Monday, April 17, 2006, 12:10 PM

Supreme Court Holds Pricing Decisions Of A Joint Venture Not Per Se Illegal Horizontal Price Fixing

On February 28, 2006 the Supreme Court held in Texaco, Inc. v. Dagher that the pricing decisions of a legitimate a joint venture -- "an important and increasingly popular form of business organization" -- do not fall within the narrow category of per se unlawful horizontal price fixing.

Section 1 of the Sherman Act prohibits "[e]very contract, combination ... or conspiracy in restraint of trade or commerce among the several States." 15 U.S.C. 1. Although Courts have long recognized that Congress intended to outlaw only unreasonable restraints of trade, some types of agreements are so plainly anticompetitive that no elaborate study is needed to establish their illegality. Horizontal price fixing -- price fixing agreements between two or more competitors -- is an example of conduct which the Court has labeled per se illegal.

The question in Dagher was whether Texaco and Shell Oil could be found per se liable for horizontal price fixing because they set the prices at which their joint venture, known as Equilon, sold its gasoline. Finding that participants in a joint venture are not per se liable for price fixing, the Court explained: "Texaco and Shell Oil did not compete with one another in the relevant market -- namely, the sale of gasoline to service stations in the western United States -- but instead participated in that market jointly through their investments in Equilon. In other words, the pricing policy challenged here amounts to little more than price setting by a single entity -- albeit within the context of a joint venture -- and not a pricing agreement between competing entities with respect to their competing products." Although this was price fixing in a literal sense, the Court held that it was not price fixing in the antitrust sense.

For a discussion of Justice Thomas's characterization of vertical price fixing in Dagher see this post.

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