Identifying Sherman Act Violations
The most common violations of the Sherman Actand the violations
most likely to be prosecuted criminallyare price fixing, bid rigging,
and territorial or customer allocation among competitors (commonly described
as "horizontal agreements"). This section will identify and describe the
various types of horizontal price-fixing, bid-rigging and market-allocation
agreements, as well as describe the methods of detecting these violations.
These descriptions should be useful for investigative planning by U.S.
Attorneys, Special Agents of the Federal Bureau of Investigation, and other
federal investigators. For further guidance, see An Antitrust Primer for
Federal Prosecutors, Antitrust Division, September 1994. Vertical resale
price maintenance, which is an agreement on price between a manufacturer and
its distributors (or a distributor and its retailers), may not be prosecuted
criminally, although such agreements are per se unlawful, because of the
difficulty of distinguishing between vertical price agreements and other
vertical restraints, such as exclusive territories, that are judged under
the Rule of Reason.|
Identifying Price-Fixing Activities: Price fixing generally
involves any agreement between competitors to tamper with prices or price
levels, or terms and conditions of sale (e.g., interest rates for consumer
credit), for commodities or services. Generally speaking, price fixing
involves an agreement by two or more competing producers of a specific
commodity, or competing providers of a particular service, in a defined
geographic area, to raise, set or maintain prices for their goods or
services. It may take place at either the wholesale or retail level and,
although it need not involve every competitor in a particular market, it
usually involves most of the competitors in the particular market.
In its most common form, price fixing is an agreement to raise the
price of a product or service to or by a specific amount, e.g., all widget
manufacturers agree to a 5 percent increase in price effective June 1.
Other manifestations of price fixing include the following:
- Agreements to establish or adhere to uniform price discounts;
- Agreements to eliminate discounts to all customers or certain types of
- Agreements to adopt a specific formula for the computation of selling
- Agreements on terms and conditions of sale, including uniform freight
charges, quantity discounts, or other differentials that affect the actual
price of the product; and
- Agreements not to advertise prices or to refuse to sell the product
through any bidding process.
The fact that all competitors charge the same price, or use the
same terms of sale, is not, by itself, evidence of a price-fixing conspiracy
because similar prices may in fact be the outcome of competition. However,
where price increases are announced by all competitors at the same time, or
prior to a uniform effective date, there is a substantial likelihood of
Further, the fact that all prices are not identical does not
indicate the absence of a conspiracy. For example, one company may have
traditionally sold at a price lower than the others and, when a general
increase in price occurs, the company with the lower price may adopt the
same percentage or absolute increase as the others.
Records of changes or prices, including price lists, price-change
notices and company memoranda relating to price analysis, are all helpful in
determining the existence of a conspiracy. In addition, evidence of
competitors' meetings or telephone conversations raise the possibility of
collusion, and such evidence usually comprises the most effective
circumstantial form of proof in price-fixing cases. Antitrust conspiracy
cases, however, like other conspiracy cases, generally require testimony
from a member of the conspiracy.
Identifying Bid-Rigging Activities: Bid rigging generally
involves an agreement or arrangement among companies to determine the
successful bidder in advance of a bid letting at a price set by the
successful bidder. The agreed-upon winning bidder customarily advises the
other potential bidders of a bid amount they must exceed (usually the amount
of the winning bid or a certain amount above that bid). The higher bids
submitted by the other bidders are generally known as complementary bids.
(In the case of offers to buy, the complementary bids will generally be
lower than the winning bid.) Also, some potential bidders may agree to
refrain from bidding on a particular project. In most bid-rigging
situations, the conspirators endeavor to submit three or more bids on the
project to create the appearance that competitive bidding has occurred.
In other situations, the potential bidders may agree to (a) rotate
the projects among themselves, thereby ensuring that each gets some work,
(b) allocate geographic areas, or (c) divide the project by granting
subcontracts to complementary bidders for portions of the work. Where
companies that submitted high bids on a specific project are later
identified as project subcontractors, the bids should be analyzed
The Antitrust Division has worked with many federal and state
agencies to identify the most effective methods of detecting bid rigging.
