Opinion ID: 760949
Heading Depth: 1
Heading Rank: 4

Heading: Parallel Pricing

Text: 35 In the absence of direct evidence, the plaintiffs may nevertheless support their claim with circumstantial evidence of conscious parallelism. Weit v. Continental Illinois National Bank & Trust Company, 641 F.2d 457, 462 (7th Cir.1981). Conscious parallelism, sometimes called oligopolistic price coordination, is described as the process not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a prefixed maximizing, supracompetitive level by recognizing their shared economic interests and their interdependence with respect to price and output decisions. Brooke Group v. Brown & Williamson Tobacco Corporation, 509 U.S. 209, 227, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993). The theory of conscious parallelism is that uniform conduct of pricing by competitors permits a court to infer the existence of a conspiracy between those competitors. Todorov v. DCH Healthcare Authority, 921 F.2d 1438, 1456 n. 30 (11th Cir.1991). The theory is generally applied to highly concentrated markets where few sellers exist and where they establish their prices, not by express agreement, but rather in a consciously parallel fashion. Shapiro v. General Motors, 472 F.Supp. 636, 647 (D.Md.1979). Thus, when two or more competitors in such a market act separately but in parallel fashion in their pricing decisions, this may provide probative evidence of the existence of an understanding by the competitors to fix prices. Todorov, 921 F.2d at 1456 n. 30. 36 In an oligopolistic market, meaning a market where there are few sellers, interdependent parallelism can be a necessary fact of life but be the result of independent pricing decisions. 37 [I]n a market served by three large companies, each firm must know that if it reduces its price and increases its sales at the expense of its rivals, they will notice the sales loss, identify the cause, and probably respond. In short, each firm is aware of its impact upon the others. Though each may independently decide upon its own course of action, any rational decision must take into account the anticipated reaction of the other two firms. Whenever rational decision-making requires an estimate of the impact of any decision on the remaining firms and an estimate of their response, decisions are said to be interdependent. Because of their mutual awareness, oligopolists' decisions may be interdependent although arrived at independently. 38 Areeda, Antitrust Law § 1429 (1986). See Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir.1977). 39 Because the evidence of conscious parallelism is circumstantial in nature, courts are concerned that they do not punish unilateral, independent conduct of competitors. Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 594, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). They therefore require that evidence of a defendant's parallel pricing be supplemented with plus factors. Petruzzi's IGA v. Darling-Delaware, 998 F.2d 1224, 1243 (3d Cir.1993). The simple term plus factors refers to the additional facts or factors required to be proved as a prerequisite to finding that parallel action amounts to a conspiracy. Areeda, Antitrust Law § 1433(e). They are necessary conditions for the conspiracy inference. Venzie Corp. v. United States Mineral Products Co., 521 F.2d 1309, 1314 (3d Cir.1975); Areeda, § 1434. They show that the allegedly wrongful conduct of the defense was conscious and not the result of independent business decisions of the competitors. The plus factors may include, and often do, evidence demonstrating that the defendants: (1) acted contrary to their economic interests, and (2) were motivated to enter into a price fixing conspiracy. See Petruzzi's, 998 F.2d at 1242. 40 The concept of action against self-interest is ambiguous and one of its meanings could merely constitute a restatement of interdependence. As the court pointed out in Coleman v. Cannon Oil Company, 849 F.Supp. 1458, 1467 (N.D.Ala.1993), refusing to raise or lower prices unless rivals do the same could be against a firm's self-interest but nevertheless could spring from independent behavior. Similarly, conspiratorial motivation is ambiguous because it can describe mere interdependent behavior and, therefore, it could mean that interdependent behavior is a Sherman Act Section 1 conspiracy. Areeda, § 1434(c). Thus, no conspiracy should be inferred from ambiguous evidence or from mere parallelism when defendants' conduct can be explained by independent business reasons. 