AN ANALYTIC HISTORY OF DELIVERED PRICE LITIGATION: DO COURTS PROPERLY DISTINGUISH RIVALROUS FROM COLLUSIVE INSTANCES?

Abstract

The federal judiciary's present, cautious approach to delivered pricing is appropriate. Using court records and recent contributions to the economic literature, this article evaluates the antitrust history of those practices. Delivered pricing can replace mill pricing naturally in some rivalrous settings, but under special circumstances could be collusive. Thus, delivered pricing has sometimes been adjudged a Sherman Act violation, but only given other evidence of collusion. For a time, however, the legal system threatened to treat delivered pricing as a per se violation of the Clayton and Federal Trade Commission Acts. That reflected poor economic understanding. Delivered pricing litigation seems to be a pure statutory phenomena; our investigation has unearthed no cases under the common law of restraint of trade.[1] Since the advent of federal antitrust legislation, however, plaintiffs have relied on several distinct acts of Congress to bring delivered pricing practices before the courts. The earliest of those statutes, the Sherman Act of 1890, forbad conspiracies in restraint of trade. But courts typically have required explicit evidence before they will find a collusive conspiracy. The mere use of a novel and poorly understood delivered pricing technique has not been enough. Relying on the Clayton and Federal Trade Commission Acts of 1914, however, lawyers formulated various claims that purported to draw an inference of collusion from the mere use of a particular delivered pricing schedule. Under those arguments, no evidence of collusion was to be required. Several important precedents were set in reliance on such claims. That, we argue below, is a leap of logic inconsistent with present economic understanding. Because the courts sometimes have accepted such theories, ,but at other times have not, the predictability of the law has been eroded, to the cost of defendants and, ultimately, to the cost of consumers. I. THE DAWN OF DELIVERED PRICING AS AN ANTITRUST PROBLEM The History A number of industrial practices that became evident during the decades following the Civil War were soon followed by statutory antitrust law, which largely supplanted the common law antitrust precedents that had developed over the preceding centuries. The speed and distance over which commercial orders could conveniently be placed and deliveries made steadily increased as local and regional transportation and communication networks expanded to form national systems. That evolution enabled aggressive entrepreneurs to expand local markets into regional ones, regional markets into national ones and national markets into world-wide markets.[2] In industries where technical scale economies were important, the market expansion ultimately led to large-scale production centers arising at particularly favorable transport hubs, resource nodes, or buyer concentrations. Concomitantly, firms at less favorable sites either failed in the face of the stiffening long-distance competition, or found ways to thread themselves into small niches that had been left poorly served by the large-scale production centers. In the absence of significant differentiation of the physical product, modern economic theory implies that it would be difficult for more than one firm to survive in a single small market away from the advantaged production centers in a predominantly large-scale industry.[3] So, with no local competitors, such enterprises as did survive would be able to price discriminate among nearby customers. In that sense the surviving small, remote firms would resemble the norm from an earlier day, when markets were more commonly characterized by small, dispersed, spatial monopolies. But the manufacturing costs of firms in the new, highly competitive production centers, coupled with the transport costs required for them to reach various points in a market, determined the delivered prices that were available from the production center. …