This is the second in a series of posts. The first can be found here.
Price information exchanges that impact pricing. Such an exchange is not per se illegal. However, it may be unlawful under a rule of reason analysis. See, e.g., United States v. Container Corp. of America, 393 U.S. 333 (1969).
To successfully challenge such an exchange, it is necessary to prove price impact. This can become complicated. For example, if market pricing is instantaneous and entirely transparent, how would one prove that an agreement to exchange price information has impacted prices? Generally, the less transparent the market pricing is, the more opportunity for a price information exchange to work mischief.
The Airline Tariff Publishing Company (ATP) case is informative and illustrates some of the complexities. In December 1992, DOJ sued eight of the largest U.S. airlines and the Airline Tariff Publishing Company (ATP) for price fixing and for operating ATP, their jointly-owned fare exchange system, in a way that facilitated collusion, in violation of §1 of the Sherman Act.
According to the DOJ, ATP was a complex information exchange system among airlines that was widely and openly operated to disseminate fare information through computer reservation systems and travel agents. ATP provided both a means for the airlines to disseminate fare information to the public and a means for them to engage in essentially a private dialogue on fares.
Again, according to the DOJ, the defendants designed and operated ATP’s computerized fare exchange system in a way that unnecessarily facilitated coordinated interaction among them so that they could (1) communicate more effectively with one another about future fare increases, restrictions, and elimination of discounted fares, (2) establish links between proposed fare changes in one or more city-pair markets and proposed changes in other city-pair markets, (3) monitor each other’s changes, including changes in fares not available for sale, and (4) reduce uncertainty about each other’s pricing intentions.
The ATP case involved “cheap talk”– communication that does not commit firms to a course of action — such as announcing a future price increase but leaving open the option to rescind or revise it before it takes effect. If the terms of agreement are complex (e.g., specifying prices in numerous markets) but there is a common desire to reach agreement, cheap talk can help firms reach a collusive equilibrium.
ATP collected fare information from the airlines and distributed it daily to all the airlines and to the major computer reservation systems (CRSs) that serve travel agents. This arrangement was an efficient instrument for cheap talk.
The case was resolved with a consent decree crafted to ensure that the airline defendants did not continue to use any fare dissemination system in a manner that unnecessarily facilitated price coordination or that enable them to reach specific price-fixing agreements.
Note that the final judgment did not prevent the settling defendants from disseminating currently available fares through ATP, from advertising currently available fares to consumers, or from offering for sale fares good only for future travel. Also, the settling defendants remained free to give consumers general information on impending fare changes.
Next post: a price information exchange that does not impact pricing.