition with each other. Price

fixing has long been broadly defined to include any agreement that has

the effect of “raising, depressing, fixing, pegging, or stabilizing the

price.”396 If utility companies agree among themselves on the prices or

rates they will charge for services or products, or the prices that they will

pay for supplies or employee services, they are subject both to criminal

and civil liability for horizontal price fixing, even though, for example,

the agreement stems from an arguably benign motive to limit retail rate

increases.

Any concerted activity that has the primary effect of influencing

prices is usually extremely risky and should be avoided. Price fixing has

394. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224-226 n.59

(1940).

395. See, e.g., From Open Access to Convergence Mergers: An Antitrust

Perspective on the Transition to Electricity Competition, prepared

remarks by Jonathan B. Baker, Director, Bureau of Economics, Federal

Trade Commission (Oct. 29, 1997).

396. Socony-Vacuum, 310 U.S. at 223.