Countervailing Exploitative Pricing with Joint Negotiation Entities: An Economic Approach for a Neo-Brandeisian Goal

Abstract

One key strand of the Neo-Brandeisian critique of traditional antitrust involves the permissive antitrust approach to exploitative pricing. Exploitative pricing by powerful firms with legally obtained, durable monopoly or market power, including non-innovative oligopolists that succeed in coordinating prices but without illegal agreements, are permitted (even blessed) by U.S. antitrust law. In response to this Neo-Brandeisian critique, this essay uses economic analysis to formulate a practical antitrust exemption from Section 1 liability to countervail the dominance of these powerful firms. It also develops a hybrid standard to allow JNEs to escape Section 1 liability. Either way, the proposal permits formation of voluntary associations of small market participants (termed "joint negotiation entities" (JNEs)) to collectively bargain with these powerful, dominating counterparties-counterparty firms that have substantial classical market (or monopsony) power or dominant bargaining power. The size and conduct of the JNEs are structured and limited so the JNEs can achieve only "moderate" bargaining power. This more balanced bargaining power leads to increased output, lower downstream prices and increased allocative efficiency, as well as increased economic welfare of association members. These JNE restrictions ensure that they do not gain cartel or exclusionary market power that reduces output and harm consumers and workers. JNEs might be formed by either small input suppliers or small input purchasers, and the exemption from Section 1 liability also might be extended to final consumers. While this involves a substantial policy change, current concerns about market and monopsony power in the new Gilded Age, along with associated concerns regarding economic inequality, suggest that this limited exemption can benefit the small producers and society without harming consumer welfare or economic efficiency. The exemption from Section 1 liability would be applied only to counterparties and markets that raise the greatest concerns. Permitting JNEs also might be considered by a court as a remedy in certain merger or anticompetitive conduct cases.