most effective means that may allow competitors to create and to maintain a cartel, as
“communication is a central part of the operation of a cartel.”201 However, due to the risk involved in the fact that establishing and maintaining direct communications constitute circumstantial proof of an agreement to fix prices and a plus factor, firms resort to other—perhaps less effective, but also less dangerous—means to facilitate collusion.
Contrary to horizontal agreements—in which “an adverse impact on competition is presumed, and therefore . . . the plaintiff is spared the burden of proving such an impact”202— information-exchange may advance, as well as disrupt, competition. The instances of the positive effect of information-sharing on the level of competition include the firms acquiring more complete information about market conditions,203 Stigler, A Theory of Delivered Price Systems, in THE ORGANIZATION OF INDUSTRY 147–64 (The Univ. of Chicago Press 1968).
195 Levenstein & Suslow, supra note 64, at 69-70 (discussing how industry associations or states’ governments may facilitate collusion by collecting and disseminating information).
196 Kovacic, supra note 3, at 49.
197 United States v. Container Corp., 393 U.S. 333, 337 (1969). It should be noted that the structure of the market plays an important role with respect to the competitive significance of information-exchanges. “Price information exchanged in some markets may have no effect on a truly competitive price . . . . The exchange of price data tends toward price uniformity” in oligopolistic markets. Id.; Charles A. Holt & David T. Scheffman, Facilitating Practices: The Effects of Advance Notice and Best- Price Policies, 18 RAND J.ECON. 187 (1987); Kestenbaum, supra note 174; Kattan, supra note 18.
198 Kovacic, supra note 3, at 50-51(quoting United States v. Gen. Elec. Co., 1977 Trade Cas.
(CCH) 61,659 (E.D. Pa. 1976). Cf. Hay, supra note 8, at 462-63 (arguing that the agreement to use a uniform pricing formula does not, in itself, necessarily adversely affects competition, because it does not prevent firms from cheating its partners in collusion agreement; but it simplifies the process of establishing consensus price).
199 Hay, supra note 8, at 463.
200 Id. For a general discussion of the types of information-exchanges that may facilitate collusion, see HERBERT HOVENKAMP,FEDERAL ANTITRUST POLICY:THE LAW OF COMPETITION AND ITS PRACTICE (West Pub. Co. 4th ed. 2011).
201 Kovacic et al., supra note 23, at 423.
202 Hay, supra note 3, at 877.
203 Richard Posner, Information and Antitrust: Reflections on the Gypsum and Engineers Discussions, 67 GEO.L.J. 1187, 1193-97 (1979).
consumers obtaining the possibility of comparing prices,204 or in particular industries.205 In light of the fact that in certain instances, information-sharing may have potential beneficial consequences for social welfare, scholars argue that the sweeping prohibition of the exchange of data between competing firms is unwise and counter-productive.206 Generally, the courts have signaled a similar outlook, refusing to deem all types of information-sharing among competing firms to be illegal per se.207
Nevertheless, while some types of information-sharing can advance market competition—e.g., by providing consumers with more extensive information208— other data exchange can promote concerted action and decrease competition by facilitating tacit collusion among competitors.209 Not surprisingly, advances in
204 Piraino, supra note 65, at 55. For instance, advance notice of price changes may benefit consumers, allowing them to plan their purchases.
205 Clark, supra note 8, at 927. For instance, Clark asserted that the crucial determinant of whether the procompetitive effects outweigh the anticompetitive effects in a particular information-exchange instance “will ordinarily be a function of the industry’s structure and basic operating conditions.” Id; see also Dennis W. Carlton & J. Mark Klamer, The Need for Coordination Among Firms, With Special Reference to Network Industries, 50 U.CHI.L.REV. 446, 457 (1983) (pointing out the efficiency of coordination among competitors in certain industries); Douglas Lichtman, Property Rights in Emerging Platform Technologies, 29 J. LEG. STUD. 615, 620-21 (2000) (discussing how coordination between a platform manufacturer and an application manufacturer has positive externalities).
206 Hay, supra note 8, at 463. Some scholars have argued that antitrust law is excessively suspicious of what may plausibly be perceived as an efficiency-enhancing collaboration. See also Frank H. Easterbrook, The Limits of Antitrust, 63 TEX.L.REV. 1 (1984) (arguing that antitrust law disproportionately attributes anticompetitive goals to behavior that has a plausible non-collusive justification); Xavier Vives, Trade Association Disclosure Rules, Incentives to Share Information, and Welfare, 21(3) RAND J.ECON. 409 (1990).
207 See United States v. United States Gypsum Co., 438 U.S. 42 (1978) (holding that “[t]he exchange of price data and other information among competitors does not invariably have anticompetitive effects;” therefore, it is not a per se violation). In an earlier decision, Am.
