Articles Posted in Competition

|

Oligopoly-Competition-Antitrust-300x193

Author: Ruth Glaeser

Recent news highlights a growing focus on government antitrust enforcement cases against companies accused of monopolizing markets and abusing their power. But let’s consider another question: if a company lacks sufficient market power to qualify as a monopolist, but competes with only one or a handful of other companies, how does that affect consumer welfare?

American antitrust law seems to champion consumer choice untainted by anticompetitive practices. But it does not prohibit the market dynamic known as an oligopoly, which is a structure prevalent in numerous industries across the United States and the world. In an oligopoly, a small number of firms effectively control the quality, pricing, and supply of a particular market. This departure from perfect competition typically leads to some combination of higher prices and lower quality, and possibly less innovation and fewer consumer choices.

Consider the air-travel industry, where major players like Delta, American Airlines, United, and Southwest hold substantial influence over consumers. Similarly, when purchasing technology devices, most consumers find themselves choosing among a limited array of manufacturers, such as Apple, Samsung, and others. While no single entity monopolizes the market, collectively these firms exert significant control, raising concerns about the implications for consumer choice and pricing.

As the landscape of market power continues to evolve, understanding the dynamics of oligopolies becomes increasingly crucial for consumer welfare.

What is an Oligopoly?

An oligopoly is a market structure characterized by a small number of firms, usually fewer than five, that collectively account for a substantial share of the market. These firms are generally interdependent and the decisions of one firm often directly influence the behavior and profitability of the others. Their interdependence can lead to anticompetitive behaviors, including aggressive pricing to tacit collusion. These practices may harm  competition and consumers.

One of the largest threats to competition from oligopolistic behavior is conscious parallelism. Conscious parallelism occurs when firms in a competitive market make aligned decisions without direct communication or collusion. Instead, each firm observes the actions of its competitors, and reacts accordingly, often leading to similar pricing strategies, product offerings, or marketing tactics. Sometimes, there is one company, often the largest, that will start the merry-go-round, and smaller companies will follow the leader.  Importantly, conscious parallelism is not itself illegal under the antitrust laws, but its effects can mimic the anticompetitive results of monopolies.

There are several ways in which a market can become an oligopoly. The most common are high barriers to entering a market and the need for economies of scale. Many industries, such as the airline industry, require significant financial investment, which can deter new entrants. Relatedly, established firms often benefit from economies of scale, which allow them to produce at lower costs than new entrants, making it hard for smaller firms to compete on price. Sometimes companies may merge or acquire competitors to facilitate this, which reduces market competitors and increases a firm’s market share.

Moreover, it is common for government regulations to create or sustain oligopolies, such as in the utility industry, where governments may grant exclusive rights to certain firms to operate in specific regions, limiting competition, and controlling pricing. And government regulation itself tends to increase economies of scale, which tends to move markets from competitive toward oligopolistic. Indeed, if the federal government truly cared about increasing competition, it would take a long-hard look at excessive, unnecessary regulations that increase market-entry barriers.

Risk of Anticompetitive Behavior

An oligopoly presents a risk for several types of anticompetitive behavior:

  • High Potential for Price Fixing

Price fixing occurs when a small number of firms in the oligopoly agree to set prices at a certain level, rather than allowing competition to determine them. A notable example is the case of In re Domestic Drywall Antitrust Litigation, which involved seven defendant drywall manufacturers, four of which were responsible for approximately 70% of the market share. Plaintiffs alleged that these drywall manufacturers engaged in collusion to raise prices by 35%, announcing the increase to customers well in advance. This move came at a time when the industry was facing a surplus of product alongside a decline in demand. While the case was settled before reaching trial, the court’s findings suggested that the price hike was free from illegal collusion among Defendants.

  • High Potential for Conscious Parallelism

Conscious Parallelism poses a significant challenge to competition. This phenomenon occurs when firms coordinate their behavior without any explicit communication or agreement, often leading to artificially inflated prices. A prime example is Holiday Wholesale Grocery Co. v. Phillip Morris Inc, where Phillip Morris, a dominant player in the cigarette market, announced a substantial price reduction on its premium products. Its three main competitors quickly followed suit, controlling approximately 95% of the market.

Continue reading →

|

Amazon-FTC-Lawsuit-Online-Shopping-300x169

Author: Sabri Siraj

The Federal Trade Commission has survived a motion to dismiss in a high-stakes lawsuit against Amazon, igniting critical discussions about competition in the online marketplace. As a dominant player in global e-commerce, Amazon’s practices have long affected both consumers and competitors. Will this case change those practices or otherwise have implications for online marketplaces?

Important Note

Bona Law is currently representing Zulily in a similar lawsuit against Amazon in federal district court. You can read the complaint here.

About the Case

The FTC’s lawsuit, filed in Washington State federal court, stems from allegations that Amazon engages in anticompetitive practices that inhibit competition and violate the Sherman Act, the FTC Act, and consumer protection laws. The FTC alleges Amazon pricing practices harm competition by limiting consumer choices, and that Amazon engages in coercive tactics that disadvantage third-party sellers, creates barriers for new entrants, overcharges sellers, and makes it more expensive for sellers to offer their products on other platforms. Numerous states have joined the FTC’s lawsuit.

Amazon denies the allegations and asserts that its practices benefit consumers and competition. The court dismissed some state law claims but has otherwise allowed the lawsuit to proceed, with trial scheduled for October 2026.