41 Once the plaintiffs have presented evidence of the defendants' consciously parallel pricing and supplemented this evidence with plus factors, a rebuttable presumption of conspiracy arises. Todorov, 921 F.2d at 1456 n. 30. [T]he mere presence of one or more of these 'plus factors' does not necessarily mandate the conclusion that there was an illegal conspiracy between the parties, for the court may still conclude, based upon the evidence before it, that the defendants acted independently of one another, and not in violation of antitrust laws. Balaklaw v. Lovell, 822 F.Supp. 892 (N.D.N.Y.1993); Todorov, 921 F.2d at 1456 n. 30. 42 In an effort to reinforce their claim of collusive pricefixing, plaintiffs presented the testimony of an expert for the purpose of showing a pattern of parallel price increases in each of the five baby food product categories throughout the certified time period, except for the First Food category in August 1992. The plaintiffs requested Dr. Albert Madansky to conduct statistical analyses of the defendants' list price increases for the period January 1989 through December 1992. He concluded that the results of his analyses established a pattern of parallel pricing by the defendants. Dr. Madansky's conclusion is depicted in five charts. The charts represent each of the five categories of baby food: First Foods, Second Foods, Third Foods, Cereals, and Juices. 43 Through his analysis of the defendants' average monthly list prices, Dr. Madansky further concluded that transaction prices likewise increased in parallel fashion from 1989 to 1992. Again, similar to what he did with list prices, his analysis of transaction price trend lines is depicted in five charts that reflect the five categories of baby foods. According to Dr. Madansky, the charts show that the defendants' prices moved upward in parallel fashion on 99.5% of the total volume analyzed. 44 The plaintiffs argue documentary and testimonial evidence also confirm that the defendants engaged in parallel pricing and prove that the price increases resulted from concerted action by the defendants. They point to an internal Beech-Nut memo of February 24, 1989, from Joseph Gaeto, Beech-Nut's Vice-President of Marketing, to Theuer stating: We have taken a position [of] parity with Gerber to reflect our current plan for a price increase this year. In addition, Beech-Nut's 1988 Long Term Plan pontificated Gerber will accept the price leadership of Beech-Nut and will accept price increases as a means of improving profitability. They also cite the testimony of Heinz's area manager, Ron Coble, that Heinz's selling philosophy from 1970 to the early 1990s was to sell their products at 29 a case below the prices of Beech-Nut and Gerber on all 24-pack merchandise. Plaintiffs argue that the maintenance of more or less constant differentials between defendants' prices is clear evidence of parallel pricing. 45 The plaintiffs also contend that the evidence they produced showed that the defendants' pricing was conscious. For this purpose, they rely heavily on the reciprocal exchange in pricing information previously referred to, including the deposition testimony of Anderson and Gibbs. The plaintiffs therefore argue that sales representatives of each defendant, largely at the behest of senior management and mostly by word of mouth, maintained a continuous network to exchange price information as well as a system to communicate that information to executive decision makers. The plaintiffs claim that the evidence shows that the defendants on a consistent basis ordered their sales representatives to gather competitive information, such as their competitors' pricing plans and strategies. The plaintiffs aver that once this information was obtained, the sales representatives reported the information to their area or territory manager, who in turn passed the information on to their superiors. 46 In addition, the plaintiffs argue that the defendants' pricing data represents parallel list and transaction pricing. They assert that following the truce an understanding existed among the defendants not to intrude upon the other's position in the market place, which culminated in an agreement to jointly coordinate and implement price increases. In support of their theory of the defendants' price parallelism, plaintiffs claim that their expert's testimony shows statistical analysis of the defendants' list price increases per pack between January 1989 and December 1992. The plaintiffs also contend that the parallel list price increases caused the transaction prices to increase and, thus, the transaction prices suffered from parallel pricing as well. Specifically, as to the period certified for the class action, January 1, 1989 to December 31, 1992, plaintiffs maintain that defendants' list prices and actual transaction prices were higher than they would have been had the defendants not engaged in price fixing.