Today’s guest post is by Ai Deng of Bates White Economic Consulting.  Dr. Deng picked up on a theme in a recent Cartel Capers post, (A “Quick Look” for Per Se Illegal Conduct), and has added some helpful thoughts on the types of economic decisions a firm can make that may later be viewed as a “plus factor” to sustain an antitrust claim.

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Plus factors-based counseling tests

In one of his recent posts, Bob discussed per se illegal conduct and proposed a list of “quick look” counseling tests (see here). In the absence of explicit evidence of collusion that can be learned from the answers to Bob’s questions, courts have also looked into what are known as “plus” factors. Plus factors can be thought of as an inference tool for explicit collusion (think wet street and the inference that it has rained). More formally, plus factors are defined as “economic actions and outcomes, above and beyond parallel conduct by oligopolistic firms, that are largely inconsistent with unilateral conduct but largely consistent with explicitly coordinated action.” (see Kovacic, Marshall, Leslie, and White (2011) available for download here)

After reading Bob’s post, it occurred to me that some of the plus factors can be turned into additional counseling tests to complement his list. Example questions based on the proposal by Kovacic, Marshall, Leslie, and White (2011) include:

· Did you (decide to) restrict supply/production when the demand was strong, the prices and your profit were high?

· Do you think the products made by you and your competitors are largely homogeneous? If so, did you instruct your sales team to “price before volume” when it used to be “volume before price”?

· When prices were relatively high or rising and you had excess capacity, did you do anything to make sure the market shares were stable and no customers switched suppliers?

· Did you redistribute gains and losses? For example, did you buy (homogeneous) products from your competitors when you could have produced them yourself (e.g. when you have excess capacity)?

· Did you exchange any of the following information with your competitors?

a.   Who purchased from competitors and the price and quantity of each transaction with each customer?

b.   Firm-specific production information?

c.   Transactions between you and other competitors?

If the answer to each of them is yes, then the probability of an explicit collusion would be high.[1][2] Note that while only the conspirators have the answers to some of the questions in Bob’s list, most, if not all, of these plus factor-based questions can be answered by examining market information and transaction data.[3] In other words, the response “I don’t remember” or “I don’t know” would generally not prevent one from finding out the answers. This is what makes plus factors interesting and powerful.

In addition to case law and Kovacic et al’s article mentioned above, other helpful readings on plus factors include Proof of Conspiracy Under Federal Antitrust Laws by American Bar Association’s section of antitrust law and a recent review article by FTC economist Dr. Malcolm B. Coate titled “Plus Factors in Price Fixing: Insightful or Anachronistic?”

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[1] I am simplifying here. Precisely how plus factors can be and have been used to infer explicit collusion and their rationale are discussed carefully in Kovacic et al (2011) as well as the other references.
[2] Admittedly, some of these question are not as “quick” as those in Bob’s list.
[3] Such information can come from public domain or through discovery.