Will the Case Affect Amazon’s Competitors?

For Amazon’s existing competitors, the FTC’s actions could provide both opportunities and challenges. If the lawsuit successfully restricts Amazon’s anti-competitive practices, it may level the playing field for other marketplaces like Walmart, eBay, and Shopify. These companies have often struggled to compete with Amazon’s extensive resources, alleged anticompetitive conduct, and customer loyalty programs. A more dynamic marketplace could enable them to attract more sellers and consumers, driving innovation and diversity in e-commerce offerings.

Moreover, if Amazon’s pricing strategies are curtailed, consumers could benefit through lower prices and improved service from competitors. This could encourage a competitive environment where companies strive to enhance their offerings, benefiting consumers.

Continue reading →

|

large-monopoly-bus-300x169

Author: Jarod Bona

Do you or your competitor have a monopoly in a particular market? If so, your conduct or their conduct might enter Sherman Act, Section 2 territory, which we call monopolization.

If you are in Europe or other jurisdictions outside of the United States, instead of monopoly, people might label the company with extreme market power as “dominant.”

Of course, it isn’t illegal itself to be a monopolist or dominant (and monopoly is profitable). But if you utilize your monopoly power or obtain or enhance your market power improperly, you might breach US, EU, or other antitrust and competition laws.

In the United States, Section 2 of the Sherman Act makes it illegal for anyone (person or entity) to “monopolize any part of the trade or commerce among the several states, or with foreign nations.” But monopoly, by itself, is not illegal. Nor is it illegal for a monopolist to engage in competition on the merits.

If you are interested in learning more about abuse of dominance in the EU, read this article.

In the United States, monopolists have more flexibility than in the EU, but they are still under significant pressure and could face lawsuits or government investigations at any time, even when they don’t intend to violate the antitrust laws. There can be a fine line between strong competition on the merits and exclusionary conduct by a monopolist.

Here are the elements of a claim for monopolization under Section 2 of the Sherman Act:

  • The possession of monopoly power in the relevant market.
  • The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

These two basic elements look simple, but you could write books about them.

The Possession of Monopoly Power in the Relevant Market

To determine whether an entity has monopoly power, courts and agencies usually first define the relevant market, then analyze whether the firm has “monopoly” power within that market.

But because the purpose of that analysis is to figure out whether certain conduct or an arrangement harms competition or has the potential to do so, evidence of the actual detrimental effects on competition might obviate the need for a full market analysis. If you want to learn more about this point, read FTC v. Indiana Federation of Dentists (and subsequent case law and commentary). You can show monopoly power directly.

Sometimes this element leads to difficult questions about the line between monopoly power in a relevant market and something slightly less than that. Other times, the monopoly-power element comes down to how the court will define the relevant market. A broader market definition may create a finding of no monopoly power, while a more narrow definition means the powerful company has monopoly power.

Continue reading →

|

Antitrust-for-Kids-300x143

Author: Aaron Gott

There are a lot of lessons you can learn from Wonka. It’s a story about how ingenuity, determination, selflessness, and teamwork can overcome the oppressive adversity of a system that serves entrenched interests.

But it’s also a story about a chocolate cartel. And that offers its own lessons, too. Just ask my four kids, who now understand what I do all day (though I may have overplayed the chocolate-related aspect).

In fact, the whole plot of Wonka revolves around the machinations of this market-dominating chocolate cartel. It’s almost as if the folks over at Warner Bros. Pictures took inspiration from our Antitrust for Kids series and (surely inadvertently) left us out of the credits.

For those who haven’t seen it: Wonka is essentially the origin story of the Willy Wonka from 1971’s Willy Wonka & the Chocolate Factory. Wonka, played by Timothée Chalamet, comes to town with the intent to realize his dream of owning a chocolate shop in a ritzy plaza called the Galeries Gourmet. With little money to his name—twelve silver sovereigns that are all spent by the end of the first tune—he sets out to sell his chocolate on the street the following day. A crowd gathers, and the owners of three preeminent chocolate shops, led by Paterson Joseph’s Slugworth, at the Galeries Gourmet notice.

Spoiler Alert!: in this post, I’m talking about Wonka and there may be some spoilers. So if you haven’t seen it, go watch it, and then come back and read this post.

We learn that these three chocolatiers are, despite identifying themselves as three “fierce rivals,” in fact, the members of a chocolate cartel that has the entire market locked down. And just as soon as upstart Wonka begins trying to sell his chocolate, the cartel goes to work to prevent this competitive threat from upending its lucrative arrangement. Or as the cartel puts it, “If we don’t / get on top of this / we’ll go bust / chocopocalypse! / we’ll cease to exist.”

What follows in Wonka is not only a lot of catchy numbers, but also a step-by-step guide into the workings of a successful price-fixing cartel.

  1. Control Price by Controlling Supply

Soon after the members of the chocolate cartel are introduced, we learn the strategy to which they owe their cushy, profitable position: while ostensibly fierce rivals to the outside world, each with their own shops, the chocolatiers actually pool their chocolate in a secret underground vault and strictly control the output so as to artificially depress supply, which ultimately raises prices in a market with pent-up demand.

