Appellees account for about 90% of the shipment of corrugated
containers from plants in the Southeastern United States. From 1955
to 1963, the industry expanded in the Southeast (entry into the
industry is easy), although capacity had exceeded demand, and the
price trend had been downward. The product is fungible, demand is
inelastic, and competition is based on price. Each appellee, upon
request by a competitor, would furnish information as to the most
recent price charged or quoted to individual customers, with the
expectation of reciprocity and with the understanding that it
represented the price currently being bid. This was not done on a
regular basis, as often the data were available from appellees'
records or from customers. The exchange of price information
stabilized prices though at a downward level. The Government's
civil complaint charging a price-fixing agreement in violation of §
1 of the Sherman Act was dismissed by the District Court after
trial.
Held:
1. The reciprocal exchange of price information was concerted
action sufficient to establish the combination or conspiracy
ingredient of § 1 of the Act. P.
393 U. S.
335.
2. The price stabilization which resulted from the exchange of
price data had an anticompetitive effect in the corrugated
container industry, chilling the vigor of price competition. Pp.
393 U. S.
336-338.
273 F.
Supp. 18, reversed.
Page 393 U. S. 334
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
This is a civil antitrust action charging a price-fixing
agreement in violation of 1 of the Sherman Act. [
Footnote 1] 26 Stat. 209, as amended, 15
U.S.C. § 1. The District Court dismissed the complaint.
273 F. Supp.
18. The case is here on appeal, 15 U.S.C. § 29, and we noted
probable jurisdiction. 390 U.S. 1022.
The case as proved is unlike any other price decisions we have
rendered. There was here an exchange of price information, but no
agreement to adhere to a price schedule, as in
Sugar Institute
v. United States, 297 U. S. 553, or
United States v. Socony-Vacuum Oil Co., 310 U.
S. 150. There was here an exchange of information
concerning specific sales to identified customers, not a
statistical report on the average cost to all members,
Page 393 U. S. 335
without identifying the parties to specific transactions, as in
Maple Flooring Mfrs. Assn. v. United States, 268 U.
S. 563. While there was present here, as in
Cement
Mfrs. Protective Assn. v. United States, 268 U.
S. 588, an exchange of prices to specific customers,
there was absent the controlling circumstance,
viz., that
cement manufacturers, to protect themselves from delivering to
contractors more cement than was needed for a specific job, and
thus receiving a lower price, exchanged price information as a
means of protecting their legal rights from fraudulent inducements
to deliver more cement than needed for a specific job.
Here, all that was present was a request by each defendant of
its competitor for information as to the most recent price charged
or quoted, whenever it needed such information and whenever it was
not available from another source. Each defendant, on receiving
that request, usually furnished the data with the expectation that
it would be furnished reciprocal information when it wanted it.
[
Footnote 2] That concerted
action is, of course, sufficient to establish the combination or
conspiracy, the initial ingredient of a violation of 1 of the
Sherman Act.
There was, of course, freedom to withdraw from the agreement.
But the fact remains that, when a defendant requested and received
price information, it was affirming its willingness to furnish such
information in return.
There was, to be sure, an infrequency and irregularity of price
exchanges between the defendants, and often the data were available
from the records of the defendants or from the customers
themselves. Yet the essence of the agreement was to furnish price
information whenever requested.
Page 393 U. S. 336
Moreover, although the most recent price charged or quoted was
sometimes fragmentary, each defendant had the manuals with which it
could compute the price charged by a competitor on a specific order
to a specific customer.
Further, the price quoted was the current price which a customer
would need to pay in order to obtain products from the defendant
furnishing the data.
The defendants account for about 90% of the shipment of
corrugated containers from plants in the Southeastern United
States. While containers vary as to dimensions, weight, color, and
so on, they are substantially identical, no matter who produces
them, when made to particular specifications. The prices paid
depend on price alternatives. Suppliers, when seeking new or
additional business or keeping old customers, do not exceed a
competitor's price. It is common for purchasers to buy from two or
more suppliers concurrently. A defendant supplying a customer with
containers would usually quote the same price on additional orders,
unless costs had changed. Yet, where a competitor was charging a
particular price, a defendant would normally quote the same price
or even a lower price.
The exchange of price information seemed to have the effect of
keeping prices within a fairly narrow ambit. Capacity has exceeded
the demand from 1955 to 1963, the period covered by the complaint,
and the trend of corrugated container prices has been downward.
Yet, despite this excess capacity and the downward trend of prices,
the industry has expanded in the Southeast from 30 manufacturers
with 49 plants to 51 manufacturers with 98 plants. An abundance of
raw materials and machinery makes entry into the industry easy with
an investment of $50,000 to $75,000.
