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Democracy & Technology Blog Conspiracy or rational business judgment?

Why didn’t the Baby Bells compete with one another when Congress ended their exclusive franchises in 1996? Each possessed the necessary expertise and vast resources. The FCC was most eager to help. Did the Baby Bells conspire to carve up their territories in order to maintain their respective monopolies?
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In Bell Atlantic Corp. v. Twombly, counsel for Twombly allege that they did, though they can’t cite any direct evidence. The Supreme Court heard oral arguments yesterday. Counsel for Twombly are alleging, for now, that a conspiracy can be inferred. Their logic is it would have been in the Bells’ self-interest to compete. And they even told Congress they would. But they didn’t. Each fought to get in the long-distance market while ignoring the local market. This common behavior, or “parallel course of conduct,” doesn’t make any sense, the argument goes, unless there was a conspiracy to protect each other. Well, yes it could.

JUSTICE GINSBURG: … You say … they were acting against their self- interest … and I’m questioning that by saying that they might have seen this whole area as not the best place to invest their money.

As I have noted before, the Baby Bells targeted the long-distance market, because regulation allowed fat profit margins despite declining costs. They avoided local competition because regulation kept prices below cost or because the UNE-P regulation made facilities investment uneconomical and it was legally unsustainable (the courts repeatedly struck it down, see, e.g., USTA v. FCC (2004)).
Assistant Attorney General for Antitrust Thomas G. Barnett pointed out that parallel conduct is “ubiquitous in our economy” but “conscious parallelism” is not an agreement within the meaning of Section 1 of the Sherman Act. Counsel for Twombly are hoping to get a court’s permission to examine documents and question executives of the Baby Bells in order to come up with more compelling evidence. Think of the billable hours!
Conscious parallelism is hypothetically possible, of course, but imagine trying to define it for purposes of antitrust enforcement?

CHIEF JUSTICE ROBERTS: … would it state an antitrust violation if you had a grocery store on one corner of the block and a pet store on the other corner of the block and you say, well, the grocery store is not selling pet supplies and they could make money if they did, therefore that’s an antitrust violation?

The danger of relying on inferences of agreement to convict under the Sherman Act is placing bureaucrats and judges in the posibition of having to second-guess a potentially wide range of business decisions.

JUSTICE BREYER: I thought the law to date was that the Department of Justice is not given by the Sherman Act the authority to remake the entire American economy. But if we accept your view I guess it is.

The marketplace constantly defies the expectations of professional managers and investors, and no one has ever shown that public officials can do a better job.

JUSTICE SCALIA: I used to work in the field of telecommunications and if the criterion is [what] Congress expected to happen when it passed its law, your case is very weak.

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Transcript of the Oral Argument (Nov. 27, 2006)
Brief for Petitioners Bell Atlantic Corp et al. (Aug. 25, 2006)
Brief for Respondents Twombly et al. (Oct. 13, 2006)

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.