The Role of Efficiency Evidence in Price-Fixing Litigation
| Author | William H. Page |
| Position | Marshall M. Criser Eminent Scholar Emeritus, University of Florida Levin College of Law |
| Pages | 629-676 |
THE ROLE OF EFFICIENCY EVIDENCE IN PRICE-
FIXING LITIGATION
W
ILLIAM
H. P
AGE
*
Modern antitrust law recognizes efficiency defenses for most of its catego-
ries of liability.
1
Productive efficiencies that benefit consumers might justify a
proposed merger that increases concentration, for example.
2
A defendant can
usually avoid a finding of monopolization by showing its actions that harmed
rivals also benefited consumers by improving its product or reducing its
prices.
3
And efficiencies might justify any of the vertical or horizontal agree-
* Marshall M. Criser Eminent Scholar Emeritus, University of Florida Levin College of Law.
I am grateful to Joe Harrington, Bob Lande, Christopher Leslie, and John Lopatka for their
comments.
1
Andrew I. Gavil, A First Look at the Powell Papers: Sylvania and the Process of Change in
the Supreme Court, A
NTITRUST
, Fall 2002, at 8, 8 (“More than fifty years of increasing reliance
on per se rules [have given] way to a decidedly more economic analytical model . . . far more
receptive to defendants asserting defenses based on ‘efficiency.’”).
2
U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 10 (2010),
ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf (requiring “merging firms
to substantiate efficiency claims so that the Agencies can verify by reasonable means the likeli-
hood and magnitude of each asserted efficiency [and] how each would enhance the merged
firm’s ability and incentive to compete . . . .”). See also Saint Alphonsus Med. Ctr.-Nampa Inc.
v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 790–91 (9th Cir. 2015) (“Courts recognizing [an
efficiencies] defense” have [required defendant to show] ‘the proposed merger enhances rather
than hinders competition because of the increased efficiencies.’”) (citation omitted); William J.
Kolasky & Andrew R. Dick, The Merger Guidelines and the Integration of Efficiencies into
Antitrust Review of Horizontal Mergers, 71 A
NTITRUST
L.J. 207 (2003); Oliver E. Williamson,
Economies as an Antitrust Defense: The Welfare Tradeoffs, 58 A
M
. E
CON
. R
EV
. 18, 21–33
(1968).
3
See United States v. Microsoft Corp., 253 F.3d 34, 59 (D.C. Cir. 2001) (“If the monopolist
asserts a procompetitive justification—a nonpretextual claim that its conduct is indeed a form of
competition on the merits because it involves, for example, greater efficiency or enhanced con-
sumer appeal—then the burden shifts back to the plaintiff to rebut that claim.”). In some in-
stances, efficiency justifications are built into the standard of liability. See also id. at 68 (“The
rare case of price predation aside, the antitrust laws do not condemn even a monopolist for
offering its product at an attractive price [or] developing an attractive product.”); id. at 75 (hold-
ing Microsoft’s development of an incompatible but faster version of a rival’s product was not
monopolization, despite harming a rival); Jonathan B. Baker, Evaluating Appropriability De-
fenses for the Exclusionary Conduct of Dominant Firms in Innovative Industries, 80 A
NTITRUST
L.J. 431 (2016) (considering defenses asserting, e.g., that challenged conduct increased returns to
innovation).
629
630 A
NTITRUST
L
AW
J
OURNAL
[Vol. 84
ments courts evaluate under some version of the rule of reason.
4
In all these
contexts, courts consider well-supported efficiency defenses because they can
help explain the motivation and effect of actions of the defendants.
5
Horizontal price fixing and other per se violations of Section 1 of the Sher-
man Act
6
seem to be the exception.
7
The Supreme Court defines the per se
categories to advance economic efficiency,
8
but its classic descriptions of per
se liability seem to preclude defenses based on efficiency evidence in litiga-
tion of individual cases. The Court has said, for example, that “because of
their pernicious effect on competition and lack of any redeeming virtue,”
agreements within a per se category “are conclusively presumed to be unrea-
sonable and therefore illegal without elaborate inquiry as to the precise harm
they have caused or the business excuse for their use.”
9
And per se agree-
ments’ “anticompetitive potential . . . justifies their facial invalidation even if
procompetitive justifications are offered for some.”
10
And “Congress has not
4
See, e.g., Ohio v. Am. Express Co., 138 S. Ct. 2274, 2284 (2018) (recognizing that, under a
rule of reason analysis, if the plaintiff shows an anticompetitive effect, “the burden shifts to the
defendant to show a procompetitive rationale for the restraint,” subject to plaintiff’s rebuttal);
John M. Newman, Procompetitive Justifications in Antitrust Law, 94 I
ND
. L.J. 501, 506–07
(2019) (arguing that, under the rule of reason, courts consider procompetitive justifications in
deciding whether to apply the rule of reason, then again in the actual application of the standard’s
burden-shifting framework); C. Scott Hemphill, Less Restrictive Alternatives in Antitrust Law,
116 C
OLUM
. L. R
EV
. 927, 938 (2016) (describing the role of less restrictive alternatives in rule of
reason analysis).
5
Herbert Hovenkamp, Is Antitrust’s Consumer Welfare Principle Imperiled?, 45 J. C
ORP
. L.
65, 76 (2019) (arguing defendants are “best placed to understand their own costs, and the pursuit
of efficiencies”).
