Signaling and Agreement in Antitrust Law

Abstract

Oligopolists look for signals from one another in planning their strategies. Some signals solicit cooperation from rivals and a still smaller number succeed in achieving noncompetitive equilibria. But only a subset of these noncompetitive outcomes involve agreements under Section 1 of the Sherman Act. In this essay, I try to identify what sorts of signaling fall within this last and narrowest category: signaling that brings about agreement. Conventional signals are actions, like nods of the head, that a culture has recognized as having a specific meaning; prearranged signals are outwardly benign actions or events that parties have agreed to treat as having special significance for them. Both conventional and prearranged signals may form or implement an express agreement under Section 1 in the same way as words, although rivals sometimes prefer to use the signals rather than words in order to conceal a surreptitious conspiracy. Still more important for antitrust law in practice are implicit signals — actions with general, often benign meanings for more than one audience, but that rivals understand as conveying a special meaning for them. Where the action’s multiple meanings for multiple audiences have important efficiency consequences — like a bare public announcement about present or even future prices — courts do not treat the specialized meaning for rivals as triggering a Sherman Act agreement, even if the conduct facilitates noncompetitive pricing. On the other hand, even a formally public announcement may bring about an agreement, if its implicit meaning targets rivals without providing useful information to other audiences.

Keywords: antitrust, communication, signaling, collusion, Sherman Act, agreement, tacit

JEL Classification: D40, D43, D61, K21, L13, L41, K42