Review of Industrial Organization 17: 325–341, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Great School Milk Conspiracies Revisited
FRANK A. SCOTT, JR.
Department of Economics, University of Kentucky, Lexington, KY 40506-0034, U.S.A.
Abstract. This paper revisits a particular case involving two dairy processing companies accused
of rigging bids in northern Kentucky school districts during the 1980s. Evidence and arguments
presented to support a conclusion of overt collusion are reassessed. Analyses of incumbency rates,
market shares, bid levels, bid dispersions, bid distance relationships, exact bidding differentials, and
“bids from hell” indicate that the two dairies may have been engaged in tacit collusion instead of
Key words: Bid rigging, dairy industry, price ﬁxing, sealed-bid auctions.
An ongoing challenge to antitrust economists is distinguishing between tacit and
overt collusion. In the absence of direct evidence, it is often very difﬁcult to de-
termine whether ﬁrms have ﬁxed prices or otherwise rigged the market outcome.
This paper revisits a particular case that was described in detail by Lanzillotti
(1996) in this Review. It involved two dairies in the Cincinnati, Ohio area that were
charged with rigging bids on school district milk contracts in northern Kentucky
and southwestern Ohio in the 1980s. According to Lanzillotti (pp. 430–431),
the northern Kentucky milk case provides an excellent test of the now-
typical defense argument that a price-ﬁxing conspiracy cannot be inferred
from bidding patterns or other such circumstantial evidence. The special
evidentiary value of the northern Kentucky milk case is that although the
Trauth-Meyer bidding/pricing patterns at ﬁrst blush might appear to satisfy
the abstract Turner “tacit collusion” test, as set forth in Monsanto-Matsushita,
the subsequent afﬁdavits of conspirators Knasel, D. E. Meyer, and D. R.
Meyer instruct us that apparently purely tacit behavior, in fact, had developed
much ﬁrmer collusive underpinnings. In short, the bidding/pricing patterns
The author beneﬁted from discussions with Jack Donson, Mike Rickman, and Bob Stevenson.
Funderburk (1974) provides an early discussion of this issue. Blair and Romano (1990) pro-
posed an output and market share test for distinguishing participants from non-participants in a
price-ﬁxing conspiracy. See also the exchange between Karaaslan (1997) and Blair and Romano
(1997). Porter and Zona (1993) conducted an ex post analysis to distinguish between participants
and non-participants in a bid rigging scheme.