This is a classic mechanism for a cartel to increase prices without explicitly fixing prices. Rather than attempt to set and discipline cartel members’ prices directly, which can be difficult to administer and is more easily detected by authorities, controlling supply (or production) lets the market do the work of raising prices through the hydraulic action of supply and demand. Output restrictions and price fixing are two sides of the same coin.

A classic example of output controls is the open-and-notorious oil conspiracy known as OPEC.

  1. Conceal Your Meetings and Communications

The chocolatiers’ secret underground vault isn’t just where they store their chocolate reserves; it’s also where they meet to discuss their nefarious business. The lair is underneath a Catholic church run by a frocked, chocoholic Mr. Bean on the take, and to get there, they simply go to a confessional booth, which has a secret elevator to the vault below.

Conspirators often take measures to conceal their communications and meetings, and while real-life cases do not usually involve such ostentatious means, they can still be elaborate. Some use code names and secret email addresses, while others might enlist a supplier to collect and distribute draft pricing announcements while she makes her sales rounds. Conspirators might even have a seemingly coincidental meeting at a charity golf tournament.

And while this cartel was meeting directly in its secret lair, it could have accomplished a similar scheme by integrating Father Bean as the hub of a hub-and-spoke conspiracy. Some notable recent cases have featured accusations of conspiracies facilitated through third-party data aggregators and technology service providers. That kind of conspiracy, though, isn’t quite as conducive to show-tune choreography.

  1. Keep Your Numbers Small

Another reason the chocolate cartel was so successful: it comprises only three competitors who dominate a market. It’s easier to form a cartel in a concentrated, oligopic market. And it’s easier to sustain one, too, for a few different reasons.

The more people who are in on a secret, the more likely that secret is going to get out. It’s important your cartel stays a secret, given that it’s a felony punishable by prison and often means civil liability far beyond what was made from the scheme. This is especially true because the U.S. Department of Justice Leniency Program provides incentives for cartel members to tell on their co-conspirators and cooperate with its investigations. So even if you trust your co-conspirators now, wait until one of them is acquired by a larger company with a strong antitrust compliance program or one of their employees decides to become a whistleblower if for no other reason than to protect their job.

Keeping your numbers small also means that it is less work to detect and punish “cheating” by cartel members, which is inevitable—if they’re willing to cheat the market, you can be sure they’ll cheat each other at every opportunity.

  1. Use the Law to Stop Upstart Competitors

In Wonka, local law forbids the sale of chocolate without a chocolate shop. As one of Wonka’s friends puts it, “You can’t get a shop without selling chocolate, and you can’t sell chocolate without a shop.”

This catch-22 is surely by design. The cartel instinctively calls the police on Wonka the very moment it recognizes him as a competitive threat. The cartel members even make friends with the chief of police—played by Keegan Michael Key—and bribe him with chocolate (and the promise of more) so that he dedicates himself to enforcing the law against Wonka.

Cartels often try to create and use legal barriers to prevent new competitors from gaining a foothold. In the United States, it’s a tale as old as interest group politics: lobby to create barriers to entry through either complex regulatory regimes or licensing schemes that make it harder for others to enter the market and compete against you. And then put your friends in government to enforce those laws with enthusiasm.

Something like this is what happened in North Carolina State Board of Dental Examiners v. FTC: as teeth whitening technology took off, dentists found it extraordinarily profitable. And when non-dentists started offering teeth whitening, the dentists used the state board (conveniently controlled by dentists) to reinterpret the dental scope of practice under state law and start going after non-dentists for the unlicensed practice of dentistry, even though teeth whitening is not actually dentistry.

  1. Scare Consumers Away From Non-Conspirator Rivals

The chocolate cartel also attempts to turn the market against Wonka. First, in front of a crowd comprising Wonka’s intrigued prospective customers, Slugworth declares his expert opinion: “Mr. Wonka, I have been in this business a very long time, and I can safely say, that of all the chocolate I have ever tasted, this is without doubt, the absolute 100% worst.”

Consumers still went wild for Wonka’s “hover chocolates” when Slugworth and his confederates started to float. But that victory was short-lived because of the already-in-motion cartel strategy of using the law against Wonka, which goes to show a successful cartel doesn’t usually rely on just one type of anticompetitive act to achieve its goals.

Later, after a montage of Wonka and his troupe turning to a pop-up retail strategy that allows him to both compete and successfully evade the police, Wonka finally has the financial resources to open a shop. And when he does, the chocolate cartel sabotages him by surreptitiously poisoning his confections with Yeti Sweat, which leads to rapid and uncontrollable vividly colored hair growth. With this, the cartel successfully turned the market against Wonka, and Wonka’s shop was literally destroyed.

Food tampering aside, this is classic group boycott behavior: a concerted effort by firms to persuade customers, suppliers, and other parties in the market not to do business with a rival firm whose competition imposes downward price pressure in the market.

  1. Reach an Illegal Noncompete Agreement

The chocolate cartel at one point convinces Wonka to agree not to compete in exchange for buying his and his friends’ freedom from their indentured servitude to Mrs. Scrubbit.

Paying competitors not to compete is illegal, but the important thing to note here is that it is illegal even if it is just one competitor paying off another. In fact, there is a whole class of “pay-for-delay” antitrust cases, which typically allege brand-name pharmaceutical companies suing generic makers for patent infringement, with the purpose of inducing a settlement whereby the generic makers agree not to introduce their competing products to the market for some period of time.

