… imagine how a predatory pricing lawsuit could be used
to help organize the tacit collusion scheme in a legally privileged
way. The plaintiff firm, unhappy with price cuts by a rival,
files a complaint detailing exactly what is wrong with the defendant’s
price cuts and what reasonable prices would be. Then
follows a prolonged period of discovery—often years—in
which the parties exchange reams of sensitive competitive documents
and senior executives testify about their pricing strategies,
business plans, productive capacity, costs, and many more
pieces of business information that will come very handy to
both sides when considering future pricing and output decisions.
While discovery and trial takes place, a judge will be
closely scrutinizing the parties’ pricing behavior and perhaps
even enjoining the defendant from lowering its prices during
the pendency of the lawsuit. Several judges have issued injunctions
against defendants, prohibiting them from lowering their
prices until a final adjudication of the case. So there we have
several ingredients of a successful tacit collusion scheme: price
signaling, information exchange, policing mechanisms, and
even sanctions for deviating from supracompetitive prices.