Opinion ID: 775962
Heading Depth: 2
Heading Rank: 4

Heading: Susceptibility of the Market

Text: 42 The Supreme Court in Gypsum explained that one of the two most prominent[] factors in the rule of reason analysis of a data exchange is the structure of the industry involved. 438 U.S. at 441 n.16. Therefore, once the relevant market is defined, a court must analyze the structure of that market to determine whether it is susceptible to the exercise of market power through tacit coordination. Todd, 126 F. Supp. 2d at 326 (citing Battipaglia, 745 F.2d at 174-75). As the district court explained, [s]usceptible markets tend to be highly concentrated - that is, oligopolistic - and to have fungible products subject to inelastic demand. Id. (citing Battipaglia, 745 F.2d at 174- 75). These factors are addressed in turn.
43 Generally speaking, the possibility of anticompetitive collusive practices is most realistic in concentrated industries. If the relevant market in this case is defined as the plaintiff contends, the defendants would control collectively a 80-90% market share. Todd, 126 F. Supp. 2d at 323. While this is an extremely high market share by any measure, see Tops Mkts., 142 F.3d at 99, the district court contends that the alleged market is not, as plaintiff contends, so clearly oligopolistic, Todd, 126 F. Supp. 2d at 327. The district court points out that there are fourteen defendants in this case, and that this is not a concentrated market under the Department of Justice Merger Guidelines. Id. That the market would not be deemed highly concentrated by this measure, however, does not preclude the possibility of collusive activity. See In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 906 F.2d 432, 444 (9th Cir. 1990). The Merger Guidelines index cannot capture the full range of factors bearing upon the existence or strength of recognized interdependence. Id. (quoting VI Phillip E. Areeda, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 1431a, at 183 (1986)). 44 The Supreme Court has found that data exchange can be unlawful despite a relatively large number of sellers. In Container Corp., the Court used the oft-cited language that the industry was dominated by relatively few sellers. 393 U.S. at 337. But in fact, the defendants in Container Corp. were eighteen firms controlling 90% of the market, defined as the sale of cardboard cartons in the Southeast. Id. at 342, 89 S. Ct. 510 (Marshall, J., dissenting). The Court nonetheless found the market sufficiently concentrated to support the finding of a violation. Id. at 334-38, 89 S. Ct. 510. 10 It is fairly clear that the reason the Court reached its holding despite the multiplicity of sellers was the specific anticompetitive characteristics of the information exchange. Given that the market concentration in this case is not radically different from that in Container Corp., 11 and given that concentration is part of a rule of reason inquiry that also emphasizes the nature of the information exchanged, we do not think that fourteen companies sharing an 80-90% market share is so unconcentrated as to warrant a Rule 12(b)(6) dismissal where the nature of the exchanges appears anticompetitive. 12 We also find it unsurprising that data exchange cases may involve a number of participants that begins to push the boundaries of oligopoly. These players are most in need of such data exchange arrangements in order to facilitate price coordination; a very small handful of firms in a more highly concentrated market may be less likely to require the kind of sophisticated data dissemination alleged in this case.
45 The district court also asserted that even if the proposed market were oligopolistic, plaintiff still could not establish its susceptibility to the exercise of market power through tacit coordination. The `products' in her proposed market are, as discussed above, far from fungible. Todd, 126 F. Supp. 2d at 327. The district court apparently refers to its previous discussion of interchangeability, wherein it argued that the various types of jobs included in the MPT category are vastly different from one other. Id. at 325. 46 It is important to bear in mind the context in which the fungibility question arises. The inquiry is one part of the question of whether the market is susceptible to the exercise of market power though tacit coordination. Fungibility is relevant on this point because it is less realistic for a cartel to establish and police a price conspiracy where it is difficult to compare the products being sold. See Donald S. Clark, Price-Fixing Without Collusion: An Antitrust Analysis of Facilitating Practices After Ethyl Corp., 1983 Wis. L. Rev. 887, 896 (1983) (explaining how product heterogeneity makes it difficult for a cartel to achieve a consensus). In contrast, [f]ungible products facilitate coordination of pricing in a concentrated industry because it is easier to determine and monitor a consensus on some competitive variable. Brian R. Henry, Benchmarking and Antitrust, 62 Antitrust L.J. 483, 496 (1994). Therefore, fungibility plays a significant role in evaluating the anticompetitive potential of an information exchange. 47 The question in this case is whether jobs at the various oil and petrochemical companies were comparable, or fungible enough so that the defendants could have used the exchanged information as part of a tacit conspiracy to depress salaries. Compare Gypsum, 438 U.S. at 426 (gypsum board is fungible), Container Corp., 393 U.S. at 337 (corrugated containers are fungible), and Flav-O-Rich, Inc. v. N.C. Milk Comm'n, 593 F. Supp. 13, 15 (E.D.N.C. 1983) (milk is fungible), with Stephen Jay Photography, Ltd. v. Olan Mills, Inc., 713 F. Supp. 937, 944-45 (E.D. Va. 1989) (yearbook photographers competed primarily on basis of quality not price and thus the product was not fungible), and Rosefielde v. Falcon Jet Corp., 701 F. Supp. 1053, 1066 (D.N.J. 1988) (business jets are not fungible). 