Coordination Out Loud: Volume 9: Analysis of Public Comments from Old Dominion Freight Line CFO 

Published on Feb 18, 2022

Special Note: Coordination Out Loud is a series of articles that analyze select corporate transcripts through the lens of Joseph Harrington’s landmark paper, “Collusion in Plain Sight: Firms’ Use of Public Announcements to Restrain Competition.” 


The paper concludes that antitrust enforcers can be more aggressive in bringing cases around evidence of public invitations to collude by conducting a rigorous analysis of public statements by executives and categorizing those statements into 3 different types of problematic speech. 

In the series, we will sort statements into the three categories laid out in Professor Harrington’s paper:

Category 1. Firms announcing that their competitive behavior is contingent on future conduct of a rival.

Category 2. Firms forecasting industry or rival conduct. 

Category 3. Firms recommending that the industry behave a certain way or otherwise commending or criticizing prior industry or competitor conduct. 

The Capitol Forum is interested in any and all feedback related to the statements selected in our analysis.

Old Dominion Freight Line, Inc. Comments From Q4 Earnings Call, Feb. 2, 2022  


Christian F. Wetherbee, Citigroup Inc., Research Division – MD & Lead Analyst  


Maybe just a follow-up on that last point about the market and competitive dynamics. I guess I’m just trying to make sure I understand how you guys might respond to the extent that there is maybe a larger push by some of your competitors into the market. You guys have always been extraordinarily disciplined with the way you approach the market. I’m guessing in a scenario where maybe some of your competitors get a bit more aggressive to expand. And obviously, there’s a lot of demand out there. So I don’t know what necessarily has it—an impact on the pricing dynamic. But I guess, I think I know the answer to this, but I’m kind of curious of your take on how you would adapt to a market which might actually see more sort of push for market share from some of your competitors than we’ve historically seen over the last several years? 


Adam N. Satterfield, Old Dominion Freight Line, Inc. – Senior VP of Finance, CFO & Assistant Secretary  


Well, I think what we’d expect, Chris, is that the industry has been very price disciplined, really going back to the last slowdown in 2016. And so I think that we’ve seen some margin improvement by some of those other carriers. If they don’t have capacity, maybe they’ll continue to follow our lead in terms of continuing to consistently try to increase price. [Emphasis added.] 


When you look at the current environment, much of the revenue growth is coming by yield from other carriers. I go back to the third quarter performance. We grew our shipments 19%. On average, the public carrier group was up 1%. So that wide delta in volume growth, we want to have that volume contribution, and we’ve got the capacity to grow both volumes and yields, whereas we’ve seen in prior growth periods like 2017, 2018, what we’ve seen this year or 2021 rather, the other carriers that don’t have barely any capacity to grow throughout the entire system, just take advantage of the strong demand and increase yields, which if they’re increasing fast for us because, again, our pricing approach is one that’s long term and consistent. 


Customers know what to expect if other carriers are increasing the rates faster than us and closing some of that price gap, that service value looks better and better. And so I think that’s what we’ve seen in the past. It’s what we would continue to expect to see, to see that wide outperformance, if you will, against the other public carrier group data that we see on average. 


Capitol Forum Analysis 

Satterfield’s comments appear to fall into category three—commending the behavior of his firm’s rivals by noting that industry price discipline has led them to realize margin improvement. 


His subsequent comments suggesting that competitors might follow Old Dominion’s price increases may also fall in to category two, as forecasting industry conduct.  


That said, Satterfield’s comments aren’t entirely negative from an antitrust perspective—his disclosure that Old Dominion had in Q3 grown its volume significantly relative to rivals indicates that the company is aggressively seeking to take share—a strategy that’s not consistent with an industry-wide agreement to limit competition. 


Satterfield’s comments come as trucking companies in 2021 set record freight rates amid supply chain tangles and a driver deficit.  


To be sure, prices have risen across the shipping industry, not just in trucking. The American Trucking Associations, an industry trade group, blames labor shortages, infrastructure issues, and fuel inflation, amongst other factors. 


Old Dominion is a key industry voice, as the nation’s second largest less-than-truckload (LTL) carrier. And although trucking isn’t as concentrated as other transportation industries, the top 50 carriers have nonetheless increased their market share by 9.4% in just the past four years. 


Expert Opinion/Analysis 


Joseph Harrington, Patrick T. Harker Professor of Business Economics and Public Policy at The Wharton School, University of Pennsylvania 


This public announcement by an executive from Old Dominion Freight Line is rife with remarks that facilitate restraining competition. From my experience, “price discipline” is code for “not using price to gain market share.” But there is not only the public recognition of limited price competition but a plan for perpetuating it. The executive suggesting that competitors follow Old Dominion Freight’s price increases is, plain and simple, an invitation to collude.  


Thomas Horton, Professor and Heidepriem Trial Advocacy Fellow at University of South Dakota Law School  


Mr. Wetherbee’s and Mr. Satterfield’s public comments appear to be the usual prototypical coded messages to actual and potential competitors inviting ongoing pricing and output collusion, while also sending a stern warning that attempts to “cheat” will lead to immediate strong targeted reactions by Old Dominion and other key players. Under the Federal Rules of Evidence, and longstanding case law, such comments should be considered as strong circumstantial evidence of ongoing anticompetitive agreements. Model civil and criminal jury instructions reflect this.  


Unfortunately, too many current federal courts, in their ongoing efforts to protect businesses against America’s antitrust laws, continue to find ways to mitigate the potential impact of such evidence.  It is time to return civil antitrust actions to Seventh Amendment juries, who are more likely to enforce our antitrust laws upon colluding businesses than our myopic and misguided federal courts.  


John Kirkwood, Professor of Law, Seattle University School of Law: 


What Satterfield describes is several steps short of illegal collusion. At first, he indicates that his firm, Old Dominion, has traditionally been the industry price leader and he wants to continue that role. He hopes the rest of the industry will continue to follow Old Dominion in consistently trying to increase prices. 


But price leadership is not illegal, even when it results in supracompetitive prices. Although price leadership can help an industry achieve oligopolistic pricing through public coordination of prices, the Supreme Court made clear in Brooke Group that such “tacit collusion” is not actual collusion and does not violate the Sherman Act. 


At present, though, Old Dominion does not appear to be engaging in price leadership. Instead, according to Satterfield, Old Dominion is maintaining its prices while its rivals are rapidly increasing theirs, which is driving volume to Old Dominion. As the price gap between Old Dominion and its rivals shrinks, customers see Old Dominion as the better deal, and it can increase its profits simply by taking on the new business, which it has the capacity to do. 


The rivals, who are increasing their prices, may be practicing some sort of public coordination, but it is more likely that they are independently raising prices because demand is soaring, and their capacity is limited. In other words, demand is rising relative to supply and they are taking advantage of the situation by raising prices, producing “demand-pull” inflation. 


In sum, while Old Dominion has traditionally been the price leader, it is not currently practicing price leadership and its rivals are probably not engaged in public coordination of prices. At present, pricing seems largely independent, the result of demand and supply. 


Official Comment from Old Dominion Freight Line, Inc. 


Old Dominion did not immediately response to a request for comment.