The result of this reciprocal exchange of prices was to
stabilize prices though at a downward level. Knowledge
Page 393 U. S. 337
of a competitor's price usually meant matching that price. The
continuation of some price competition is not fatal to the
Government's case. The limitation or reduction of price competition
brings the case within the ban, for, as we held in
United
States v. Socony-Vacuum Oil Co., supra, at
310 U. S. 224,
n. 59, interference with the setting of price by free market forces
is unlawful
per se. Price information exchanged in some
markets may have no effect on a truly competitive price. But the
corrugated container industry is dominated by relatively few
sellers. The product is fungible, and the competition for sales is
price. The demand is inelastic, as buyers place orders only for
immediate, short-run needs. The exchange of price data tends toward
price uniformity. For a lower price does not mean a larger share of
the available business, but a sharing of the existing business at a
lower return. Stabilizing prices as well as raising them is within
the ban of § 1 of the Sherman Act. As we said in
United States
v. Socony-Vacuum Oil Co., supra, at
310 U. S. 223,
"in terms of market operations, stabilization is but one form of
manipulation." The inferences are irresistible that the exchange of
price information has had an anticompetitive effect in the
industry, chilling the vigor of price competition. The agreement in
the present case, though somewhat casual, is analogous to those in
American Column & Lumber Co. v. United States,
257 U. S. 377, and
United States v. American Linseed Oil Co., 262 U.
S. 371. [
Footnote
3]
Page 393 U. S. 338
Price is too critical, too sensitive a control to allow it to be
used even in an informal manner to restrain competition. [
Footnote 4]
Reversed.
MR. JUSTICE FORTAS, concurring.
I join in the judgment and opinion of the Court. I do not
understand the Court's opinion to hold that the exchange of
specific information among sellers as to prices
Page 393 U. S. 339
charged to individual customers, pursuant to mutual arrangement,
is a
per se violation of the Sherman Act.
Absent
per se violation, proof is essential that the
practice resulted in an unreasonable restraint of trade. There is
no single test to determine when the record adequately shows an
"unreasonable restraint of trade"; but a practice such as that here
involved, which is adopted for the purpose of arriving at a
determination of prices to be quoted to individual customers,
inevitably suggests the probability that it so materially
interfered with the operation of the price mechanism of the
marketplace as to bring it within the condemnation of this Court's
decisions.
Cf. Sugar Institute v. United States,
297 U. S. 553
(1936);
American Column & Lumber Co. v. United States,
257 U. S. 377
(1921).
Theoretical probability, however, is not enough unless we are to
regard mere exchange of current price information as so akin to
price-fixing by combination or conspiracy as to deserve the
per
se classification. I am not prepared to do this, nor is it
necessary here. In this case, the probability that the exchange of
specific price information led to an unlawful effect upon prices is
adequately buttressed by evidence in the record. This evidence,
although not overwhelming, is sufficient in the special
circumstances of this case to show an actual effect on pricing and
to compel us to hold that the court below erred in dismissing the
Government's complaint.
In summary, the record shows that the defendants sought and
obtained from competitors who were part of the arrangement
information about the competitors' prices to specific customers.
"[I]n the majority of instances," the District Court found,
273 F.
Supp. 18, 27, that, once a defendant had this information, he
quoted substantially the same price as the competitor, although a
higher or lower price would "occasionally" be quoted. Thus, the
exchange of prices made it possible for individual
Page 393 U. S. 340
defendants confidently to name a price equal to that which their
competitors were asking. The obvious effect was to "stabilize"
prices by joint arrangement -- at least to limit any price cuts to
the minimum necessary to meet competition. In addition, there was
evidence that, in some instances, during periods when various
defendants ceased exchanging prices, exceptionally sharp and
vigorous price reductions resulted.
On this record, taking into account the specially sensitive
function of the price term in the antitrust equation, I cannot see
that we would be justified in reaching any conclusion other than
that defendants' tacit agreement to exchange information about
current prices to specific customers did, in fact, substantially
limit the amount of price competition in the industry. That being
so, there is no need to consider the possibility of a
per
se violation.
[
Footnote 1]
Section 1 provides:
"Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is hereby declared to be
illegal."
[
Footnote 2]
This is obviously quite different from the parallel business
behavior condoned in
Theatre Enterprises, Inc. v. Paramount
Film Distributing Corp., 346 U. S. 537.
