Harris, Harold M., Jr.

English

Research Papers in Economics

SOUTHERN JOURNAL OF AGRICULTURAL ECONOMICS  JULY, 1978
DISCUSSION:  THE INCIDENCE,  NATURE,  AND
IMPLICATIONS  OF PRICE-FIXING  LITIGATION
IN  U.S.  FOOD  INDUSTRIES
H. M.  Harris, Jr.
Professors Polopolus and Wershow have pre-  some  of  the  criticisms  that have  been  levied
pared  an  informative  and  thought-provoking  against the antitrust litigation process and its
article.  A major  strength is their illuminating  impact. Included are costs of enforcement  and
focus on the role of the agricultural economist  litigation,  the  perverse  incentive  of  treble
in antitrust litigation. Particularly revealing is  damages, and the problem of unwarranted  out-
the  discussion  of  the  unique  attorney-econo-  of-court settlements. To reinforce the last criti-
mist  partnership  involved  in  most  antitrust  cism of the process,  an attorney  acquaintance
cases.  The  agricultural  economist  can  indeed  of mine, formerly with the Department of Jus-
find  himself  bewildered  and frustrated  in his  tice and now a partner in a law firm  handling
role as an expert witness.  antitrust  cases,  estimated  to  me that  90  per-
The home court is that of the attorney.  The  cent  of  all  antitrust  cases  initiated  are  not
rules  of the  game  are  his.  These rules,  as the  brought to trial.
authors  point  out,  are  geared  to  legal  prece-  With  one  exception,  which  will  be  com-
dence,  to  Socratic  dialogue,  to  yes-no  and  mented on, the examples of recent litigation in
black-white  answers,  and  ultimately  to  a  the food industry are well chosen. But with re-
guilty-not guilty verdict. The adversary nature  spect  to  the  numbers  presented  in  Table  1,
of  the proceedings  creates  an  environment  of  some  questions  arise.  The  fact that the  food
much  more  perceived  hostility  than  that  in-  antitrust  cases  represented  only  4  percent  of
volved  in submitting  research  results  to  peer  all  actions  during  the  1966-1977  period  was
reviewers  or  in  making  presentations  to  "surprising" to the authors. This figure frank-
farmers,  businessmen,  or  policy  makers.  A  ly amazes me.
paraphrase  of a Kenneth Boulding verse illus-  For the period  1956-1965  the National  Com-
trates the situation:  mission  on  Food  Marketing reported  that  of
603  suits filed  by the Department  of Justice,
Lawyers must be rather dense.  56  cases  or  more than  9  percent  were  in  the
Their model is rule of precedence.  food industry [4,  pp. 166-167].  My calculations
Economists, it should be said,  indicate that about 70 percent  of the reported
Prefer to have a rule of head .... '  food cases brought by Justice involved alleged
price  fixing  or  similar  offenses  [4,  pp.  156-
I  agree  with  the  conclusion  of  the authors  165].  Of  861  monopoly  cease  and  desist
that  agricultural  economists  have  an  impor-  orders  issued  by  the Federal  Trade  Commis-
tant  and growing role  to play in price  fixing  sion during this period,  241 or 28 percent were
and other  antitrust  litigation.  Before  one  ac-  in the food industry [4, pp. 190-191].
cepts the role  of an  expert  witness  in such  a  Note that the Polopolus-Wershow  figures are
case,  he  or  she would  be well  advised  to read  not directly  comparable  with the earlier Food
the Polopolus-Wershow  paper for a foretaste of  Commission  data,  because  the former  include
what lies ahead. The authors  refer to an inter-  private  suits  as  well  as  government  cases.
communication  gap between the disciplines  of  Also,  the authors have enumerated  only cases
agricultural economics  and law, and in the pro-  at  the  appellate  court  or  FTC  order  level.
cess have narrowed this gap.  Nevertheless,  because  the  number  of  FTC
A second strength is  the excellent  review of  monopoly  orders  in  the food  industry,  as  re-
IH-.  M.  Harris.  Jr. is  Associate Professor of Agricultural Econoinics.  Clemson  University.
'In the original Houlding verse, quoted from The Struc  ture of Economic Scicnce.  Sherman  Roy  Krupp. ed.. Englewood  Cliffs. New Jersey:  Prentice-Hall.  Inc..
1966.i,  page 6.  the first  two lines are:
IBusiness men are rat her dumh.
'I'heir  model is the rule of t  hrumb.
9ported by the Commission on Food Marketing  are poles apart in terms of preserving competi-
for the earlier 10-year period, exceeds by a con-  tion.  Polopolus  and  Wershow,  by  citing  the
siderable  margin  the  total  number  of  food  Elzinga  and  Hogarty  conclusion  that  price
cases cited by the authors, one might draw the  discrimination  can  signal  a  breakdown  in
conclusion  that antimonopoly  activity  in  the  market power and a movement toward compet-
industry  has  declined.  Has  the  industry  itive equilibrium,  seem  to agree  [2,  p.  38].  So
become  more  competitive?  If  this  were  the  why do they categorize them together?
case,  the authors'  Proposition  1, which  states  The latest  example  of the divergent  impact
that price  fixing  litigation  has not  been  ade-  of price fixing versus price discrimination  liti-
quately effective, would be subject to question.  gation may be the recent U. S. Gypsum case in
Nor  does  the  apparent  recent  low  level  of  Pittsburg  [7].  The  court  ruled  that  the  ex-
antitrust litigation in the food industry corres-  change  of  price  information  among  competi-
pond to current levels  of reported activity by  tors  did  not  constitute  price  fixing.  The