6
15 U.S.C. § 1.
7
See, e.g., Rebecca Haw Allensworth, The Commensurability Myth in Antitrust, 69 V
AND
. L.
R
EV
. 1, 5 n.7 (2016) (“Only hard-core price fixing and other cartel-like activities are condemned
per se—that is, without hearing defenses of their efficiency.”); Jonathan B. Baker, Per Se Rules
in the Antitrust Analysis of Horizontal Restraints, 36 A
NTITRUST
B
ULL
. 733, 737 (1991) (“The
Federal Trade Commission prohibits horizontal restraints without undertaking a full analysis of
their reasonableness if the practice is inherently suspect and if no efficiency justification is
plausible.”).
8
See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)
(removing resale price maintenance from the per se category after more than a century, because
it did not “always or almost always tend to restrict competition and decrease output”) (citations
and internal quotations omitted); see also Frank H. Easterbrook, The Limits of Antitrust, 63 T
EX
.
L. R
EV
. 1, 9–10 (1987) (“The per se method responds to the high costs of information and
litigation. Courts try to identify categories of practices so rarely beneficial that it makes sense to
prohibit the whole category even with knowledge that this will condemn some beneficial
instances.”).
9
Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958).
10
Arizona v. Maricopa Cty. Med. Soc’y, 457 U.S. 332, 351 (1982). See also United States v.
McKesson & Robbins, Inc., 351 U.S. 305, 309 (1956) (“It makes no difference whether the
motives of the participants are good or evil . . . or whether the effect of the agreement is to raise
or decrease prices.”); Easterbrook, supra note 8, at 10 (“The costs of these unfortunate condem-
nations are less than the costs—both litigation and error costs—of making decisions case by case
about competitive benefit.”).
2022] E
FFICIENCY AND
P
RICE
-F
IXING
L
ITIGATION
631
left with us the determination of whether or not particular price-fixing
schemes are wise or unwise, healthy or destructive.”
11
But even though “efficiency defenses” cannot justify per se violations,
courts do consider efficiency evidence in price-fixing (and other per se) cases
for different reasons. Defendants might argue, for example, that the efficien-
cies of their agreement are so obvious they place it outside the per se cate-
gory, even if the agreement literally fixes prices.
12
In this article, however, I
examine a more fundamental (and frequent) use of efficiency evidence in per
se cases: to support defendants’ denials that they ever formed the “agreement,
tacit or express”
13
that Section 1 requires. Rivals form an express agreement
by communicating their mutual assurances;
14
they form a tacit agreement by
communicating their competitive intentions in ways that guide their subse-
quent actions.
15
Both forms of agreement have very different legal conse-
quences from permissible independent or interdependent conduct.
16
11
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221 (1940).
12
Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19–20 (1979) (finding an agreement that literally
fixed prices should be judged under the rule of reason if it doesn’t “facially appear[ ] to be [a
restraint] that would always or almost always tend to restrict competition and decrease output
[and is] instead one designed to ‘increase economic efficiency and render markets more, rather
Cir. 2020) (rejecting application of per se rule to a certification program that increased produc-
ers’ cage space for chickens, because it had “far less certain motives and far more complicated
economic consequences” than “a horizontal agreement to reduce supply and fix prices”). In a
rare case, defendants might even, as in Leegin, argue on efficiency grounds that the court should
overrule an established per se rule. See supra note 8.
13
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 553 (2007).
14
William H. Page, Tacit Agreement Under Section 1 of the Sherman Act, 81 A
NTITRUST
L.J.
593, 603 (2017) [hereinafter Page, Tacit Agreement] (describing “a completed, specified agree-
ment formed by promises in language or equivalent signifiers”). See also id. at 606 (“[A]ny
conventional signifier that unmistakably conveys the necessary assurance, like a nod or a hand-
shake, can form an express, completed agreement.”).
15
Id. at 607 (“A tacit agreement is . . . one in which rivals communicate their intentions in
language without forming a complete agreement, but then indicate their assent to the suggested
course of action by subsequent interdependent pricing or other competitive actions.”). See also
Valspar Corp. v. E.I. du Pont de Nemours & Co., 873 F.3d 185, at 193 n.3 (3d Cir. 2017) (stating
a tacit agreement might be formed “when Company A proposes a parallel price increase to
Company B, and Company B does not explicitly agree but then follows suit when Company A
raises its prices”); White v. R.M. Packer Co., 635 F.3d 571, 576 (1st Cir. 2011) (describing tacit
agreement as “uniform behavior among competitors, preceded by conversations implying that
later uniformity might prove desirable or accompanied by other conduct that in context suggests
that each competitor failed to make an independent decision”) (citation and internal quotations
omitted).
16
See, e.g., Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227
(1993) (“Tacit collusion, sometimes called oligopolistic price coordination or conscious parallel-
ism, describes the process, not in itself unlawful, by which firms in a concentrated market might
. . . set[ ] their prices at a profit-maximizing, supracompetitive level by recognizing their shared
economic interests and their interdependence with respect to price and output decisions.”);
Twombly, 550 U.S. at 554 (“[M]ere interdependence of basic price decisions is not conspiracy.”)
(quoting Donald F. Turner, The Definition of Agreement Under the Sherman Act: Conscious
Parallelism and Refusals to Deal, 75 H
ARV
. L. R
EV
. 655, 672 (1962)).
To continue reading
Request your trial