Solving the Oligopoly Problem: Turner'S Try

• DOI: 10.1177/0003603X9604100407
• Date: 01 December 1996
• Author: John E. Lopatka
• Published date: 01 December 1996
• Subject Matter: Article

The Antitrust BulletinlWinter 1996

Solving the oligopoly problem:

Turner's try

BY JOHN E. LOPATKA*

1. Introduction

843

Asmall number

of

sellers occupy amarket. How should the

antitrust laws respond? The question in various permutations has

befuddled courts, litigants, and scholars for the entire history of

the Sherman Act.' One of the most significant contributors to its

analysis

was Donald Turner. Particularly in

his

famous 1962

article

in

the

Harvard

Law

Review

J

Turner

articulates

an

approach to the so-called oligopoly problem that remains infIuen-

*Alumni Professor of Law, University of South Carolina.

AUTHOR'S NOTE: 1am grateful to Roger Blair, Don Dewey, and Bill Page

for

their comments on earlier drafts and for our numerous, enlightening

exchanges on the subject

of

oligopolies. They should not be held account-

able, however,

for

any errors I make or the views expressed in this

article.

15 U.S.C. §§ 1-8 (1988).

2Donald F. Turner, The Definition

of

Agreement Under the Sher-

man Act: Conscious Parallelism and Refusals to Deal, 75 HARV. L.

REV.

655 (1962).

©1996 by Federal LegalPublications. Inc.

844

The antitrust bulletin

tial today.' Turner argues that a few sellers who dominate a mar-

ket may well charge supracompetitive prices without entering into

what could appropriately be called an unlawful agreement, and

section 1

of

the Sherman Act therefore cannot stop them. Indeed,

depending on the characteristics of the market, Turner believed

that supracompetitive pricing is inevitable.

Turner's arguments drew fire, the sharpest marksman being

Richard Posner. He argues that supracompetitive pricing is never

inevitable, regardless

of

the number of sellers and the character of

the market, and that section 1 therefore can be used to attack it.4

3Arecent electronic search discloses that the article has been cited

in sixty-five opinions, including the recent cases of Alvord-Polk, Inc. v,

F. Schumacher &Co., 37 F.3d 996, 1014 (3d Cir. 1994), cert. denied,

115 S. Ct. 1691 (1995); Petruzzi's IGA Supermarkets, Inc. v. Darling-

Delaware Co., 998 F.2d 1224, 1244 (3d Cir.), cert. denied, 114 S. Ct. 554

(1993); In re Coordinated Pretrial Proceedings in Petroleum Products

Antitrust Litigation, 906 F.2d 432, 443 (9th Cir. 1990), cert. denied, 500

U.S. 959 (1991); Roland Mach.

CO.

V. Dresser Industries, 749 F.2d 380,

393 (7th Cir. 1984) (Posner, J.); Barry Wright Corp. V.

ITT

Grinnell

Corp., 724 F.2d 227 (1st Cir. 1983) (Breyer, J.); City of Tuscaloosa v.

Harcros Chemicals, Inc., 877 F. Supp. 1504, 1533 (N.D. Ala. 1995). The

Supreme Court has cited the article six times, including in its most recent

antitrust case. See Brown v. Pro Football, Inc., 116 S. Ct. 2116, 2122

(1996); City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S.

365, 396

n.l0

(1991) (Stevens, J., dissenting); First Natl. Bank of Ari-

zona v. Cities Service Co., 391 U.S.

253,287

n.18 (1968); Albrecht v.

Herald Co., 390 U.S. 145, 162 n.5, 163 n.7 (1968) (Harlan, J., dissent-

ing); United States v. General Motors Corp., 384 U.S. 127, 145 (1966);

White Motor Co. v. United States, 372 U.S. 253, 268 n.6 (1963) (Bren-

nan, J., concurring).

The term "oligopoly" has become somewhat ambiguous. In its nar-

row sense, it means a market consisting of a small number

of

sellers, rel-

ative to some appropriate standard. It is sometimes used in a broader

sense to identify a small number of sellers who behave in a way different

from

that

in which a

large

number of sellers in a competitive market

would behave. In this sense, it assumes that oligopolists behave interde-

pendently, each taking into account its rivals' reactions in making any

decision with a market impact. For clarity, I use the term in its narrow

sense throughout this article.

4Richard A. Posner, Oligopoly and the Antitrust Laws: A Suggested

Approach, 21

STAN.

L.

REV.

1562 (1969).

Oligopoly problem 845

Extending George Stigler's work." Posner contends that supra-

competitive pricing by multiple firms is always the product of

collusion, explicit or tacit. Though collusion, especially the tacit

kind, is often difficult to detect, he suggests using economic indi-

cia to uncover it and then applying conventional section 1 sanc-

tions to deter it.

Turner's foundational position fit comfortably in a strain of

the evolving economic literature. Notably, Edward Chamberlin

had, like Turner, concluded that the sellers in a concentrated mar-

ket with specified, plausible characteristics will independently

price at the monopoly level." Moreover, Turner's exposition was

an attempt to characterize the state of the law and, it turns out,

helped guide the law's future. At the time of Turner's writings,

the Supreme Court had all but held that mere conscious price par-

allelism-the

charging of the same, supracompetitive prices by

competing sellers with knowledge of their

rivals'

prices-does

not violate the antitrust laws.? The proposition was no doubt rein-

forced by Turner's analysis and, so bolstered, became abedrock

principle, launching in subsequent cases innumerable searches

for something more than simple parallelism,

for

"plus factors"

that would transform the defendants' conduct into an actionable

conspiracy.

See George J. Stigler, A Theory

of

Oligopoly, 72 J.

POL.

Ecox. 44

(1964), reprinted in

GEORGE

J.

STIGLER,

THE

ORGANIZATION

OF

INDUSTRY

39

(1968).

6See

EDWARD

H.

CHAMBERLIN,

THE

THEORY

OF

MONOPOLISTIC

COMPE-

TITION

46-51

(7th ed. 1960).

7See

Theatre

Enterprises,

Inc.

v.

Paramount

Film

Distributing

Corp., 346 U.S. 537 (1954). In

that

case, several motion picture distribu-

tors

and

producers

each

refused

to

grant

first-run

rights

to a

suburban

exhibitor.

The

Court held

that

insufficient evidence

existed

to compel a

directed verdict in favor

of

the

exhibitor and therefore upheld a

jury

ver-

dict

for

the

defendants.

But

the

Court

observed,

"

'[C]onscious

paral-

lelism'

has not

yet

read conspiracy out

of

the

Sherman

Act

entirely" (id.

at

541),

and

the

dictum

was

reasonably

understood

to mean

that

con-

sciously parallel pricing decisions, without

more,

would

not violate the

antitrust laws.