Introduction

Prices are rising across the board, generating anger and frustration among voters. Price hikes have many causes, such as COVID-related supply shocks and the war in Ukraine. But one accelerant of inflation – price hikes from profiteering among dominant firms – stands out. American corporate profits have skyrocketed from $1 trillion in 2019 to $1.7 trillion in 2021,^[1] with profit margin expansion from “pricing power” as a key story Wall Street analysts are telling.^[2] This profit margin expansion is concentrated among large firms in dominant industries, not smaller firms without bargaining power. This proposal will describe the legal context that enables this profiteering by monopolists, and show how a simple tweak to price-fixing laws would help end this profit-price spiral.

CEOs regularly brag about their pricing power on investor calls, which can be a signal to competitors to keep prices high and create a “shared monopoly” in an industry. Traditionally, antitrust enforcers would see such rhetoric as an invitation to investigate firms for price-fixing. However, laws against price-fixing have been watered down by the courts, with one result being the endless parade of executives talking about price increases, and the acceleration of inflation due to this profiteering in concentrated industries. While most policies to address inflation will take time, policymakers can change laws around price-fixing among firms in highly concentrated industries, which will instantly caution firms against this collusive pricing behavior that results in higher prices and excess profits.

America’s concentration problem is well-documented. 75% of U.S. industries have become more concentrated since 2000 due to lax enforcement of antitrust laws.^[3] Firms in highly concentrated industries can engage in coordinated price hikes and/or wage suppression without triggering obvious alarm among antitrust enforcers. Consider behavior in the insulin market, with 13 tandem price increases between Sanofi and Novo Nordisk between 2009 and 2016, most within 24 hours of each other.^[4] This kind of behavior is also apparent in markets for everything from DRAM chips and titanium dioxide to containerboard. Rarely are coordinated price increases primarily motivated by changes in supply or demand. Yet with court decisions such as Valspar Corp. v. Du Pont, 873 F.3d 185 (2017) and Indirect Purchaser v. Samsung Elecs. Co., No. 21-15125 (D.C., 2022), this behavior is effectively presumed legal.

Courts have determined that parties injured by collusive activity must provide exceptional evidence that the collusion was explicit, and not the result of “tacit collusion” or “conscious parallelism,” before even getting the opportunity to conduct in-depth factual discovery. This standard means such cases rarely survive a motion to dismiss or motion to summary judgment, thus blocking credible price-fixing cases. See Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).

The following legal proposal hits the profit-price spiral in a number of ways. Sometimes unfair price hikes happen because companies in concentrated industries can collectively increase how much they charge for products without ever specifically agreeing to do so. Sometimes low wages occur because these same companies can collectively agree to suppress wages based on indirect communication.^[5] Sometimes unfair price hikes happen because courts prematurely dismiss cases alleging collusion. And sometimes unfair price hikes happen because whistleblowers are too afraid of retribution to come forward. This draft legislation will provide enforcers with the tools necessary to address tacit and explicit forms of price-fixing collusion in all these situations.

The proposed law has five parts:

First, the Act would simplify the process of proving a price-fixing conspiracy by shifting the burden of proof on defendants who engage in parallel pricing and other conduct consistent with conspiracy to show that they are not, in fact, working to fix prices.

Second, the Act would fill an important gap in the law, namely, where plaintiffs allege circumstantial evidence of collusion, but where such evidence may be consistent with “conscious parallelism.” The Supreme Court has decided that such cases may typically be dismissed before any discovery or trial.  This legislation corrects this error, and confirms that plaintiffs’ cases may survive motions to dismiss or motions for summary judgment where plaintiffs allege circumstantial evidence of collusion.

Third, the Act would confirm for courts that defendants who violate price-fixing laws may be barred from working in the industries in which they broke the law, either indefinitely or for a period of time.

Fourth, the Act would prevent plaintiffs from being forced to pursue allegations of violations of the price-fixing laws through arbitration, rather than litigation.

Fifth, the Act would broaden a whistleblower program for those who see companies conspiring to violate the antitrust laws.  This whistleblower protection, modeled after that created for the Securities and Exchange Commission in the wake of the financial crisis, would prohibit companies, their customers, or their suppliers, from retaliating against those who complain about allegedly illegal conduct. It would also entitle whistleblowers to a portion of companies’ fines that result from their disclosures.

Notes

[1] St. Louis Federal Reserve, Federal Reserve Economic Data, Nonfinancial Corporate Business: Profits After Tax. https://fred.stlouisfed.org/series/NFCPATAX

[2] Bloomberg, “The Bull Market Keeps Running Thanks to Growing Profit Forecasts,” December 28, 2021. https://www.bloomberg.com/news/articles/2021-12-28/big-s-p-500-bull-case-lives-on-in-unwavering-profit-forecasts?sref=q0qR8k34

[3] Gustavo Grullon, Yelena Larkin, Roni Michaely, Are US Industries Becoming More Concentrated?, Review of Finance, Volume 23, Issue 4, July 2019, Pages 697–743, https://doi.org/10.1093/rof/rfz007

[4] Request for Study and Investigation into the Market Structure of the Insulin Industry and Potential

Collusion Between Insulin Manufacturers, March 10, 2021. http://www.economicliberties.us/wp-content/uploads/2021/03/Insulin_Investigation_FTCLetter.pdf

[5] Matt Stoller, “Monopolies Take a Fifth of Your Wages,” BIG, March 7, 2022. https://mattstoller.substack.com/p/monopolies-take-a-fifth-of-your-wages?s=r