48 As an initial matter, the district court's discussion about the clear differences among the various types of MPT jobs is inapposite. Plaintiff alleges that the information exchanged by defendants related to specific job categories - not to MPT employment in general. Compl. ¶¶ 50-66. Therefore, the fact that a job as an attorney and one as a geologist are not comparable does not bear on the ability of defendants to coordinate salaries. Rather, the relevant question is whether jobs within each category are fungible enough across the oil and petrochemical industry to allow for such coordination. 49 One might argue that the jobs still are not fungible - even within each category of MPT employee. Varied jobs in a complex industry are far less fungible than, say, a product such as corrugated containers. Services generally tend not to be fungible or susceptible to standardization, see Clark, supra, at 938, and it is unlikely that these fourteen different companies would have positions with job descriptions that precisely match one another. Even this argument, however, is complicated by the specific facts of this case, coupled with the policy rationale behind the fungibility inquiry. 50 Plaintiff's complaint alleges in detail the sophisticated techniques defendants used to achieve a common denominator with respect to the compensation paid to their MPT employees. Compl. ¶ 50. Defendants developed the Job Match Survey because they realized it was not functionally efficient simply to know what each others' employees were being paid unless they were able to horizontally match the various job classifications. Id. The survey revolved around certain benchmark jobs provided by Chevron. The defendants would submit detailed information relating to the jobs most nearly comparable to the benchmark jobs so that they could be matched. A `match' is defined as a similar job in a similar organization whose combined reporting functions and scope adjustments are not more than two survey salary grades above or below the benchmarked job. Id. ¶ 51. Plaintiff alleges that, during the relevant time period, Exxon was able to match 70-80% of its jobs to the 155 Chevron benchmark positions. Id. ¶¶ 62-63. Furthermore, because not all jobs could be matched precisely, the defendants agreed upon certain offsets reflecting the specific differences between jobs as a percentage figure. Id. ¶ 53. For purposes of the survey, each grade level was assumed to have a salary difference of 14% at its midpoint. The offset factor assigned to each job was thus stated as a fraction of 14% - a positive fraction for jobs with greater responsibilities than the Chevron benchmark job and a negative fraction for jobs with lesser responsibilities. Id. ¶¶ 53-54. Defendants even devised a formula to enhance the comparability of non-cash benefits afforded to MPT employees in their Long Term Incentive Survey. Id. ¶ 83. 51 Plaintiff is thus on solid ground when she argues that defendants made their own employees' positions `fungible' for comparison purposes with those of their competitors. The jobs in question may not be inherently fungible, but since the purpose of the fungibility inquiry is to test whether defendants would be able to compare the positions for coordination purposes, the sophisticated techniques employed by defendants to account for the differences among jobs are extremely telling. See VI Areeda, supra, ¶ 1435b, at 224 ([A]greed steps might be taken to reduce the product or transactional variety that impedes rivals' ability to match product variations, to compare transactions, or to detect `cheating' from parallel uniformity.).
52 Concluding its discussion of the susceptibility of the market to tacit coordination, the district court stated that plaintiff has pleaded no facts tending to establish that the demand for these `products' is inelastic. Todd, 126 F. Supp. 2d at 327. We disagree. This part of the inquiry, easily confused with the cross-elasticity and interchangeability analysis that is used to define the relevant market, traditionally asks whether demand is inelastic because buyers place orders only for immediate, short-run needs. Container Corp., 393 U.S. at 337; see also, e.g., Flav-O-Rich, 593 F. Supp. at 15 (With the obvious short-term life span of milk, orders are, by necessity, placed on the basis of short-term needs.). In other words, the question is whether it is economically feasible for buyers to abstain from purchasing the product for some period of time. 53 Here again, we reverse the equation in the context of an oligopsony. Where market power is exercised by buyers, it is the elasticity of the sellers' supply that is at issue. Sellers' supply could be elastic if, for example, they have the option of withholding some output from the market in hopes of higher prices in future years. Blair & Harrison, supra, at 313. If, however, the goods are perishable, short-run supply may be quite inelastic. Id. In this case, the supply at issue is the labor of the MPT employees. Labor is an extremely perishable commodity - an hour not worked today can never be recovered. Id. at 314. As a result, [c]ollusion among employers can drive the wage down to the individual's reservation wage. Id. As labor is a classic example of inelastic supply flow, it is unclear what additional facts plaintiffs would have to allege with regard to this aspect of the inquiry. 54 In sum, the pleadings support the contention that the market was susceptible to tacit coordination by the defendant companies: The market is sufficiently concentrated under Container Corp.; the defendants have in effect manufactured a form of fungibility through sophisticated comparison techniques; and the supply of labor has an inherently inelastic quality.