Wednesday, July 11, 2012

Antitrust and Unfair Competition, part 2: "Good Ole Boy" Networks.

The essence of "good ole boy" networks is a violation of Section 1 of the Sherman Act. As seen in my last post, Section 1 prohibits concerted action restraining trade. A "good ole boy" network is one governed by a close relationship and a sharing of sensitive business information. The close relationship is one involving nearly exclusive dealing. The sharing of sensitive information involves price dissemination, group boycotts, and other conduct that makes no business sense unless there is reciprocity from the other party.

Section 1 deals with horizontal restraints of trade, among other things. A horizontal restraint of trade is concerted anticompetitive conduct by competitors in the distribution chain in order to eliminate, lessen, prevent or foreclose competition from another competitor or competitors. Examples of horizontal restraints include price fixing, price dissemination, market and customer allocations, and group boycotts and concerted refusals to deal. Within these examples, there are numerous subcategories.

"Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service or commodity only at a fixed price, or maintain market conditions such that the price is maintained at a given level by controlling supply and demand." [1] Price dissemination often results in price fixing. Price dissemination occurs when pricing or sensitive business information is exchanged, resulting in a competitive advantage for one or both of the competitors. Market and customer allocations occur when competitors will allocate customers geographically or demographically, resulting in less competition and higher prices for the consumer. Group boycotts occur when "two or more competitors in a relevant market refuse to conduct business with a firm unless the firm agrees to cease doing business with an actual or potential competitor of the firms conducting the boycott." [2]

"Good ole boy" networks engage in all of the above behavior. They do not do so all the time, but such networks are characterized by barriers to entry such as being part of a specific in-group of like-minded individuals with industry experience and friendships, and the sharing of business information in order to help other members of the network succeed in business. Members of the network will share price information, resulting in price fixing. They will allocate customers and markets so as to not encroach on another member's territory. They will pressure other members to not do business with firms that upset them, or do not conduct business their way. They will also give members of their in-group better prices than they give individuals or businesses outside of their group.

If you are part of a "good ole boy" network, be aware that participation in the above behavior can subject you to criminal liability, as well as civil liability. As mentioned before, civil liability for antitrust violations can result in treble damages, or damages three times the actual amount.

In my next post, I will discuss another horizontal restraint often subsumed within price fixing and price dissemination: bid rigging.

[1] Wikipedia, Price fixing, (last visited July 11, 2012).
[2] Wikipedia, Group boycott, (last visited July 11, 2012).

No comments:

Post a Comment