Continue reading →

|

Blockchain-and-refusal-to-deal-antitrust-225x300

Author: Luis Blanquez

A company using a blockchain––or perhaps even the blockchain itself––, with a sizeable share of a market, could be a monopolist subject to U.S. antitrust laws. But monopoly by itself isn’t illegal. Rather, a company must use its monopoly power to willfully maintain that power through anticompetitive exclusionary conduct.

Thus, a monopolization claim requires: (i) the possession of monopoly power in the relevant market––i.e. the ability to control output or raise prices profitability above those that would be charged in a competitive market; and (ii) the willful acquisition or maintenance of that power as distinguished from attaining it by having a superior product, business acumen, or even an accident of history. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

The monopolist may also have a legitimate business justification for behaving in a way that prevents other firms from succeeding in the marketplace. For instance, the monopolist may be competing on the merits in a way that benefits consumers through greater efficiency or a unique set of products or services.

There are many ways a company may willfully acquire or maintain such monopoly power through anticompetitive exclusionary conduct. Some of them include exclusive supply or purchase agreements, tying, bundling, predatory pricing, or refusal to deal.

In this article we briefly discuss the refusal to deal theory of harm in the context of web3.

What is Web3?

The internet is an evolving creature. Thirty years ago, web 1.0 was all about browsing and reading information. As a consumer you had access to information, but few were able to publish online.

In the early 2000s the current web 2.0. arrived, and everyone started publishing their own web content and building communities. The problem today is that we have a centralized internet. Very few companies––big online platforms such as Google, Facebook or Amazon––control and own everyone’s online content and data. And they even use all that data to make money through, for instance, targeted advertising.

That’s why web3 is a necessary step in the right direction. As a consumer you can now access the internet without having to provide your personal data to these online gatekeepers. And you don’t need to give up ownership of the content you provide. Plus, you own your digital content and can execute digital agreements using crypto currencies. If wonder how is all that possible, the answer is through a new infrastructure called blockchain.

You can read a broader discussion of antitrust guidelines for companies using blockchain technology here.

Refusal to Deal with Competitors or Customers

Competitors and Rivals

First, an illegal refusal to deal may occur when the monopolist refuses to deal with a competitor or rival. Under US antitrust laws such claims are challenging and rarely successful.

Although a company generally has no duty to deal with its rivals, courts have found antitrust liability in some limited scenarios when a monopolist (i) unilaterally outright refuses to sell a product to a rival that it made available to others (Verizon Commc’ns, Inc. v. Law Offs. of Curtis V. Trinko, LLP, 540 U.S. 398, 407–09 (2004), see also Aspen Skiing, 472 U.S. at 601; Otter Tail Power Co. v. United States, 410 U.S. 366, 377-78 (1973); OR (ii) had a prior voluntary and presumably profitable course of dealing with a competitor, but then terminated the relationship, giving up short-term profit from it in order to achieve an anticompetitive end. See Pac. Bell Tel. Co. v. linkLine Commc’ns, 555 U.S. 438, 442, 451 (2009), Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013), cert. denied, 572 U.S. 1096 (2014).

Applied to the web3 world, this means that the validators of a blockchain could face antitrust scrutiny only if they had monopoly power, and (i) they previously allowed a competitor access to its blockchain but later agreed to exclude that rival, or (ii) sacrifice short-term profits without a reasonable business justification. This is, of course, unlikely considering the decentralized structure of blockchains and their need for gas fees to keep validators’ business profitable and the chain secured. When the validators are decentralized, they are not a single economic entity for purposes of the antitrust laws. But the risk would still differ depending on the blockchain and the level of decentralization.

What we might eventually see, however, is a company with monopoly power using a blockchain to exclude its rivals from the market through different anticompetitive conduct. For instance, we might see restrictions to only use one blockchain, to use smart contracts to impose loyalty rebates and other barriers to switch between blockchains, conditioning the use of one blockchain for a specific application or product by restricting the use of other blockchain or non-blockchain rivals’ infrastructure, or to require suppliers upstream or end customers downstream, to use the same blockchain for different products or applications.

Customers

Second, a refusal to deal may also take place when a monopolist refuses to deal with its customers downstream or suppliers upstream. A monopolist’s refusal to deal with customers or suppliers is lawful so long as the refusal is not the product of an anticompetitive agreement with other firms or part of a predatory or exclusionary strategy. Note, however, that a monopolist cannot decline to deal with customers as retaliation for those customers’ dealings with a competitor. That is often called a refusal to supply and is in a different doctrinal category than a refusal to deal. But, beyond these anticompetitive exceptions, private companies are typically free to exercise their own independent discretion to determine with whom they want to do business.

This test is broader than the one for competitors and requires a case-by-case legal and economic analysis to determine whether anticompetitive conduct exists. And web3 is not any different in this respect.

The Apple App Store and web3

Let’s take the Apple App Store as an example.

In the web2 world, Apple has created a “walled garden” in which Apple plays a significant curating role. Developers can distribute their apps to iOS devices only through Apple’s App Store and after Apple has reviewed an app to ensure that it meets certain security, privacy, content, and reliability requirements. Developers are also required to use Apple’s in-app payment processor (IAP) for any purchases that occur within their apps. Subject to some exceptions, Apple collects a 30% commission on initial app purchases and subsequent in-app purchases.

