Conscious Parallelism Revisited

Abstract

Conscious parallelism, sometimes called tacit collusion, occurs where firms adopt their business practices based on what other firms are doing, rather than competing for customers. The most obvious manifestation occurs where prices across companies in an industry not only become suspiciously similar, but also change rapidly in strikingly parallel ways. Suggested examples are legion and varied: airline tickets, gasoline, cellular phone text messaging and roaming rates, interest rates on bank accounts, credit card interchange fees, movie tickets, recorded music, breakfast cereals, real estate and travel agent commissions, electricity prices in deregulated markets, and air cargo fuel surcharges, just to name a few. While this phenomenon might seem obviously and intuitively antithetical to antitrust principles, its punishment has long been problematic to cartel theory The root of competition law’s current weakness lies in the belief that absent an ability to prove explicit collusion among players, conscious parallelism cannot be punished.

This Article argues that this struggle can be overcome through a more robust, less anemic conception of antitrust that is willing to confront conscious parallelism. It is structured into three parts. After delving into some detail about what conscious parallelism is, Part I argues, contrary to the conventional wisdom, that current antitrust law is flexible enough to address such behavior - be it through the Sherman, Clayton, or Federal Trade Commission (FTC) Acts. Part II discusses what light microeconomics might shed on the problem. In particular, it focuses on the central and thorny question of how to distinguish between whether the parallelism is due to competition or tacit coordination. It argues that while current incarnations of game theory leave much to be desired, a renewed focus on the Structure-Conduct-Performance (S-C-P) paradigm of industrial organization, combined with careful econometric studies, can help reveal where conscious parallelism lies and where it does not. Several examples are offered to buttress the argument. Finally, Part III argues - again, contrary to mainstream antitrust thinking - that a range of effective remedies does indeed exist to address conscious parallelism.

[Copyright San Diego Law Review. Reprinted with the permission of the San Diego Law Review.]

Keywords: conscious parallelism, cartel, monopolization, antitrust, competion law

JEL Classification: K21, L41