Geoff and Josh raise an interesting issue about collective market conduct by buyers. Suppose that a group of final consumers face a monopolist. Should the consumers be permitted to band together into an “association” to jointly negotiate a lower price from the monopolist? Some would say that such buyer “cooperatives” are permitted, whereas others would say that such buyers “cartels” are antitrust violations. Putting aside the terminology (which simply reflects the commentator’s conclusion rather than any real analysis), this hypothetical example raises a number of interesting antitrust questions.
First, if this buyer association involves final consumers and they move the market from the monopoly output to the competitive output, is that a “cognizable” efficiency under the antitrust laws, even if it involves what appears to be “naked” price fixing (i.e. price fixing not accompanied by any “integration” of production facilities or incentives)? What should the law conclude? What would Ronald Coase and John Nash say?
Second, should the antitrust outcome depend on how the incremental “total surplus” is split? In particular, suppose that the association actually reduces the monopolist’s surplus, aside from whatever effects it has on total output. Is that transfer of surplus from the monopolist to the consumers to be applauded (“antitrust is a consumer welfare prescription”), or attacked as counterproductive (“monopoly prices is what attracts business acumen”), or treated neutrally (“merely a transfer”)?
Third, suppose that the association moves the market from an inefficient monopoly output to an inefficient monopsony output, but the new outcome involves higher consumer surplus. Should the increase in consumer surplus be a complete defense under the Sherman Act? If the total surplus falls, should the conduct be illegal under the rule of reason? Or, should the law simply apply the per se rule to this concerted action.
Fourth, should the analysis be different if the seller is not a monopolist but rather a joint venture with monopoly power, or a group of (legally) tacitly coordinating sellers? For example, in BMI, the Supreme Court placed considerable weight on the fact that the composers granted non-exclusive licenses to ASCAP and BMI, and the Court relied on the assumption that customers were able to constrain prices by negotiating directly with the composers. However, suppose that it were assumed instead that such direct negotiation would be an ineffective constraint on prices. In that scenario, should the music users be permitted to negotiate jointly with ASCAP and BMI over the terms of the blanket license? Would permitting such a buyer association have been a better remedy than the price regulation remedy constrained in the consent decree with the Justice Department?
While he was an Appeals Court judge, Justice Breyer dealt with some of these issues in the Kartell case. (If you don’t know the case, I promise that I have not made up the name.) In Kartell, a group of dentists (including Dr. Kartell) wanted to block the arguably monopsony conduct of Blue Cross of Massachusetts. As the case name might have pre-ordained, Blue Cross was exonerated. Then-Judge Breyer’s reasoning was a bit peculiar, however, He characterized Blue Cross as a single buyer, not as a buyer association. But, hedid not characterize Blue Cross as a reseller with market power, despite its dominant market share. Instead, he dodged that issue by suggesting that Massachusetts insurance regulations somehow would force Blue Cross to pass on the fee reductions to consumers in the form of lower insurance prices. Of course, this is the same result that would be achieved if Blue Cross were the cartel ringmaster for an insurance buyer cartel.
So, what do you make of this opinion? In writing my article on “anticompetitive overbuying,” I raised the question of whether Judge Breyer was adopting the consumer welfare standard over a total welfare standard. Or, was he simply relying on the kindness of regulation to replace market forces? Or, did he make the classic error of assuming that monopsony is inherently good because it leads to a lower input price without noticing that it also reduces output and leads to a higher output price?
Now, to return to Josh and Geoff’s posts, what are the implications of Judge Breyer’s reasoning for the merchants who accept credit cards and want to join together to countervail the joint monopoly power of the Visa and MasterCard banks? Would it be permissible under the Sherman Act for all the merchants unilaterally or through and agreement hire a single agent to provide them with buyer-side “interchange transfer services,” and then rely on that agent to negotiate lower interchange fees with Visa and MasterCard?
Finally, regarding the specific question raised by Josh — if you were counseling the merchants , would you be confident that you would be exonerated under the antitrust laws? Or would you try to obtain an antitrust exemption as a little extra insurance?