There are currently several related ongoing antitrust investigations and litigations worldwide about Apple’s conduct with its App Store. In the U.S., the Court of Appeals from the Ninth Circuit on the Epic Games saga held that Apple should not be considered a monopolist in the distribution of iOS apps. But this ruling also came with a string attached. The judge concluded that Apple did violate California’s unfair competition law and could not maintain anti-steering rules preventing users from learning about alternate payment options. If you want to learn more (see here). Both companies have recently asked the Ninth Circuit for a rehearing and the stakes are high.

Companies in web3 are now starting to deal with similar potentially anticompetitive behavior from web2 big tech companies. Uniswap, StepN and Damus are just three of many recent examples.

Continue reading →

|

Law Library Books

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see, e.g., Leegin and resale price maintenance).

And outside of a law-school hypothetical, it usually isn’t that difficult to apply the law to the facts. Of course, what makes antitrust law interesting is that it evolves over time and its application to different circumstances often challenges your thinking. Sometimes, you may even want to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve to become an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to Bitcoin or deadlifting.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, you can utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

Continue reading →

|

PGA-Suspension-Antitrust-300x228

Authors: Luke Hasskamp and Molly Donovan

We often write about sports and antitrust and have previously written about professional golf, and, specifically, the legal implications of a competitor golf league trying to break onto the scene:

The new league, LIV Golf, seeks to compete with the PGA Tour, as well as the European tour (known as the DP World Tour). Indeed, LIV Golf held its first event this past weekend in London, which included 48 participants. Of those, 17 players were members of the PGA Tour. Charl Schwartzel emerged as the winner of the “richest tournament in golf history,” taking home $4.75 million in prize money, which was more than he won during the last four years combined.

In response, the PGA Tour handed down harsh discipline to those 17 players who joined LIV Golf, suspending them indefinitely. The PGA Tour also promised to suspend any other players that participate in future LIV Golf events. It’s a dramatic step, and surely not the last word on the matter.

Now, let’s say you’re one of those 17 players who has been suspended, or you’re a member of the PGA Tour considering playing for LIV Golf but you’re facing such a ban. There are many things to consider, of course. But let’s focus on your legal options. Would the PGA Tour’s ban of a player that chooses to participate in a competitor’s event be lawful? Do the federal antitrust laws in the United States provide you any remedies? Potentially. Let’s take a closer look.

Section 2 of the Sherman Act – Monopolization

Federal antitrust laws make it illegal for a monopolist to preserve its dominant market position through anticompetitive conduct. Here, the PGA Tour sure looks like a monopoly. It’s the dominant actor in the professional golf market in the United States, with revenues well exceeding $1 billion per year. If you are an elite professional golfer in the United States, it’s pretty much the only place to play. (Actually, the PGA Tour, in this context, looks more like a monopsony, as it’s the dominant purchaser of labor in the professional golf market.)

But being a monopoly is not illegal by itself. Instead, there must be some anticompetitive or exclusionary conduct that harms competition in the market.

Typical examples of procompetitive conduct include lowering prices, improving quality, enhancing services, or, in the labor market, raising wages and improving benefits. Antitrust laws like these types of behavior because they enhance competition and are good for consumers. A monopoly that holds onto its dominant market position by offering the lowest prices and the best product is generally a good thing and something antitrust laws seek to encourage. Similarly, a monopsony employer that attracts and retains the best employees by paying the highest wages, offering the best benefits, and otherwise creating the most attractive work environment is the type of outcome that is perfectly acceptable from an antitrust perspective.

Anticompetitive conduct can be harder to define, but can include things like threatening customers or employees, an exclusionary boycott, bundling, tying, exclusive dealing, disparagement, sham litigation, tortious misconduct, and fraud. We’re looking for improper attempts by a monopolist to box out a competitor.

When we look at the current PGA Tour dispute and its decision to suspend players who play for LIV Golf, it seems at least arguable that the PGA Tour’s conduct is anticompetitive. They are not attempting to retain the best golfers by raising compensation, creating more opportunities, or otherwise enhancing the work environment for its players. Instead, the PGA Tour is punishing players who choose to participate in a rival’s events. The conduct appears designed to stifle a would-be competitor.

Section 1 of the Sherman Act – Agreements

Federal antitrust laws also analyze agreements by two or more parties that restrain trade in the market. And agreements between horizontal competitors are closely scrutinized under the per se standard.

Consider professional baseball’s long and storied antitrust history. Those antitrust disputes started (more than 100 years ago) because teams had collectively agreed not to sign each other’s players. Back then, baseball contracts included a “reserve clause,” which reserved a team’s right to a player in perpetuity. Thus, once a player signed with that team, he was only able to re-sign in following years with that same team (unless the team released him). All teams agreed to honor each other’s reserve clauses by agreeing to not sign another team’s players, even if his contract had expired. The reserve clause intentionally suppressed competition by, in essence, preventing free agency. It suppressed players’ salaries. With only one team competing for a player’s services, rather than a full league, teams avoided bidding wars and players had little recourse but to accept the amount offered by their team.

