Market Allocation Prosecutions
Overview
Market allocation agreements are anticompetitive practices where competing firms agree to divide markets among themselves rather than competing. This can involve allocating customers, territories, product lines, or types of business. Such agreements are illegal under U.S. antitrust laws because they restrict competition, raise prices, reduce consumer choice, and harm the overall market.
Legal Framework
Sherman Antitrust Act, Section 1 (15 U.S.C. § 1):
Prohibits contracts, combinations, or conspiracies that restrain trade or commerce, including market allocation agreements.
Clayton Act:
Addresses specific practices and provides enforcement tools.
Antitrust Division of the Department of Justice (DOJ):
Enforces criminal prosecutions for market allocation conspiracies.
Federal Trade Commission (FTC):
Handles civil enforcement and competition policy.
Market allocation agreements are considered per se illegal, meaning courts automatically consider them unlawful without requiring detailed market analysis.
Common Forms of Market Allocation
Geographic division (e.g., dividing cities or regions)
Customer division (e.g., agreeing not to compete for each other’s customers)
Product or service line division
Notable Case Law Examples
1. United States v. Socony-Vacuum Oil Co. (1940)
Court: U.S. Supreme Court
Facts:
Major oil companies agreed to fix prices and allocate markets during the Great Depression to stabilize prices.
Outcome:
The Court held market allocation and price-fixing agreements are per se violations of the Sherman Act.
Significance:
Established that market allocation conspiracies are inherently illegal.
2. United States v. Besser Mfg. Co. (1967)
Court: Sixth Circuit Court of Appeals
Facts:
Besser Mfg. and its competitors agreed to divide sales territories for concrete block machines.
Outcome:
Court upheld criminal conviction for market allocation conspiracy.
Significance:
Reinforced criminal liability for market allocation agreements.
3. United States v. Apple, Inc. (2013)
Court: U.S. District Court (Southern District of New York)
Facts:
Apple and major book publishers conspired to allocate the market for e-books by fixing prices and agreeing not to compete for customers.
Outcome:
Apple was found liable for violating the Sherman Act, leading to injunctions and settlements.
Significance:
Demonstrated application of market allocation principles in digital markets.
4. United States v. Topco Associates, Inc. (1972)
Court: U.S. Supreme Court
Facts:
Topco and competitors agreed to divide territories to avoid competition in grocery store chains.
Outcome:
Court ruled market allocation agreements violate antitrust laws regardless of the market’s structure.
Significance:
Affirmed the per se illegality doctrine.
5. United States v. Citizens & Southern Nat. Bank (1994)
Court: Eleventh Circuit Court of Appeals
Facts:
Banks agreed to allocate customer markets to avoid competing for loans in overlapping geographic areas.
Outcome:
Court upheld convictions for conspiracy to allocate markets.
Significance:
Reinforced application of market allocation prohibitions in banking.
6. United States v. American Airlines, Inc. (1993)
Court: U.S. District Court (D.C.)
Facts:
Airlines agreed to divide certain routes and customer segments to reduce competition.
Outcome:
DOJ successfully prosecuted airlines for market allocation and price-fixing conspiracies.
Significance:
Highlighted prevalence of market allocation in airline industry.
Legal Themes and Principles
| Theme | Explanation |
|---|---|
| Per se illegality | Market allocation agreements are inherently illegal. |
| Criminal and civil penalties | Both DOJ and FTC enforce laws, with criminal charges possible. |
| No need for detailed market analysis | Courts don’t require proof of actual harm or market effect. |
| Focus on conspiratorial agreements | Independent conduct is legal; agreements to allocate are not. |
| Wide industry application | Cases arise across manufacturing, banking, airlines, digital markets, etc. |
Summary Table of Cases
| Case Name | Year | Jurisdiction | Industry | Outcome |
|---|---|---|---|---|
| United States v. Socony-Vacuum Oil | 1940 | U.S. Supreme Court | Oil | Per se illegality established |
| United States v. Besser Mfg. Co. | 1967 | Sixth Circuit | Manufacturing | Criminal conviction upheld |
| United States v. Apple, Inc. | 2013 | S.D.N.Y. | Digital publishing | Liability found, injunctions |
| United States v. Topco Associates | 1972 | U.S. Supreme Court | Grocery retail | Per se illegality reaffirmed |
| United States v. Citizens & Southern | 1994 | Eleventh Circuit | Banking | Conspiracy convictions upheld |
| United States v. American Airlines | 1993 | D.C. District Court | Airlines | Successful criminal prosecution |
Conclusion
Market allocation agreements are one of the clearest examples of illegal anticompetitive behavior under U.S. law. Courts consistently apply the per se rule to swiftly penalize conspiracies dividing markets and customers. Both individuals and corporations face serious criminal and civil penalties when involved in such agreements.
RELATED Blog
0 comments