Optimizing Antitrust Policy Toward Joint Negotiating Entities: The Case for Traditional Quick-Look Assessment
Abstract
Suppose several small rivals agree on the prices they will pay or charge a dominant counterparty that is itself exercising market power. How should anti-trust law treat the small rivals’ price-fixing? The standard view is that if the rivals’ price coordination does not secure productive efficiencies by, say, reducing costs or facilitating the creation of a new product, the price-fixing should be per se illegal.
In Countervailing Exploitative Pricing with Joint Bargaining: An Economic Approach to a Neo-Brandeisian Goal, Steven C. Salop challenges that view. Sal-op shows that under certain circumstances, price-fixing by joint negotiating entities (JNEs) comprised of small firms dealing with a dominant counterparty can not only secure more of the available transactional surplus for those firms, mitigating the adverse distributional effect of market power, but also expand overall market output, generating lower prices for consumers and increased employment opportunities for laborers. Salop thus proposes a statutory exemption from antitrust liability for JNEs that are structured to (1) provide members with moderate, but not excessive, market power; (2) avoid the risk of other collusion (i.e., on matters other than the price charged or paid to the JNE’s dominant counterparty); and (3) ensure that legitimate monopolists receive enough monopoly profit to motivate future innovation. Salop further proposes that the Federal Trade Commission (FTC) or a similar agency pre-certify JNEs and continually monitor them to ensure that their activities do not threaten to reduce market output. As an alternative to his proposed statutory exemption with regulatory oversight, Salop suggests a judicially implemented “quick look to exonerate” approach for assessing JNE price-fixing.
This article critiques Salop’s proposals. It shows that the proposed statutory exemption would entail unduly high informational requirements, resulting in significant error costs. In addition, by requiring ongoing FTC oversight of JNEs, the statutory proposal would transform the agency from a law enforcer into a regulator and raise public choice concerns. Salop’s proposed judicial alternative—a “quick look to exonerate”—would approve JNE activity too hastily, without assessing risks of other collusion or impairment of innovation incentives.
As an alternative to Salop’s proposals, this article contends that courts should assess JNE price-fixing under the traditional quick-look rule of reason, which presumes the unreasonableness of inherently suspect conduct but allows defendants an opportunity to rebut that presumption. The article identifies factors courts should consider in applying quick-look review, and it demonstrates how prevailing legal doctrine could accommodate the recommended evaluative approach.
Read the full piece at SSRN.