Strategic Use of Public Price Indexes as a Collusive Device

Abstract

While public price indexes are widely used for the purpose of increasing market efficiency through information transmission, they can also be used strategically with an anti-competitive purpose. The mechanisms vary, such as submitting false price reports, targeting a segment of the market that influences the index, or designing the price index to ease manipulation. A price index can be particularly vulnerable to potential anti-competitive actions when long-term contracts are pegged to the index, that is, when the index is “hardened” into the contract. Although the Socony-Vacuum case has long been recognized as an example of this phenomenon, there are other cases as well where this behavior has occurred. We describe several antitrust cases where a price index was used to facilitate collusion. In light of these cases, we draw some general lessons. Our findings about the use of price indexes to reduce competition is not a condemnation of price indexes, but rather calls attention to the importance of the rules and institutions that are used to produce and govern them.

Keywords: Antitrust, price-fixing, cartels, collusion, price index, information sharing

JEL Classification: K21, L41