Here, we’d ask whether the PGA Tour has entered into any agreements (formal or otherwise) with another party that restrain trade in the market for professional golf services. There is at least some indicia of such agreements. The European tour (the DP World Tour) has hinted that it may follow the PGA Tour’s approach to dealing with members would participate in LIV Golf. This may stem from the PGA Tour’s “strategic alliance” with the DP World Tour. This sure looks like it could be a horizontal agreement between competitors. Other entities may also be considering similar agreements with the PGA Tour, including the PGA of America, which runs the PGA Championship, one of golf’s four majors, as well as the Ryder Cup, a wildly popular team competition between players from the United States and Europe. The PGA of America, a separate entity from the PGA Tour, has suggested that it is likely to not permit LIV Golf players to participate in the PGA Championship or Ryder Cup.

Of course, sometimes competitors will follow each other’s policies, prices, or practices without an agreement of any sort. That is called conscious parallelism and is not an agreement in restraint of trade because there is no agreement. We don’t know whether there is an agreement here or the European Tour is merely following the PGA Tour in a round of conscious parallelism.

Remedies

A plaintiff prevailing on an antitrust claim has a right to treble damages, which is three times their actual damages, as well as attorney fees.

Continue reading →

|

Complexity-Books-Antitrust-Attorneys-300x160

Author: Steven J. Cernak

Two months ago, I encouraged all readers of this blog to read Complexity-Minded Antitrust by Nicolas Petit and Thibault Schrepel. As I explained in that article, I think their suggestion that antitrust lawyers and policymakers should consider applying learnings from complexity theory to antitrust questions was a good one.

I hope you heeded my suggestion. Over 1300 others have at least downloaded the article. After reading the article, I wanted to get smarter about complexity as well. I had dipped my toe in the complexity water during my graduate economics studies and early legal career but that was decades ago during complexity’s infancy. How had it developed and how might it apply to antitrust issues?

To get back up to speed, I read several books on the topics. Below, I outline my thoughts on each of them. I encourage other antitrust experts to read these or other materials to stay abreast of where our field might be (should be?) heading. If you have other suggested readings, please let me know.

First, take a look at Neil Chilson’s Getting Out of Control, his short and easily readable book on emergent order that I reviewed for this blog last October. As I described in that review, Chilson uses everyday examples to define emergent order and distinguish it from randomness and designed order. He then builds on those definitions to discuss an example of emergent order near and dear to all antitrusters, the price system. From there, he derives principles for anyone (like antitrust enforcers?) dealing with emergent order to observe: expect complicated results even from simple actions; push decisions down to actors with local information; and be humble. Short, sweet, and by an author with FTC experience, this book is the one to read if you only read one.

Second, I re-watched Understanding Complexity by Scott Page, one of The Great Courses that I had purchased several years ago. I thought this course was a great summary of complexity, how it relates to many disciplines, and how its concepts can apply in many everyday settings. Page defines the attributes of complex systems—diversity, connection, interdependence, adaptation—and distinguishes such systems from others that are really just complicated. From these tools, he derives now familiar concepts like tipping and path dependence and explains why truly complex systems can be harnessed, perhaps, but not controlled. I recommend this course for an easy-to-understand but more complete and formal view of complexity.

(Disclosure: Scott Page lived a few doors down from me in my University of Michigan dormitory. In a hallway full of smart young men with great enthusiasm for Michigan athletics, Page was one of the smartest and most enthusiastic.)

I was disappointed in Complexity: A Guided Tour by Melanie Mitchell. While I was looking for a general description of complexity and its roots, this book went farther afield than I wanted or could appreciate. It covers many disparate subjects—genetics, evolution, biology—and has some interesting history of the science and some of its pioneers; however, Mitchell spends more time talking about that history and justifications for why complexity might be its own separate discipline than I found interesting. I can only recommend it for those interested in math history.

On the other hand, Complexity and the Art of Public Policy by David Colander and Roland Kupers covered just the right amount of complexity background, history, and context before applying it to various public policies. Antitrust gets a brief mention with a very short summary of the U.S. Microsoft case. More generally, the authors try to use complexity theory to begin the development of a third way of thinking about public policy choices, what they call laissez faire activism, as compared to defaulting to having either the market or the federal government do everything. Here are some of the key points that I think make this book, right after Chilson’s, one that antitrust folks should read:

  • The economy and various parts of it can be non-linear and able to self-organize and, so, able to be influenced but difficult to control;
  • Complexity theory and math can clarify choices but will not prescribe solutions;
  • There is a potential tradeoff between efficiency and resiliency that businesses (especially those that misunderstood all aspects of the Toyota Production System) and policymakers should consider;
  • Economic policy is not all of social policy and increasing material welfare is not the single goal of society;
  • Path dependency can exist but not in all cases

Finally, I can recommend Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies by, again, Scott Page, only if you really want to go deep in the weeds on complexity or are managing a group. I had another, more personal, reason for wanting to read it.

Continue reading →

|

Antitrust-Article-about-Complexity-300x300

Author: Steven J. Cernak

Apologies for the clickbait headline but all antitrust practitioners and policymakers should read Complexity-Minded Antitrust by Nicolas Petit and Thibault Schrepel. In their short article, the authors suggest a potentially radical new way to think about the competition that antitrust law is designed to protect. Written to raise more questions than answers, the article should get us all thinking about some of antitrust’s bedrock principles.

The authors are no strangers to provocative takes on cutting edge antitrust topics. Petit explored similar topics in the context of several big tech companies in his book Big Tech and the Digital Economy: The Moligopoly Scenario, a great read that I reviewed here. Schrepel has been reporting on the facts of blockchain and its implications for the economy and antitrust for years.