Based on experience in this area, the most useful bid analysis techniques
usually require careful study of records of the bid, including an initial
screening of bid submissions to determine:
- Whether there was any cost estimate for the project prepared
by the governmental or private authority letting the bids, and if so,
whether the low bidder's final price exceeded the estimate. It is also
important to know whether the bidders and potential bidders were aware of
the cost estimate prior to bidding since the bidders could use that
information to set their agreed-upon low bid at or not too far above the
estimate without serious danger that the bids will be rejected as too high.
Bidders ordinarily know the percentile range above the estimate of cost that
the bidding authority is likely to accept before the bidding authority would
recommend rejecting the bids and rebidding the project; and
- Whether there was a small number of proposed bidders for a project. As
a practical matter, when there are a large number of bidders, e.g., more
than six, for a project, it is more difficult, although not impossible, to
rig the bids.
After this initial screening, suspicious bids should be analyzed for the
following practices, which are frequently indicia of
- Qualified bidders fail to bid or, more specifically, the
logical bidders for the job fail to bid;
- Certain contractors repeatedly bid against one another or, conversely,
certain contractors never bid against one another;
- Successful bidders repeatedly subcontract work to companies that
submitted higher bids on the same project, or to companies that requested or
received proposals for bids but did not submit bids;
- Different groups of contractors appear to specialize in winning bids
from certain kinds of customers to the exclusion of others, suggesting that
customers have been allocated among the bidders;
- A particular contractor appears to bid substantially higher on some bids
than on other bids within the same period of time and geographic area (where
there would be little or no difference in material, manpower, or
transportation costs for the projects). This can be detected if the bids
are submitted with item-by-item cost listings (line-item basis) rather than
by a single price;
- A particular contractor always wins the projects in a certain geographic
area and there are no obvious competitive reasons why this should be so;
- Certain contractors submit bids frequently in a given geographic area
but never win there;
- Identical bid amounts on particular line items are submitted by two or
more contractors. In some instances, identical line-item bids can be
explained, since suppliers often quote the same prices to several bidders.
However, a large number of identical bid items, or identical bids on any
service-related item, should be viewed critically;
- Contractors previously convicted of bid rigging in other states or areas
- Joint-venture bids are submitted where either contractor in the venture
could have bid individually as the prime contractor; and
- The original bidders fail to rebid when the original bids were rejected
for being too far over estimate, or a rebidding results in the same bidders
being ranked in the same order as on the original bidding.
The Deputy Assistant Attorney General for Criminal Enforcement, or the
chief of the local Antitrust Division field office, can aid in determining
how to analyze bid data. The Antitrust Division's Information Systems
Support Group (ISSG) has conducted analyses of bid data, and can provide
specific technical assistance, as can the offices of inspectors general in
several federal agencies.
In addition to the analysis of data that is essential in a
bid-rigging investigation, the most important evidence to be developed
relates to meetings or discussions of bids among the competing bidders.
Often, they meet at the bid-letting site to finalize their bids; this is
also where agreements to rig bids are often established. To determine what
actually occurred at these meetings, it is frequently necessary to rely on
the testimony of participants in the conspiracy who are willing to
Identifying Other Per Se Violations of the Sherman Act: In
addition to price fixing and bid rigging, there are two other types of per
se illegal agreements among competitors that may be detected. These are
horizontal customer allocation and territorial allocation agreements.
Horizontal customer allocation is an agreement among competitors at
the same level of distribution of a product or service that each will
service certain designated customers or classes of customers and will not
attempt to compete, or will limit the manner in which they will compete, for
the business of customers allocated to a competitor.
Horizontal territorial allocation is an agreement among competitors
at the same level of distribution of a product or service to solicit or
service customers only within a certain geographic area. The competitors
who agree to this type of arrangement will often reject business from
customers in another's territory. Both customer and territorial allocation
schemes result in an absence of competition in prices and choice of products
for the affected customers.