Saturday, September 23, 2023

The ar-thar-i-tis defense to price fixing

In the late 1980's, I was working at the Antitrust Division of the U.S. Dept of Justice, when I was sent to Iowa to support a price-fixing case against the only two gas stations at the same exit on a highway.  Every morning, one station owner would call up the other and ask "what are you charging for gasoline today?"  

He would answer, e.g., "$1.99," and then the first owner climbed up a ladder to change the numbers on her sign to match that price.  

These kinds of conversations are thought to be so bad that they are per-se illegal, i.e., there is no justification for having them other than to fix prices.  If convicted of criminal price fixing, the sentence is one-to-ten years in prison.  

This particular conspiracy was discovered when a disgruntled ex-employee reported it to the Local US Attorney's office, who then told us.  The FBI tapped their phones, and we recorded them having the same conversation each morning.   And just to make sure, we "flipped" the second station owner by offering immunity in exchange for his testimony against the "ring leader," the old lady who initiated the call.  Then I bought a blue pinstripe suit and flew out with the rest of the trial team to Iowa to break up the conspiracy and put the bad guys in prison.  

At trial, we played the recordings, explained the law, and rested our case.  

When lanky defense attorney came out in a wrinkled, white linen suit, looking and speaking suspiciously like Mark Twain.  He called his first and only witness, the "alleged ringleader of this so-called conspiracy."

Once he established that if they charged different prices, the station with the higher price would not get any customers, he asked his client "Ms. Smith, can you tell me about your ar-thar-i-tis?"

"Oh, it hurts so bad that I can barely make it to the top of the ladder."

"Now you know that you are not supposed to discuss prices with your competitors?"

"I did not discuss prices--but my ar-thar-i-tis hurts so bad that I can climb up only once a day.  If I don't make that phone call, I can be stuck with the wrong price all day.  

The jury deliberated an hour when the foreman came out to deliver the verdict, wearing ill-fitting blue jeans over which you could see the top of his inter-gluteal crevice: "not guilty on all counts."  We got "home-fried."

2 comments:

  1. Victimless.

    All voluntary transactions. The market would limit the two sellers to the market price at surrounding exits plus the premium for traveling there.

    Vivek, put "Antitrust Division of the U.S. Dept of Justice" on your hit list of useless federal departments and shut it down.

    ReplyDelete
    Replies
    1. The free market works anytime we have the courage to let it.

      Delete