[
Footnote 3]
The
American Column case was a sophisticated and well
supervised plan for the exchange of price information between
competitors with the idea of keeping prices reasonably stable and
of putting an end to cut-throat competition. There were no
sanctions except financial interest and business honor. But, the
purpose of the plan being to increase prices, it was held to fall
within the ban of the Sherman Act.
Another elaborate plan for the exchange of price data among
competitors was involved in
American Linseed Oil, and
informal sanctions were used to establish "modern cooperative
business methods." The arrangement was declared illegal because its
"necessary tendency" was to suppress competition. 262 U.S. at
262 U. S.
389.
[
Footnote 4]
Thorstein Veblen in The Theory of Business Enterprise (1904)
makes clear how the overabundance of a commodity creates a business
appetite to regulate or control prices or output or both. Measures
short of monopoly may have "a salutary effect" as, for example, a
degree of control or supervision over prices not obtainable while
the parties "stood on their old footing of severalty." But that
relief is apt to be "only transient," for, as the costs of
production decline and growth of the industry "catches up with the
gain in economy," the need for further controls or restraints
increases. And so the restless, never-ending search for price
control and other types of restraint.
We held in
United States v. Socony-Vacuum Oil Co.,
310 U. S. 150,
that all forms of price-fixing are
per se violations of
the Sherman Act.
"The elimination of so-called competitive evils is no legal
justification for such buying programs. The elimination of such
conditions was sought primarily for its effect on the price
structures. Fairer competitive prices, it is claimed, resulted when
distress gasoline was removed from the market. But such defense is
typical of the protestations usually made in price-fixing cases.
Ruinous competition, financial disaster, evils of price-cutting,
and the like appear throughout our history as ostensible
justifications for price-fixing. If the so-called competitive
abuses were to be appraised here, the reasonableness of prices
would necessarily become an issue in every price-fixing case. In
that event, the Sherman Act would soon be emasculated; its
philosophy would be supplanted by one which is wholly alien to a
system of free competition; it would not be the charter of freedom
which its framers intended."
310 U.S. at
310 U. S.
220-221.
MR. JUSTICE MARSHALL, with whom MR. JUSTICE HARLAN and MR.
JUSTICE STEWART join, dissenting.
I agree with the Court's holding that there existed an agreement
among the defendants to exchange price information whenever
requested. However, I cannot agree that that agreement should be
condemned, either as illegal
per se or as having had the
purpose or effect of restricting price competition in the
corrugated container industry in the Southeastern United
States.
Under the antitrust laws, numerous practices have been held to
be illegal
per se without regard to their precise purpose
or harm. As this Court said in
Northern Pacific R. Co. v.
United States, 356 U. S. 1,
356 U. S. 5
(1958),
"there are certain agreements or practices which, because of
their pernicious effect on competition and lack of any redeeming
virtue, are conclusively presumed to be unreasonable, and therefore
illegal without elaborate inquiry as to the precise harm they have
caused or the business excuse for their use."
Among these practices are price-fixing,
Page 393 U. S. 341
United States v. Socony-Vacuum Oil Co., 310 U.
S. 150,
310 U. S. 223
(1940); division of markets,
United States v. Addyston Pipe
& Steel Co., 85 F. 271 (C.A. 6th Cir. 1898),
aff'd, 175 U. S. 175 U.S.
211 (1899); group boycotts,
Fashion Originators' Guild v.
FTC, 312 U. S. 457
(1941), and tying arrangements,
International Salt Co. v.
United States, 332 U. S. 392
(1947). We have recently added to this list certain sales
commission systems for the marketing of tires, batteries, and
accessories by service stations affiliated with major oil
companies.
FTC v. Texaco Inc., ante, p.
393 U. S. 223
(1968). This Court has refused to apply a
per se rule to
exchanges of price and market information in the past.
See
American Column & Lumber Co. v. United States,
257 U. S. 377
(1921);
United States v. American Linseed Oil Co.,
262 U. S. 371
(1923);
Maple Flooring Mfrs. Assn. v. United States,
268 U. S. 563
(1925);
Cement Mfrs. Protective Assn. v. United States,
268 U. S. 588
(1925). I believe we should follow the same course in the present
case.
Per se rules always contain a degree of arbitrariness.
They are justified on the assumption that the gains from imposition
of the rule will far outweigh the losses and that significant
administrative advantages will result. In other words, the
potential competitive harm plus the administrative costs of
determining in what particular situations the practice may be
harmful must far outweigh the benefits that may result. If the
potential benefits in the aggregate are outweighed to this degree,
then they are simply not worth identifying in individual cases.
