Question

Due to recent significant cost increases, several competing road construction businesses decided to allocate construction projects among themselves based upon historic market share. Under the arrangement, a company would be designated to submit a low bid for each project, ensuring that the designated company would be awarded that contract. Such an arrangement is

a; illegal per se

b:illegal as judged under the rule of reason

c.legally justifiable due to economic conditions in the marketplace

d;legal under antitrust law since it does not fix prices

Answer 1

The situation described in the case in question is of complementary bidding, which is a method of collusive bidding. Under complementary bidding, bidders decide amongst themselves beforehand who is to win the bid and rest of the bidders submit uncompetitive bids so as to get the contract awarded to the pre-decided bidder. Under bid rotation, the bidders take chances to be the lowest bidder such as is explained in the case where the bidders allocate projects to themselves based on historical market share.

Such process is illegal as it leads to concentration of economic power and restricts free trade. The U.S. Congress passed the Sherman Antitrust Act in 1890 to restrict growth of monopolies and to preserve competition. Further, violations under the Sherman Antitrust take two forms – the per se rule and the rule of reason. The per se rule lists those anticompetitive activities where no further inquiry is required into the effects of the anticompetitive activity or the intentions of the perpetrators, while the rule of reason lists such activities, which require further probe since such business activities at times promote competitive behavior and at times restrict competition.

As per Section 1 of the Sherman Antitrust Act, collusive bidding is illegal per se.

Therefore, correct answer is A.

Option B is ruled out as per explanation above.

Options C and D are incorrect because collusive bidding is not legal.