Oligopolistic Conscious Parallelism under the Competition Law of the USA
| Author | Leslie Aldor |
| Published date | 01 March 1986 |
| Date | 01 March 1986 |
| DOI | http://doi.org/10.1177/0067205X8601600104 |
| Subject Matter | Article |
OLIGOPOLISTIC CONSCIOUS PARALLELISM UNDER
THE
COMPETITION LAW
OF
THE
USA
LESLIE ALDOR*
INTRODUCTION
One
of
the
most crucial
and
yet challenging problems which faces
Australian
competition lawyers is
the
definition
of
the scope
of
the
terms
"contract", "arrangement"
and
"understanding" in
ss
45
and
45A
of
the
Trade
Practices Act 1974.1Section
45
proscribes contracts, arrangements
or
understandings which have
the
purpose
or
effect
of
substantially lessening
competition in amarket. Section 45A then expands
on
s45
by
providing
that
contracts, arrangements
and
understandings which "fix" prices
are
deemed,
for the purposes
of
s45, to have the purpose
or
effect
of
substantially lessening
competition in amarket.
The
terms "contract", "arrangement",
and
"understanding" are
not
defined
in
the
TP
A
and
thus
the
legislature
has
left
the
matter
of
interpretation
"at
large". Determining the boundaries
of
concepts such as "arrangements"
and
"understandings" is
no
easy task, especially when
the
focus
of
the
enquiry
is
on
the
parallel behaviour
of
participants in concentrated markets.
In concentrated markets,
that
is
markets with few buyers
or
sellers,2each
competitor
may
be able
to
have asignificant effect
on
the
state
of
the
market
as awhole.
In
this case, competitors are
not
independent
but
are inter-
dependent.
Each
competitor
may
be able
to
significantly affect
the
market
conditions which its rivals will face
but,
conversely, each competitor's rivals
may
also be able
to
significantly affect
the
market
conditions which it will
face. Competitors in such markets, who recognise this interdependence, may
independently decide
that
their best interests lie in setting
the
prices3for
their goods in line with
the
(high) prices which have been set
by
their rivals.
Provided
that
asuitable
method
of
co-ordination
is
available, such as
following
an
obvious "market-Ieader",4 then parallel pricing may result from
*Eco. LLB(Monash); LLM (Mon.)
1Henceforth referred to as "the TPA".
2The term "oligopoly"
will
be used here, at times, to refer to markets with
few
buyers.
Strictly speaking, however, "oligopoly" refers to fewness
of
sellers. Amarket with
few
buyers
is
an oligopsony.
3Non-price competition does not affect the analysis here. Non-price competition can be
characterised either as product differentiation (ie creation
of
"sub-markets")
or
as
disguised price
competition.
4This
is
known as "barometric" price leadership as competitors in amarket choose to follow
the lead given by aparticular firnl because they believe that that firm
is
agood barometer
of
market conditions. There
ar~
other forms
of
price leadership such as dominant firm price
leadership where one firm
is
much larger than its competitors and low-cost price leadership as
in Trade Practices Commission vEmail
Ltd
and
Anor
(l980) A
TPR
40-172, where one firm
can dictate prices in its market by having alower cost structure than its rivals:
see
pp 42371-42373.
1986] Oligopolistic Conscious Parallelism 75
the
parallel
but
independent decision
of
the
competitors in
the
market.5This
form
of
decision
making
behaviour,
in which oligopolists. recognise
their
interdependence
and
independently
adopt
market
practices which
lead
to
parallel
behaviour,
is
known
as
oligopolistic conscious parallelism.
Such
oligopolistic conscious parallelism
can
have
deleterious
economic
consequences
and
may logically
be
vilified as a
form
of
(illegal) collusion.
Whether
such
behaviour
should
be
so characterised is aquestion
of
policy.6
Australian
courts
have yet
to
deal directly
(or
at
least explicitly) with
the
oligopolistic parallel pricing problem.
