34 Pages Posted: 26 Jan 2006
In its recent Trinko decision, the Supreme Court opined that Aspen Skiing Co. v. Aspen Highlands Skiing Co., 472 U.S. 585 (1985), established the "outer boundaries" of antitrust liability for refusals to deal. Aspen, it is said, involved particularized facts suggesting that the refusal to deal was more likely anticompetitive than most other such refusals. In so doing, the Court echoed the view of many scholars and lower courts that facts such as those present in Aspen properly give rise to a prima facie violation of Section 2 of the Sherman Act.
This essay offers a property-based critique of Aspen. Aspen, it is shown, failed to notice that the defendant's so-called refusal to deal with a joint venture partner was likely part of an effort to negotiate a contractual property right that would have encouraged promotional expenditures and thus furthered interbrand competition between different skiing destinations. Thus, Aspen went too far in regulating refusals to deal, and courts should no longer treat the decision as a useful point of reference when examining refusal to deal claims.
Property's right to exclude implies the ability to refuse to deal with one's rivals. Indeed, "competition on the merits," the summum bonum of antitrust law, depends upon the right of an efficient monopolist to decline to sell its output to rivals. Without this right, firms could demand that their most efficient rival sell them its output at cost, thus eliminating incentives for all market participants unilaterally to realize technological efficiencies such as economies of scale.
Still, protection of "competition on the merits" does not exhaust the beneficial functions of refusals to deal. Such refusals may also facilitate so-called "contractual competition," that is, the use of voluntary contracts to overcome or attenuate market failures. All bargaining depends upon an implied threat not to deal with a potential partner. The Aspen defendant's purported "refusal to deal" stemmed from its efforts to renegotiate the contractual formula governing the allocation of the fruits of its joint enterprise with the plaintiff. The plaintiff refused to accept the defendant's new terms, walked away from the venture and demanded that the defendant continue to deal with it outside the context of their original venture. Thus, the plaintiff brought about its own fate by effectively refusing to deal on the defendant's terms.
The Aspen Court nonetheless affirmed a verdict condemning the defendant's purported refusal, without first asking whether the terms offered by the defendant were reasonable or exclusionary. The Court also failed to notice that the defendant's new terms were apparently designed to create a contractual property right that would allow it to internalize most of the benefits of its promotional efforts aimed at luring interstate travelers to Aspen. To be sure, the Court pointed to several facts that purportedly justified the jury's verdict. For instance, the Court found it noteworthy that the defendant embarked on an expanded promotional campaign after the venture ceased. The Court also thought it important that the defendant had ended an arrangement that had apparently served it well for several years. Still, each of these facts, as well as the plaintiff's claim that the refusal prevented it from engaging in intrabrand competition, was at least equally consistent with an assertion that the defendant was simply seeking to alter the terms of dealing so as to create a wealth-enhancing contractual property right. Thus, Aspen stands as a dubious precedent, and courts should contract the outer boundaries of antitrust liability for refusals to deal.
Keywords: Property, Monopolization, Transaction Costs, Refusal to Deal
JEL Classification: D23, D42, L12, L14, L22, L41
Suggested Citation: Suggested Citation
Meese, Alan J., Property, Aspen, and Refusals to Deal. Antitrust Law Journal, Vol. 73, p. 81, 2005. Available at SSRN: https://ssrn.com/abstract=878103