I do not believe that the agreement in the present case is so
devoid of potential benefit or so inherently harmful that we are
justified in condemning it without proof that it was entered into
for the purpose of restraining price competition or that it
actually had that effect. The agreement in this case was to supply,
when requested,
Page 393 U. S. 342
price data for identified customers. Each defendant supplied the
necessary information on the expectation that the favor would be
returned. The nature of the exchanged information varied from case
to case. In most cases, the price obtained was the price of the
last sale to the particular customer; in some cases, the price was
a current quotation to the customer. In all cases, the information
obtained was sufficient to inform the defendants of the price they
would have to beat in order to obtain a particular sale.
Complete market knowledge is certainly not an evil in perfectly
competitive markets. This is not, however, such a market, and there
is admittedly some danger that price information will be used for
anticompetitive purposes, particularly the maintenance of prices at
a high level. If the danger that price information will be so used
is particularly high in a given situation, then perhaps exchange of
information should be condemned.
I do not think the danger is sufficiently high in the present
case. Defendants are only 18 of the 51 producers of corrugated
containers in the Southeastern United States. Together, they do
make up 90% of the market, and the six largest defendants do
control 60% of the market. But entry is easy; an investment of
$50,000 to $75,000 is ordinarily all that is necessary. In fact,
the number of sellers has increased from 30 to the present 51 in
the eight-year period covered by the complaint. The size of the
market has almost doubled because of increased demand for
corrugated containers. Nevertheless, some excess capacity is
present. The products produced by defendants are undifferentiated.
Industry demand is inelastic, so that price changes will not, up to
a certain point, affect the total amount purchased. The only effect
of price changes will be to reallocate market shares among
sellers.
Page 393 U. S. 343
In a competitive situation, each seller will cut his price in
order to increase his share of the market, and prices will
ultimately stabilize at a competitive level --
i.e., price
will equal cost, including a reasonable return on capital.
Obviously, it would be to a seller's benefit to avoid such price
competition and maintain prices at a higher level, with a
corresponding increase in profit. In a market with very few
sellers, and detailed knowledge of each other's price, such action
is possible. However, I do not think it can be concluded that this
particular market is sufficiently oligopolistic, especially in
light of the ease of entry, to justify the inference that price
information will necessarily be used to stabilize prices. Nor do I
think that the danger of such a result is sufficiently high to
justify imposing a
per se rule without actual proof.
In this market, we have a few sellers presently controlling a
substantial share of the market. We have a large number competing
for the remainder of the market, also quite substantial. And total
demand is increasing. In such a case, I think it just as logical to
assume that the sellers, especially the smaller and newer ones,
[
Footnote 2/1] will desire to
capture a larger market share by cutting prices as it is that they
will acquiesce in oligopolistic behavior. The likelihood that
prices will be cut and that those lower prices will have to be met
acts as a deterrent to setting prices at an artificially high level
in the first place. Given the uncertainty about the probable effect
of an exchange of price information in this context, I would
require that the Government prove that the exchange was entered
into for the purpose of, or that it had the effect of, restraining
price competition.
Page 393 U. S. 344
I do not find the inference that the exchange of price
information has had an anticompetitive effect as "irresistible," as
does the Court. Like my Brother FORTAS, I would prefer that a
finding of anticompetitive effect be supported by "evidence in the
record." I cannot agree that the evidence in this case was
sufficient to prove such an effect. The Government has simply not
proved its case.
The Court does not hold that the agreement in the present case
was a deliberate attempt to stabilize prices. The evidence in the
case, largely the result of stipulation, would not support such a
holding. The Government points to a few isolated statements found
in the depositions of industry witnesses, but I find these few
fragmentary references totally insufficient. The weight of the
evidence in the present case indicates that the price information
was employed by each defendant on an individual basis, and was used
by that defendant to set its prices for a specific customer;
ultimately, each seller wanted to obtain all or part of that
customer's business at the expense of a competitor. The District
Court found that there was no explicit agreement among defendants
to stabilize prices, and I do not believe that the desire of a few
industry witnesses to use the information to minimize price cuts
supports the conclusion that such an agreement was implicit. On the
contrary, the evidence establishes that the information was used by
defendants as each pleased, and was actually employed for the
purpose of engaging in active price competition.
Nor do I believe that the Government has proved that the
exchange of price information has in this case had the necessary
effect of restraining price competition. [
Footnote 2/2] In
Page 393 U. S. 345
its brief before this Court, the Government relies very largely
on one finding of the District Court, and upon economic theory. The
Government has presented a convincing argument in theoretical
terms. However, the evidence simply does not square with that
theory. And this is not a case in which it would be unduly
difficult to demonstrate anticompetitive effects.