The article begins from the premise that neither the neoclassical/Chicago School view of competition nor its Neo-Brandesian critique are adequate to describe at least large swaths of today’s knowledge economy. The neoclassical view and its antitrust rules appear inappropriate for an economy with “unprecedented levels of increasing returns, feedback loops, and technological dynamism.” The Neo-Brandesians recognize those shortcomings, but their solution goes back in time to the “big is bad” theories of the early 20th Century and fails to account for “empirical facts, except those denoting corporate size, dominant shares, and conglomeration.”

The authors’ potential solution? Consider applying complexity science to antitrust. As the authors explain, complexity science studies how “micro-level interactions lead to the emergence of macro-level patterns of behavior.” Complexity focuses on systems and how they adaptively change to the context they create. The article lists applications of the theory to subjects like biology, game theory, and biochemistry.

The authors very briefly describe some of the applications in economics, led by those of economist Brian Arthur, and how those applications view the economy more like an evolving living organism rather than a machine. The authors then tentatively discuss how these concepts might apply to antitrust policy. I found at least three of their explorations intriguing.

First, they suggest that antitrust pay attention not just to the market or meso-level of a competitive system but also to the industry or macro-level and the firm or micro-level. Firms that compete at the market level might not be quite as rivalrous at the industry level. Inside the firm, different divisions might engage in “co-opetition” like WhatsApp and Messenger both cooperating and competing within Meta. (This older American immediately thought of Oldsmobile and Pontiac.) The point is that antitrust should consider if competitive changes at those other two levels might affect the rivalry at the market level.

Second, the authors suggest a different mental model for antitrust authorities. Instead of a physicist or craftsman looking to “reach static and predictable outcomes,” authorities might want to view themselves as a park ranger (per Arthur) or gardener (per Hayek) and look to create the conditions under which the competitive system is most likely to thrive. I think that mental model is consistent with the humility that many of us have been championing for years while still allowing enforcers to do more than throw up their hands and say “it’s too complex for us to do anything.”

Third, the authors suggest that antitrust policy focus more on promoting uncertainty, either instead of or in addition to, rivalry. This suggestion builds on some of Petit’s work in his book. There, he describes how some Big Tech companies seemingly without direct competitors still feel competitive pressure from potential entrants or product/technology shifts that might render their product irrelevant. In some ways, antitrust already captures this idea; after all, the prohibition on price-fixing agreements is a way to force competitors to live with the uncertainty that comes from not knowing how a competitor will price. Should further antitrust restrictions be placed on certain competitors to make them at least feel more vulnerable?

Continue reading →

|

 

Bitcoin-and-Antitrust-1-300x300

Author: Jarod Bona

I believe that Bitcoin is the enemy of tyranny and the greatest invention of the 21st century. Its detractors tend to either not understand Bitcoin or believe that the people are best when they are controlled and manipulated.

Maybe that was a little hyperbolic? I don’t care.

The truth is that I am still learning. I am still crawling through the rabbit hole (a cliché, but one often used in this area) and I recommend that you do the same. The more I learn, the more excited I get about Bitcoin and what it means for our future.

As someone who has made the study of and interaction with competition his career, it is fun to watch a superior competitor to government fiat currency develop.

We had (and still have) gold, but that has its limitations: Mostly, dividing and carrying it.

Blockchain v. Bitcoin

First, an important clarification: The incredible blockchain technology developed from Bitcoin, but many cryptocurrencies now utilize this technology for themselves. And NFTs (non-fungible tokens) are becoming a big deal in certain circles; they utilize blockchains like Ethereum. Bitcoin is on a blockchain, but there are other blockchains out there and other currencies and applications that utilize these blockchains.

To really get it, you must understand the distinction between Bitcoin and everything else that might appear on a blockchain. The blockchain technology is exciting and there are use cases that people are testing all over the world. And others that we can’t even contemplate yet. But there is only one Bitcoin and it is different in kind from everything else. You should read the original Bitcoin white paper by Satashi Nakamoto here to learn more.

The Limited Supply of Bitcoin

Among other more complex reasons, Bitcoin is different because it is programmed such that the number of Bitcoin will never exceed 21 million (and it won’t even reach 21 million for a long time). As far as money is concerned, it is harder than gold (even though it isn’t physical). And there isn’t a central authority (i.e. a Central Bank or any other entity) that can add inflation or otherwise screw around with it.

Go ahead, read that last paragraph again. And try to comprehend how big of a deal this is.

Currencies (even government fiat) work by supply and demand and you would be shocked if you discovered how many new dollars are introduced into the world each year, especially the last couple years. Go ahead and look it up. And it is much more than just the actual cash-money printer. It is Congress and the President adding more debt and the Federal Reserve “stimulating” the economy. Even simple bank loans increase the money supply. Anyway, poke around the internet about this to add a new anxiety to your life.

You don’t have to have a Ph.D. in Economics to understand that dramatically increasing the supply of something can negatively affect its value. And that’s just as true with dollars and other fiat currencies.

Did you know that “Mo Money Mo Problems” by The Notorious B.I.G. is really a ballad about the ravages of increases in the money supply?

Well, I made that up. But it would be a great title for what’s happened with fiat currency.