The
approach
in
the
leading cases7
on
ss
45
and
45A
of
the
TPA,
rather, has appeared
to
be
that
the
"interpretation"
of
the
terms "arrangement"
and
"understanding" in ss
45·
and
45A
of
the
TP
A
should
be considered as being primarily asemantic exercise. Epitomising this
methodology has been atendency
to
rely
on
authorities dealing with
the
scope
of
legislation
prohibiting
"arrangements"
designed
to
avoid
tax. These cases
have been cited
and
relied
upon,
at
times, without
any
apparent
consideration
of
the
desirability
of
relying
on
"tax
cases" when
interpreting
words
in
legislation designed
to
combat
restrictive
trade
practices.8
The
Australian
authorities
on
"arrangements"
and
"understandings",
therefore,
show
atendency
towards
alegalistic
interpretation
of
the
concept
of
collusion
under
the
TP
A.
Trade Practices Commission vEmail and
Anor
9illustrates this
approach.
The
Email case involved
an
allegation
that
the only two Australian suppliers
of
electrical
kilowatt
hour
meters
had
entered
into
an
anticompetitive
arrangement
or
understanding.
Email
commanded
sixty
to
seventy
percent
of
the
market
and
was
the
lower-cost
producer.
Email
and
its "rival",
Warburton
Franki
sold undifferentiated products
and
Warburton
Franki
had
no
choice
other
than
to
follow
the
price set
by
Email.
10
Warburton
Franki,
at
times,
could
covertly engage in limited price cutting
but
it was
unable
to
engage in
any
real
and
sustained price
competition
with Email.
There
was
5
Of
course, parallel pricing by oligopolists may be the result
of
collusion, however defined.
6One solution to the conscious parallelism dilemma
is
to
adopt an economic concept
of
collusion. This concept
of
collusion "is one simply
of
establishing policies that are in the firms'
joint
interests - a collusive result, irrespective
of
what might be the mechanism by which it
is
achieved". RBaxt and MBrunt, "The Murphy Trade Practices Bill: Admirable Objectives,
Inadequate Means" (1974) 2 A Bus LRev 3,
18.
Australian judges have shown little inclination
to
follow this path. See the discussion
of
the Email case below p87.
7Top Performance Motors Pty
Ltd
vIra Berk (Queensland) Pty Limited (1975)
ATPR
40-004; TPC vNicholas Enterprises Pty
Ltd
and Ors (1979)
ATPR
40-126; Morphett
Arms
Hotel Pty
Ltd
vTPC (1980)
ATPR
40-157; TPC vEmail
Ltd
and
Anor
(1980)
ATPR
40-172;
and TPC vAllied Mills Industries
Pty
Ltd
and Ors (1980)
ATPR
40-178~
Succeeding parts
of
the latter case are reported in
(1981
)ATPR
40-204; (1981)
ATPR
40-237; (1981) A
TPR
40-241;
(1981)
ATPR
40-252.
8See Top Performance Motors Pty
Ltd
vIra Berk (Queensland) Pty Limited (1975) A
TPR
40-004, where reliance was placed
on
Newton v
FCT
(1958)
98
CLR
1.
Newton's case turned
on
the words "contract, agreement
or
arrangement" in s260 Income Tax and Social Services
Contribution Assessment Act 1936-1950 (Cth). Similarly TPC vNicholas Enterprises
Pty
Ltd
and Ors (1979)
ATPR
40-126 at 18341-18342 shows heavy reliance
on
another "taxation" case:
FCT
v
Lutovi
Investments Pty
Ltd
[1978]
ATC 4708.
9(1980)
ATPR
40-172, hereinafter referred to as "the Email case".
10 Warburton Franki could not charge more than Email because the two companies' products
were almost identical. Warburton
Frankialso
could not undercut Email's prices because it could
not even make aprofit at the price which Email was charging and in any case Warburton Franki
thought that it would not survive aprice war.
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