The record indicates that defendants have offered voluminous
evidence concerning price trends and competitive behavior in the
corrugated container market. Their exhibits indicate a downward
trend in prices, with substantial price variations among defendants
and among their different plants. There was also a great deal of
shifting of accounts. The District Court specifically found that
the corrugated container market was highly competitive, and that
each defendant engaged in active price competition. The Government
would have us ignore this evidence and these findings, and assume
that, because we are dealing with an industry with overcapacity and
yet continued entry, the new entrants must have been attracted by
high profits. The Government then argues that high profits can only
result from stabilization of prices at an unduly high level. Yet
the Government did not introduce any evidence about the level of
profits in this industry, and no evidence about price levels. Not
one customer was called, although the Government surely had ample
access to defendants' customers. The Government admits that the
price trend was down, but asks the Court to assume that the trend
would have been accelerated with less informed, and hence more
vigorous, price competition. [
Footnote
2/3] In the absence of any proof whatsoever,
Page 393 U. S. 346
I cannot make such an assumption. It is just as likely that
price competition was furthered by the exchange as it is that it
was depressed.
Finally, the Government focuses on the finding of the District
Court that, in a majority of instances a defendant, when it
received what it considered reliable price information, would quote
or charge substantially the same price. [
Footnote 2/4] The Court and my Brother FORTAS also focus
on this finding. Such an approach ignores, however, the remainder
of the District Court's findings. The trial judge found that price
decisions were individual decisions, and that defendants frequently
did cut prices in order to obtain a particular order. [
Footnote 2/5] And the absence of any price
parallelism or price uniformity and the downward trend in the
industry undercut the conclusion that price information was used to
stabilize prices. [
Footnote
2/6]
The Government is ultimately forced to fall back on the
theoretical argument that prices would have been more unstable and
would have fallen faster without price information. As I said
earlier, I cannot make this assumption on the basis of the evidence
in this record. The findings of the Court below simply do not
indicate that the exchange of information had a significant
anti-competitive
Page 393 U. S. 347
effect; if we rely on these findings, at worst, all we can
assume is that the exchange was a neutral factor in the market.
[
Footnote 2/7] As this Court said
in
Maple Flooring, supra, at
268 U. S.
585:
"We realize that such information, gathered and disseminated
among the members of a trade or business, may be the basis of
agreement or concerted action to . . . raise prices beyond the
levels . . . which would prevail if no such agreement or concerted
action ensued and those engaged in commerce were left free to base
individual initiative on full information of the essential elements
of their business."
However, here, as in
Maple Flooring, the Government has
not proved that the information was so used. Rather, the record
indicates that, while each defendant occasionally received price
information from a competitor, that information was used in the
same manner as other reliable market information --
i.e.,
to reach an individual price decision based upon all available
information. The District Court's findings that this was a
competitive industry, lacking any price parallelism or uniformity,
effectively refute the Government's assertion that the result of
those decisions was to maintain or tend to maintain prices at other
than a competitive level. Accordingly, I would affirm the decision
of the court below.
[
Footnote 2/1]
The record does not indicate whether all manufacturers engaged
in exchange of price information or whether the practice was
limited to defendants. There is no indication that other
manufacturers would not have been given price information had they
requested it.
[
Footnote 2/2]
Here it is relevant to note again that the evidence was largely
the result of stipulation, with the Government admittedly
introducing very little evidence on the actual effect of the
allegedly illegal practice.
[
Footnote 2/3]
There was no effort to demonstrate that the price behavior of
those manufacturers who did not exchange price information, if any,
varied significantly from the price behavior of those who did. In
fact, several of the District Court's findings indicate that, when
certain defendants stopped exchanging price information, their
price behavior remained essentially the same, and, in some cases,
prices actually increased.
[
Footnote 2/4]
It should be noted that, in most cases, this information was
obtained from a customer, rather than a competitor, a practice the
Government does not condemn.
[
Footnote 2/5]
Immediately following the particular sentence emphasized by the
Government, there appears the finding that,
"[i]n many instances, however, depending upon particular
circumstances, each defendant quoted lower or higher prices, and,
in all instances, the determination as to the price to be charged
or quoted was its individual decision."
Other findings of fact are to the same effect.
[
Footnote 2/6]
As mentioned above, no evidence was introduced that would
indicate that more than minimal price cuts were economically
feasible.
[
Footnote 2/7]
See 393
U.S. 333fn2/3|>n. 3,
supra.