Monday, May 15, 2006, 2:54 PM

FTC Consent Order Involving A Public Invitation To Collude

On March 14, 2006, the FTC announced a consent order settling FTC's complaint with Valassis Communications, Inc., a leading producer of free-standing newspaper inserts. The FTC complaint alleged that, during Valassis' quarterly earnings conference call, the company's president invited its direct competitor, News America, to join in a scheme to allocate customers and fix prices, thereby ending an ongoing price war between the two companies. Specifically, the company's president stated that Valassis would: (1) abandon its efforts to regain a 50% market share; (2) defend its existing customer base and market share; (3) increase prices above the current market price for current News America customers; and (4) monitor News America's response to its new business strategy. The FTC's Complaint charged that Valassis' conduct was anticompetitive and constituted a violation of section 5 of the FTC Act because, if the invitation had been accepted, it would have resulted in higher prices and reduced output.

In the past, the FTC has used the FTC Act--rather than the Sherman Act--to address "invitations to collude" because such "invitations" may not constitute an "agreement" under the Sherman Act. What is unique about the Valassis case, however, is that the alleged invitation to collude occurred during a public earnings call with securities analysts rather than a private communication between competitors.

"Collusive agreements to fix prices or allocate markets are condemned by the antitrust laws," said Jeffery Schmidt, Director of FTC's Bureau of Competition. "The action taken by the Commission today demonstrates that the FTC will protect consumers by challenging, in appropriate circumstances, invitations to collude before the invitations are accepted and become agreements to fix prices or divide markets."

The Valassis case demonstrates the care that companies must take whenever they disclose (publicly or privately) pricing strategies and market share goals.

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