FILL ME IN…
Last fall the House Judiciary Antitrust Subcommittee released a long-anticipated report outlining a series of recommendations intended to rewrite our country’s antitrust laws. The majority staff report, while initially intended to focus on four tech companies, makes a series of erroneous policy conclusions that if implemented would wield government control over the entire U.S. economy, hampering growth, and innovation to the detriment of consumers.
As part of the report’s recommendations, it proposes any number of ways to force companies to work cooperatively or to look out for its competitors In this post, we look at the recommendation the report makes with regard to making an “abuse of superior bargaining power” an antitrust violation.
The staff report recommends:
“Subcommittee recommends that Congress consider prohibiting the abuse of superior bargaining power, including through potentially targeting anticompetitive contracts.”
WHAT IS AN ABUSE OF SUPERIOR BARGAINING POWER?
The concept of an “abuse of superior bargaining power” refers to a company with bargaining power imposing what is seem as an unreasonable disadvantage on a business partner with less bargaining power. The concept applies to business-to-business contracts.
Antitrust has repeatedly made clear, the objective of the law is to protect competition and consumers, and not individual competitors. It follows from this understanding that antitrust law is not concerned with particular outcomes of contractual negotiations between private companies.
As the antitrust enforcers have explained, antitrust law does “not interfere in the bargain struck between two contracting parties, absent a showing of substantial competitive harm (rather than harm to specific competitors). Moreover, in the absence of harm to competition, governments generally should make every effort not to interfere in privately-negotiated contracts.”
Antitrust agencies have also explained that: “With regard to contracts between parties at different levels of the manufacturing-distribution chain (that is, between non-competitors), it is highly unlikely that particular provisions of such contracts will have anticompetitive effects. To the contrary, contracts between parties at different levels of the manufacturing-distribution chain are likely to reflect an efficient allocation of risks and duties among the parties.”
WHY IT MATTERS…
Antitrust becoming an arbitrator of bargaining power risks causing harm to consumers rather than offering them additional protection. The fundamental economic role of contracting is for parties to efficiently allocate costs, risks, and rights among themselves. The risk of antitrust interfering with the outcome of a contract negotiation on the ground that one party has superior bargaining power increases significantly the costs of contracting for firms—costs that are inevitably passed on to consumers.
The package of terms that make up a contract between parties reflects the parties’ agreement as to how to allocate rights and risks between them in an efficient manner. If a particular provision is deemed by the government to be an “abuse of a superior bargaining position” and therefore not available for use in a contract, the parties likely would adjust other terms of the contract, such as adjusting the contract price. The result may be a less efficient contract with higher contracting costs and both parties potentially worse off. Ultimately, the quality-adjusted price to the ultimate consumer would tend to increase, a result antithetical to the goals of competition policy.
The approach taken by antitrust is economically-sound and protects the rights of private parties to contract in an efficient manner. Absent evidence that a particular contract results in harm to competition and consumers, the government should not interfere with arms-length negotiations, and certainly not under antitrust law.
For more on antitrust, check out other posts here.