In first place, is important to indicate that there are some differences in the language used by the economists and lawyers related with crucial terms to understand the conscious parallel behavior as a restrictive practice. Economists distinguish between tacit and explicit collusion. Lawyers talk about tacit coordination or agreements and explicit agreements.
The explicit collusion or explicit agreements may not have problems. These ones are always considered illegal. The real discussion has place with “tacit collusion” and when Competition Law would sanction it.
Economists stress that is possible to get to an equilibrium or “tacit collusion”–solution of a repeated and infinite game- in oligopolies that may or may not attend to an anticompetitive agreement. The latter because with the economic analysis it is possible to presume that the strategy profile is common knowledge to the agents in the market but does not say anything about how mutual understanding is achieved or if it was the result of a cooperative behavior1.
In words of some economists:“´Tacit collusion´ need not involve any ´collusion´ in the legal sense, and in particular need involve no communication between the parties. It is referred to as tacit collusion only because the outcome (in terms of prices set or quantities produced, for example) may well resemble that of explicit collusion or even of an official”.2
On the other hand, lawyers consider “tacit collusion” is a kind of a restrictive agreement between competitors, to fix their product prices or to manipulate any competition variable, that is reached without or with little communication.
Regarding the legal definition of “tacit collusion”, Posner indicated: “(…) one can imagine a group of sellers able to collude without any overt contact or communication, simply as a result of a mutual recognition that all would be better off if the market price were higher, simultaneously prompting each seller to raise his price to the desired level. Such a case is probably rare, but it is entirely possible that some market settings permit collusive pricing with so little actual communication among the sellers as not to expose them to an appreciable danger of being prosecuted for price fixing. Moreover, whether a case involves oligopolistic pricing without explicit collusion, or overt conspiracy under such favorable conditions as to generate no evidence of conspiracy, is a distinction without a policy difference. From the standpoint of the trier of facts, both are cases of oligopolistic pricing, or “tacit collusion,” which is my term for any form of collusion not detectable by means of the conventional, noneconomic approach to proving culpable price fixing”3.
Usually, “tacit collusion” –as economists understand it- is not considered illegal. But, there are some jurisdictions where Competition Law forbids this behavior when it can be demonstrated that the result in the market, such as the increases in prices, is consequence of joint agreements. In these cases, liability of the infringement of Competition Law can be imposed only if it can be shown that the agents achieved a conscious commitment for a common scheme.
The conduct described is commonly identified as “concerted practice” “conscious parallel behavior”, among others.
According to the OCDE conscious parallel behavior can be defined as follow: “Under conditions of oligopoly, the pricing and output actions of one firm have a significant impact upon that of its rivals. Firms may after some period of repeated actions become conscious or aware of this fact and without an explicit agreement coordinate their behavior as if they were engaged in collusive behavior or a cartel to fix prices and restrict output. The fear that departure from such behavior may lead to costly price cutting, lower profits and market share instability may further create incentives for firms to maintain such an implicit arrangement amongst themselves4”.
In Colombia, “tacit collusion” is only sanctioned if it is possible to demonstrate that a firm´s parallel behavior is consequence of a coordinated conduct -cartel or anticompetitive agreement- and not of the unilateral decisions of the agents in the market. In this regard, Competition Authority in Colombia has established that to sanction this conduct it is necessary to demonstrate i) the existence of a parallel behavior in the market and, ii) the conscious of the agents to collude.
Before 2015, it was easier to detect cartels that agreed to fix prices or to share market with this modality of agreement. Investigations in markets such as green paddy rice, cocoa and gas stations had evidence of parallel behavior and also evidence that showed that the agents in the market increased prices at the same time, in the same amounts and in the same “rhythm”. It was obvious the existence of the conscious of the illegal agreement.
Over time, cartels have become more secret and less obvious. The members of the cartels have improved the mechanisms to achieve these illegal agreements, which has made more difficult the task of the Competition Authority to detect them and to prove the conscious of the agreement. In these cases, Competition Authority in Colombia has determined that is necessary to look for additional evidence that tends to prove the existence of an anticompetitive agreement, called by other authorities as “plus factors”.
“Plus factors” are economic circumstantial evidence. The Colombian Competition Authority has used this kind of evidence in recent cases. In fact, the Authority established that the “plus factors” that can be used to demonstrate the conscious of an agreement reached without or with little communication (tacit collusion) are the following:
- Economic Evidence:
- Elements of the structure of the market that facilitate collusion. In a recent case, the Colombian Competition Authority used the “plus factors” proposed by Posner (1. Fixed relative market shares 2. Marketwide price discrimination 3. Exchanges of price information 4. Regional price variations 5. Identical bids for nonstandard products 6. Price, output, and capacity changes at the formation of the cartel 7. Industry-wide resale price maintenance 8. Declining market shares of leaders 9. Amplitude and fluctuation of price changes 10. Demand elastic at the market price 11. Level and pattern of profits 12. Market price inversely correlated with number of firms or elasticity of demand 13. Basing-point pricing 14. Exclusionary practices5) to support the hypothesis of the existence of the cartel.
- Facilitating practices. Conducts that make easier the collusion among the competitors. Some examples are the information exchange, price signaling, unnecessarily restrictive products standards, etc.
- Conduct evidence. Consist in evidence of strange behaviors of the firms that are not consistent with a competitive environment or that are contrary to the parties´ unilateral self-interest.
- Communication Evidence: Only probes that the members of the cartel met or communicated but do not say anything about the content of the communications.
In sum, in Colombia parallel behavior per se is not illegal. It must be proven that the parallel behavior is the consequence of an agreement among the competitors to avoid competition to sanction it.
- A Theory of Tacit Collusion. Joseph E. Harrington, Jr. Department of Economics Johns Hopkins University Baltimore, MD 21218 410-516-7615, -7600 (Fax) joe.harrington@jhu.edu www.econ.jhu.edu/People/Harrington January 2012.
- The Economics of Tacit Collusion Marc Ivaldi, Bruno Jullien, Patrick Rey, Paul Seabright, Jean Tirole IDEI, Toulouse March 2003.
- 1975 Oligopolistic Pricing Suits, the Sherman Act, and Economic Welfare: A Reply to Professor Markovits Richard A. Posner.
- OECD. Glossary of Statical Terms. Concious Parallelism.
- PLUS FACTORS AND AGREEMENT IN ANTITRUST LAW† William E. Kovacic, Robert C. Marshall, Leslie M. Marx, Halbert L. White. 2011.