Network Effects

If you follow antitrust issues, you are now undoubtedly familiar with network effects. There are certain products, services, or platforms (even currencies) that become more valuable to each user, the more users participate. So, for example, if you are building a platform business, the more sellers on your platform, the more useful your platform will be to buyers, and vice-versa. This is one reason why you see so many new platform tech companies burning through money, charging customers as little as possible, sometimes nothing. The game is to win the market, at whatever cost. Then you can start to really monetize. Social media, of course, works the same way. People want to be where others are.

Anyway, Bitcoin also benefits from network effects. As more people use it as a store of value, the more valuable it becomes as a store of value. And while Bitcoin is also a medium of exchange, I think that its current role is much more of a store of value because it is still quite volatile and, frankly, those that understand it don’t really want to spend it as the value has consistently increased—sometimes dramatically—during this current adoption phase (which may continue for years).

Bitcoin as a Censorship-Resistant Medium of Exchange

As a medium of exchange, however, there is a second layer on top of the Bitcoin blockchain called the Lightening Network that makes it even easier for users to exchange bitcoin. And if you go to El Salvador (which has adopted Bitcoin as legal tender), you can utilize the lightening network, through an app, to purchase a McDonald’s Cheeseburger with bitcoin.

In addition, we are beginning to see people take all or parts of their salaries in bitcoin including the mayors of New York City and Miami. A company called Strike allows you to set up a direct deposit of your paycheck in part or in full in bitcoin. And as the government money printing starts to show up even in the official government inflation numbers, more and more people are looking for protection from the currency devaluation, which seems to have no end in sight. Bitcoin offers one possible solution, with its inherently limited supply that no person or entity can change.

Bitcoin (and Ethereum) have also literally saved lives by providing money for people in Ukraine when banks and ATMs weren’t available. And the government of Ukraine has taken in millions of dollars of donations in these cryptocurrencies. This isn’t a surprise as The Human Rights Foundation has long utilized Bitcoin to help those facing tyranny throughout the world.

The reason that Bitcoin is the solution to those under oppression is that it is decentralized such that no government, entity, or person can cancel it or remove people from its network. In that sense, it is censorship resistant. For the antitrust fans out there, not even a group boycott can keep you from using it. This censorship-resistant feature will likely become increasingly important, including in developed countries as banishment, oddly, seems to be in fashion as a method of punishment.

Bitcoin Competes with Government-Backed Currencies like the Dollar

Like any market, there is a market for currency. And the dollar, particularly in the United States, has market power. It is, at least for now, the world’s reserve currency. The dollar still competes well against currencies from other nation-states, despite its dramatic increase in supply, in part because other countries are doing the same thing, often to a much greater extent.

But now that there is an emerging non-government-backed currency, it will be interesting to see what happens. Bitcoin is vastly superior to government currency in many ways, but it has been around for a relatively short time, so many are still skeptical (I personally am not skeptical).

Besides Bitcoin, there are other currencies that will compete with the dollar, including China’s digital currency (which comes—at no extra charge—with high-tech surveillance tools). Bitcoin may not displace the dollar, but it wouldn’t surprise me if it has a major role alongside it, as it is better than the dollar in certain ways. This includes the programmed fixed supply, alongside the fact that people can move Bitcoin across time and space more quickly and cheaply than government-backed currencies. And, of course, its censorship-resistant qualities are becoming more apparent and important on the world stage.

You might begin to see countries, including the United States, adopt their own digital currencies. But don’t be fooled: These currencies will not be censorship resistant and will always be subject to increases in their supply. They are not worthy competitors to Bitcoin and their dystopian qualities could be frightening for those that cherish freedom.

The Environmental Benefits of Bitcoin

The Bitcoin network runs on a proof-of-work system that changes energy to value that can be stored and transferred across time and space. So—like just about everything else human-created in this world—it requires energy. Those that don’t fully understand Bitcoin sometimes target the proof-of-work energy use as a reason to criticize this positive world-changing technology. You can tell what I think by the way I framed that sentence.

But what you don’t hear in these shallow articles by those that don’t truly understand Bitcoin (see, I did it again) is that Bitcoin utilizes energy in such a unique way that the environmental impact is likely to end up as a net positive. Of course, even that is unfair to Bitcoin as we don’t routinely criticize other technologies that use energy. But if you don’t understand something, you tend to fear it and look for flaws. So, I’m not surprised that the Bitcoin luddites get stuck on the energy usage.

Bitcoin mining can be done anywhere and anytime and allows those that mine to convert energy to value in the most flexible of circumstances. These features create positive consequences for energy markets and the environment.

Continue reading →

Contact Information
Dallas
100 Crescent Ct #700 - 3425
Dallas, TX 75201
Phone: 469-296-7716
Detroit
28175 Haggerty Rd
Novi, MI 48377
Phone: 248-994-2221
Minneapolis
331 2nd Avenue S. #420
Minneapolis, MN 55401
Phone: 612-284-5001
New York
16 Madison Ave 9th Floor
New York, NY 10010
Phone: 212-634-6861
San Diego
4275 Executive Square
UNIT 200
La Jolla, CA 92037
Phone: 858-964-4589

ATTORNEY ADVERTISING

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Please do not include any confidential or sensitive information in a contact form, text message, or voicemail. The contact form sends information by non-encrypted email, which is not secure. Submitting a contact form, sending a text message, making a phone call, or leaving a voicemail does not create an attorney-client relationship.

Copyright © 2016 – 2024, Bona Law PC
JUSTIA Law Firm Blog Design