Inferring Agreement in Hub-and-Spoke Conspiracies

Abstract

The presence of a hub-and-spoke conspiracy legally depends on whether a horizontal agreement exists among the spokes, commonly stated in terms of whether there is evidence of a “rim” that connects the spokes. This article shows that the circumstantial evidence a court may use to infer such an agreement is substantially more limited than the circumstantial parallel behavior evidence commonly used in a standard horizontal conspiracy case. One must also explicitly consider the vertical relationship between the hub and spokes and exclude the possibility that the parallel spoke behavior involves merely a series of separate vertical agreements accepted by each spoke in its individual interests. The analysis clarifies that the key economic condition that must be focused on is the hub’s vertical contract enforcement sanction and hence its ability to unilaterally enforce its vertical contract demands. Determining whether a fact pattern should be considered circumstantial evidence of a horizontal agreement or merely a series of purely vertical agreements involves analysis of the economic costs and gains of individual spoke non-compliance and the speed of simultaneous spoke acceptance of hub contract terms. These factors are examined in a number of recent hub-and-spoke cases, as well as the classic case of Interstate Circuit.

Keywords: hub-and-spoke, conspiracy, agreement

JEL Classification: L4, K2