Column & Lumber Co. v. United States, 257 U.S. 377, 412 (1921) (Holmes, J., dissenting), Justice Holmes stated that “I should have thought that the ideal of commerce was an intelligent interchange made with full knowledge of the facts as a basis for a forecast of the future on both sides. A combination of such knowledge, notwithstanding its tendency to equalize, not necessarily to raise, is very far from a combination in unreasonable restraint of trade.” In a more recent decision, the Supreme Court stated that “antitrust law permits . . . discussions [among competitors] even when they relate to pricing, because the ‘dissemination of price information is not itself a per se violation of the Sherman Act.’” Holiday Wholesale Grocery Co. v. Philip Morris, Inc., 231 F. Supp. 2d 1253, 1276 (N.D. Ga. 2002), aff ’d sub nom, Williamson Oil Co., Inc. v. Philip Morris USA, 346 F.3d 1287 (11th Cir. 2003) (quoting United States v. Citizens &
So. Nat'l Bank, 422 U.S. 86, 113 (1975)).
208 See Jonathan B. Baker, Identifying Horizontal Price Fixing in the Electronic Marketplace, 65 ANTITRUST L.J. 41, 44 (1997) (“[I]n the familiar economic model of perfect competition, information is an unqualified good. This observation suggests that more information, available faster and at lower cost, can make markets more transparent, enhance buyer choices, help firms make better and cheaper products, and improve competition.”).
209 See, e.g., Richard N. Clarke, Collusion and the Incentives for Information Sharing, 14 BELL J.ECON. 383, 383, 392 (1983) (explaining that in an uncertain economic landscape, all firms do not have an incentive to share information unless they are engaged in a cartel); Larry M. DeBrock & James L. Smith, Joint Bidding, Information Pooling and the Performance of
technology facilitate such information-exchange between competitors.210 As a result, commentators argue that in oligopoly markets, information-exchange “should now be an even greater concern to antitrust regulators.”211
The incentives of otherwise competing firms to engage in information-exchange have been extensively studied by economics scholars.212 Since Novshek and Sonnenschein—who pioneered the research on the economics of information-sharing in an oligopoly in 1982213—much scholarly work concentrated on the issue of competing firms’ incentives to share their private information with competitors in an oligopolic market, i.e., horizontal information-sharing among competitors.214 More recently, the focus of the economic research shifted to the incentives to share private information among firms in vertical settings, such as in a supply chain; it is the vertical setting that motivated this article.
It is well known that the risk of being exposed to antitrust investigations and the probability of being convicted and sanctioned for antitrust violations induces competing firms to avoid revealing their private information directly. Nevertheless, due to the financial benefits that accompany information-exchange, firms continuously search for alternative routes to provide and obtain such information. In the following pages, we will argue that the scheme of the information-exchange in vertical settings has significant implications for the antitrust legal scholarship and public policy; nevertheless, its negative consequences for the competition have yet to be recognized and addressed. However, before delving into the detailed argument, Section III is dedicated to discussing the literature that examined information-sharing among firms in vertical settings.
Petroleum Lease Auctions, 14 BELL J.ECON. 395, 395–96, 404 (1983) (explaining how pooling cost and value estimates on oil tracts can reduce uncertainty and allow firms to bid more accurately in government auctions). The general perspective of economists has usually been that information-sharing maximizes total welfare only when firms share information in an effort to act competitively. See also Michael Raith, A General Model of Information Sharing in Oligopoly, 71 J. ECON. THEORY 260-88, 293 (1995) (contending that only rarely does information-exchange promote both firms’ profits and consumers’ surplus); Baker, supra note 209, at 44 (arguing that rapid information-exchange among sellers can facilitate coordination and lead to supra-competitive prices by reducing coordination difficulties and concealing the conversations from consumers and antitrust agencies, and may also facilitate coordination by reducing firms’ incentive to deviate from the collusive price).
210 Carlton et al., supra note 58, at 423 (asserting that “businesses are often able, at low cost, to make information available to consumers and investors and, either advertently or inadvertently, to competitors as well.”); see also Baker, supra note 209.
211 Piraino, supra note 65, at 57.
212 E.g., Raith, supra note 210.
213 See generally William Novshek & Hugo Sonnenschein, Fulfilled Expectations Cournot Duopoly With Information Acquisition and Release, 13 BELL J.ECON. 214 (1982).
214 See generally Clarke, supra note 210; Xavier Vives, Duopoly Information Equilibrium:
Cournot and Bertrand, 34 J. ECON.THEORY 71 (1984); Esther Gal-Or, Information Sharing in Oligopoly, 53(2) ECONOMETRICA 329 (1985); Lode Li, Cournot Oligopoly with Information Sharing, 16(4) RAND J. OF ECON 521 (1985); Carl Shapiro, Exchange of Cost Information in Oligopoly, 52 REV.ECON STUD. 433 (1984); Raith, supra note 210.