Justice  and  the FTC.  Russell  Parker  reports  successful  defense  maintained  that  the  infor-
that between  1972 and 1975 both the FTC and  mation exchange  was  necessary  to avoid  pro-
the Department  of  Justice  responded  to  con-  secution on price discrimination charges under
cern over food prices by "increasing dramatic-  the Robinson-Patman Act. In the words of one
ally the amount of their resources spent on in-  critic, Uta Pie ranks "as the most anticompeti-
vestigations involving food processing and re-  tive antitrust decision of the decade"  [1].  U. S.
tailing companies."  He goes  on to report that  Gypsum may take that dubious  honor for the
in  1975  FTC  spent  about  a  fifth  of its  total  1970s. The Supreme Court, on October 3, 1977,
antitrust resources  in the food area [5,  p.  854].  did grant a petition of certiorari.
Parker  further  notes  that  within  the  overall  CONC  TH  HT
conduct  area,  there  is "an  increasing  zeal  for
price fixing cases and a declining zeal for most  ri  r 
other per se cases"  [5,  p.  859].  Yet Polopolus  e  artle  b  Polopolus  and  Wershow  is
and  Wershow  conclude  public  enforcement  understandablyoriented  to the role of the agri-
agencies  have been  relatively  inactive  in food  cultural  economist  in  the  process  of  actual
price  fixing  cases  in  1975  and  succeeding  price  fixing  litigation.  What  about  the  more
years.  To summarize,  the data  so  laboriously  traditional,  everyday  roles of the  agricultural
gathered  by Polopolus  and  Wershow  may be gathered  by Polopolus  and  Wershow  may be  economist as a researcher or extension worker?
telling us something, but it is unclear  exactly  The  lack of  tools  to  describe  and  measure
whateln  usotigbtiiunerecl  conduct is the weakest link in the basic struc-
ture-conduct-performance  model.  The  theory
A  POINT  OF  ISSUE  would  be enriched  considerably  with more in-
formation  on  the  price  discovery  process  in
I  have  only  one  major  disagreement  with  oligopolistic markets.  My experience has  been
Polopolus and Wershow. They  have chosen to  that it is sometimes embarrassingly easy to ob-
lump price fixing and price discrimination liti-  tain information on firms' pricing decision pro-
gation  together.  Admittedly,  in  isolated  in-  cesses,  potential  illegality  notwithstanding.
stances these two conduct offenses are difficult  The  problem  is,  when  pricing  behavior skirts
to differentiate,  and both charges actually may  violation of the antitrust statutes, one cannot
be alleged  in  the same  suit.  In  general,  how-  publish  the findings.  To  do  so would subject
ever, this is not the case.  Utah Pie, cited by the  the economist to subpoena and subsequent vio-
authors, provides an excellent example  [8]. The  lation  of  the  "confidential"  status  given  to
authors neglected  to point  out that the Utah  firms  from  which  information  was  obtained.
Pie Company initially held 66.5 percent of the  Such  disclosures  could  ultimately  undermine
relevant market, which under Aloca standards  agribusiness support for the land grant univer-
could  have  been  considered  monopolistically  sity. This  is  a  dilemma  for which  there  is  no
controlled  [6].  During  the  four-year  period  of  easy solution.
geographic  price  discrimination  by  national  Finally,  the  Polopolus-Wershow  article,  by
food processors, the firm actually increased its  enumerating  some of the perverse  impacts  of
sales and profits.  The most tangible  evidence  price fixing litigation in particular and conduct
of injury  to Utah Pie was  a decline in market  regulation  in  general,  raises  the old  issue  of
share  to 45.3 percent of frozen pie sales. How  whether we regulate the conduct of firms that
were  the  national  firms  to  penetrate  the  have  market  power  or  attack  the  structure
market  while  avoiding  the  charge?  Only  by  which  makes  anticompetitive  behavior  pos-
lowering their price structure in all U.S. mark-  sible. This issue is clearly beyond the assigned
ets  could  they  have  done  so  [3,  p.  28].  Such  scope  of  the  authors,  but  their  conclusions
suits and interpretations  are indicative  of the  demonstrate that the question should continue
fact that price fixing and price discrimination  to be in the forefront of our interest.
10REFERENCES
[1]  Bowman, Ward S. "Restraint of Trade by the Supreme Court:  The Utah Pie Case,"  Yale Law
Journal, Volume 77, pg. 70, 1967.
[2]  Elzinga,  Kenneth  G. and Thomas  F. Hogarty.  "Utah Pie and the Consequences  of Robinson
Patman," unpublished manuscript.
[3]  Harris,  H. M., Jr., R. D.  Knutson, and C.  E. French.  "An Economics Analysis of Policies Pro-
tecting Small Business in the Milk  Industry,"  Southern Journal of Agricultural  Econom-
ics, Volume 5,  December 1973.
[4]  National Commission on Food Marketing. Special Studies in Food Marketing, Technical Study
Number 10, June 1966.
[51  Parker, Russell C. "Antitrust Issues in the Food Industries,"  American Journal  of Agricultur-
al Economics, Volume 58, December 1976.
[61  U. S. vs. Aluminum Company of America, 148 F. 2nd 416 (2nd. Cir.), 1945.
[7]  U. S. vs.  U. S. Gypsum Company, 550 F. 2nd.  115,  1977.
[81  Utah Pie  Company vs. Continental  Baking Company, 386 U. S. 685, 1967.
11

DISCUSSION: THE INCIDENCE, NATURE, AND IMPLICATIONS OF PRICE-FIXING LITIGATION IN U.S. FOOD INDUSTRIES

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