About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

15 Antitrust 17 (2000-2001)
Inferring Collusion from Economic Evidence

handle is hein.journals/antitruma15 and id is 211 raw text is: Inferring Collusion from Economic Evidence BY ROGER D, BLAIR AND JILL BOYLSTON HERNDON T IS THE RARE ANTITRUST LITIGANT who comes into court unarmed-that. is, unaccompa- nied by an economic expert. The economic analysis brought to bear on antitrust issues has become increas- ingly sophisticated, and technological improvements have lowered the cost of producing complex econometric analyses, which are used with increasing frequency in litiga- tion.' But die growing level of economic sophistication brought into the courtroom by expert witnesses, ruany with glowing credentials, makes it exceedingly difficult for juries to evaluate the reliability of their testimony, Consequently, federal judges perform a critical function in ensuring that the evidence presented to the jury is neither misleading nor un- reliable. Traditionally, flawed expert testimony has been screened out through summary judgment motions. The Supreme Court's recent decisions on the admissibility of expert resti- mony in Dauilert and its progeny, Joinerl and Kumbo Tr,4 however, provide another opportunity to evaluate the rele- vancy and reliability of proffered expert testimony. Although there are important legal distinctions between the two pro- cedures, whether the testimony is stricken on Daubert grounds or it is deemed insufficient to avoid summary judg- ment makes little practical difference: both procedures shield the jury from unreliable testimony.' The evaluation of economic expert testimony in cases involving infercnccs of collusion provides a good illustration of the issues a court must confront. In many price-fixing cases, there is no direct evidence of explicit collusion. Conse- quently plaintiffs rely on circumstantial evidence to establish unlawful collaboration among their suppliers or customers. Roger D. Blair is Huber Murst Professor and Jill Boylston Heoidon is Associate In Ecoomics., Department of Economics, Unlversity of Florida, Dr. Blilr provided Iltgalon support to one of the defendants In City of Tuscalooss. Thu aulhors appreciate he tinancil SuopOrl of Ilie Department of Economics. This article relies on earlier work by the authors: Roger 1). Blair,. Lessons from City of Tuscaloosa. Aurmnusr, Summer 1996, at 43 f1996); Roger D. Blair & Jilt Boylston Herndon, The Impllcations of Oaubart tog Economic Evidence In Antitrust Cases, 57 WSsir & Let L. Rcv. 801 (2000). In many instances, whatever circumstantial economic evi- dence exists is interpreted by economists and becomes the focus of their expert testimony. Inferences of collusion based on economic evidence-prices, quantities, business prac- tices, and so forth-expose the expert to a Daubert chal- lenge because much circumstantial economic evidence is ambiguous. This article examines the role that an economist. may play in establishing collusion and describes the limita- tions economists face in interpreting circumstantial evidence. Collusion In Law and Economics Because Section 1 of the Sherman Act forbids contracts, combinations, or conspiracies in restraint of trade,' a plain- tiffIalleging a Secrion I violation often faces the challenge of proving that the defendants engaged in an explicit though clandestine conspiracy, which is illegal, as opposed to tacit collusion, which is not.? Tacit collusion refers to a situation in which firms act unilaterally while recognizing their mutu- al interdependence. In an oligopoly, one expects that the market participants will recognize the effects that their actions will have on one anorher and take the anticipated reactinn(s) of their rivals into account in their price and quantity deci- sions, For example, in a duopoly, if firm A sells its products to consumers at a noncompetitive price, it may pay firm B to undercut firm A in the short run. But if firm B recognizes that firm A could retaliate with low prices and diminish firm B's profits in the long run, firm B may refrain from under- cutting firm A.6 Thus, even though the firms behave unilat- erally, they do not compete as though their profit functions were independent, for the very good reason that they are not independent.' Economists therefore use the term tacit collu- sion to identify instances in which noncompetitive prices are charged absent explicit collusion, i.e., without smoke- filled rooms, c-mail exchanges, or cell phone conferences. In the antitrust literature, tacit collusion is sometimes referred to as conrciousparallelism.'0 Since the case law indicates that proof of an actual agreement is a necessary predicate for a Section 1 violation and since there is no agreement, as that term is defined, there can be no successful antitrust prose- cution of tacit collusion. The requirement of an actual agreement, however, does not mean that direct evidence of an agreement is required, A plaintiff is entitled to introduce circumstantial evidence of collusion as long as 'the jury could reasonably infcr the cxis- tence of an agreement from it.'4 Plaintiffs often point to parallel business behavior, such as stable, noncompetitive pricing, and add to it evidence that implies the existence of an explicit agreement. Thus, plaintiffs search for so-called plus factors-i.e., other Facts and circumstances that sup- plement evidence of parallel behavior-to support an infer- ence of conspiracy. Ultimately, the jury must be able to infer that the decision to act in a certain way was not arrived at unilaterally if the plaintiff is to prevail. But circumstantial economic evidence is also often ambiguous. Therein lies the problem. 5 U MW V LR 2 0 0 2 1 7

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most