Oligopoly pricing cases are sometimes called “circumstantial-evidence conspiracies”, because they typically involve a charge of conspiracy and an absence of direct evidence of agreement.  What makes these cases special, however, is the type of circumstantial evidence brought to court, such as that of parallel behaviour, and the difficulty of determining whether the evidence justifies a finding of conspiracy.

Over nearly 50 years, Richard Posner’s ideas have loomed large over the subject of oligopoly pricing and antitrust. However, by 2015 his approach seemed to have little to do with his ideas in 1969. This paper, , available here, explores this evolution, and how it reflects changes in how we think about oligopoly and collusion.

Section I discusses the text messaging litigation and the reasoning behind Posner’s changing approach to oligopoly pricing.

In 2015, judge Posner wrote the opinion In re Text Messaging. The case arose from the consolidation of several class actions accusing major wireless network providers (T-Mobile USA Inc., Sprint Corp., AT&T Mobility LLC, and Verizon Wireless LLC) of fixing prices in the “pay per use” text messaging market (paying per message rather than a fixed fee for an unlimited number). This is an important decision because it expressly held – contrary to Posner’s position in 1969 – that tacit collusion falls outside the scope of antitrust law.

As far as the author is aware, this is the first appellate court opinion to state such a position so clearly. The reasons for arriving at this conclusion are well known, however. First, there is the problem of notice: if a firm simply follows the pricing decisions of another firm, perhaps because it believes the other firm has superior information on market conditions, how is the firm to understand that such an act is a violation of Section 1? Second, there is the problem of remedy: If the Sherman Act prohibits tacit collusion, how can an order prevent the conduct from occurring again? Finally, Posner notes also the problem of discouraging entry: If the Sherman Act prohibits tacit collusion, and courts infer tacit collusion from evidence that a firm acted in response to a move by a rival, would the threat of liability for such unspecified conduct deter entry into that market?

Section II looks at how Posner began with a seemingly different approach to tacit collusion.

Discussions of tacit collusion, and its implications for antitrust, had been a constant in the economics literature for considerable time before law professors began exploring the issue. In ‘Oligopoly and the Antitrust Laws’, written in 1969, Posner called for more aggressive enforcement of Section 1 in circumstantial-evidence conspiracy case. The article is a reply to a paper by Turner that makes two main claims. First, Turner contends that tacit collusion could in theory be viewed as a type of agreement (or an “agreement to agree”), even though it involves unilateral conduct. In other words, Turner refuses to say that Section 1 does not reach instances of tacit collusion. Second, Turner argues that the practical difficulties of using Section 1 in tacit collusion cases make it largely an ineffective and ill-advised enforcement weapon in these scenarios.

Posner begins by expressing scepticism about tacit collusion, in the absence of any system of monitoring and enforcement, being able to generate stable cartel prices. He argues that successful collusion requires some system of monitoring and enforcement, even if (or especially if) there is no concrete agreement; and when evidence of enforcement and monitoring are added to observations of parallel conduct, Section 1 enforcement is entirely appropriate.

Posner argues that enforcement agencies should use Section 1 more aggressively in cases of circumstantial evidence, which necessarily implies cases of tacit collusion. He even suggests that the question of whether an agreement actually exists is a red herring. The essential question, in his view, is whether a conspiracy should be inferred when the evidence indicates that the observed arrangement has sufficient infrastructure – consisting of shared information, monitoring, and enforcement mechanisms – to operate as a reasonably stable cartel, regardless of whether the parties formally agreed to it.

Section II also seeks to explain what may explain these apparent differences in approach.

The author reconciles the two approaches as hinging on the specific factual situation in the more recent case. As Posner noted in 2010, the fact that prices rise while costs fall can be indicative of an anticompetitive arrangement. However, the probative weight of the simple observation that “price increases while costs fall” in a circumstantial-evidence conspiracy case can be undermined by the evidence. Given jurisprudential developments, courts should not accord such an observation any inferential weight unless the plaintiff can also produce evidence indicating that demand conditions could not justify the price increase.

Posner’s 1969 article argues that courts should use evidence showing the existence of monitoring and enforcement mechanisms to support the inference of conspiracy. As with the case of “suspicious price increases,” the probative weight of evidence of such activities depends greatly on how one defines the activities and the specifics of every instance of application. Posner’s Text Messaging decision in 2015, while not entirely rejecting the thesis of his 1969 article, is a sobering exploration of the problems inherent to its application. Probably because of these difficulties, Posner concluded that a clear statement that Section 1 does not prohibit tacit collusion would help guide courts toward a more rigorous treatment of circumstantial evidence in conspiracy cases.

Section III discusses the way forward.

Even if the Supreme Court eventually endorses Posner’s limitation on the scope of Section 1, the larger question is whether this will have much of an impact on circumstantial-evidence conspiracy litigation. The circumstantial evidence cases have come in two types: where the prosecution’s theory is that an actual agreement exists, but that it is difficult to find evidence of it; and where the prosecution’s theory is that only tacit understanding or agreement exists. Posner’s limitation eliminates the second type of case — provided that it is brought under Section 1 and not by the FTC under Section 5. However, the two types of circumstantial evidence case are often factually indistinguishable.

The other question remaining after Posner’s Text Messaging 2015 decision is the definition of tacit collusion. The Supreme Court, in its effort to retract the dictum of Brooke Group that tacit collusion is “not in itself unlawful,” states in Twombly that “conscious parallelism . . . is not in itself unlawful”. The question raised by this is what courts should regard as tacit collusion. Collusion requires more than conscious parallelism; it requires accommodation and adjustment so that each firm takes a complementary position along the set of output combinations that optimise joint profits. The question is whether the taking of such positions can occur in the absence of a formal agreement among the firms. Since conflict is likely, especially if the firms are not equally efficient, the firms would have to reach a shared understanding of signals, and agree a method of enforcing the joint profit-maximising allocation.


While I am not sure whether the tension between publications at heart of this article is as prominent as the author makes it seem, I think that tension provides the author with an opening to discuss the difficulties of distinguishing between collusion and parallel behaviour in practice of which he makes the most.

Personally, I found that, by anchoring the discussion to particular cases, the article provides an useful overview of the US’s approach to ‘plus factors’, and of how the distinction between inferred agreements and tacit collusion is thin to the point of vanishing in practice. I could extrapolate from this to similar challenges in Europe, but the paper below makes a similar point much better than I ever could here.

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