Monopoly or Tragedy? Should collusion by associations to
protect and prevent the over-use of common pool resources
be exempt from the broad language of the nation’s antitrust
laws?
• Property rights, whether private, public or common, exist to help limit
access to otherwise common-access resources.
• Government regulated management regimes (ITQs) have shown us how
formal property rights can prevent the collapse of a common-pool
resource.
• Informal property rights (from cooperation/collusion of the association
members) produce similar results with equal if not greater success in
managing common pool resources, at no charge to taxpayers.
• Communities of oystermen/shrimpers aware of the effects of over
fishing may form an association, meet together, coordinate their actions to
limit the catch. The benefits to society of this include the prevention of the
loss of a resource and not having to pay the government to regulate the
industry. E.g. Perimeter defended lobster fisheries in Maine, community
cooperation in Turkish coastal fisheries.
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Such coordination to restrict output raises an eyebrow from the
antitrust authorities, when interpreting their actions from the
language of the Sherman Act.
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§ 2 Sherman Act, 15 U.S.C. § 2
Monopolizing trade a felony; penalty
Every person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to
monopolize any part of the trade or commerce among the several
States, or with foreign nations, shall be deemed guilty of a
felony…
The broad language here makes it “difficult” for authorities to
determine whether the shrimpers are conspiring to monopolize, or
to prevent resource degradation.
Monopolizing markets yield a net reduction in social well being
while redistributing wealth from consumers to producers.
Preserving a common access resource yields an increase in
wealth and social well being.
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Collusion or conspiring to restrict output is typically interpreted as a “per
se” violation of the Sherman Act.
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Per Se violations pertain to particular business practices viewed as
having no beneficial effects. The alleged behavior is regarded as
inherently harmful, and per se illegality irrefutably presumes such
business conduct to be unreasonable. (If a violation is per se, proof of
collusion is all that is needed to establish guilt, QED.)
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Rule of Reason violations: the anticompetitive costs of a contested
practice are evaluated against the business rationalizations upon which it
is predicated, and a decision regarding its reasonableness is made. E.g.
Vertical Mergers are usually tried by the DOJ under a rule of reason.
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Collusion by members of an association attempting to prevent the
collapse of a common pool resource may be scrutinized by the antitrust
authorities, and a true tragedy occurs when they are viewed as per se
illegal. The positive effects of the collusion are not weighed against the
antitrust concerns.
Fact: Price fixing is illegal per se. The collusive actions need not be
explicit, a tacit agreement is enough to establish unlawful conduct.
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To show the deadweight loss to the economy, the monopoly
equilibrium is compared against the purely competitive
counterpart. This deadweight loss to society is the basic
foundation for an antitrust inquiry.
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Argument: When an association or cooperative forms (“colludes”)
to protect a common-pool resource from over-use, the monopoly
model should be compared against the status quo… that is, the
market equilibrium incorporating the potentially greater loss to
society if these informal property rights were not established and
the resource, in the extreme, collapses.
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Cooperative arrangements can be collusive and monopolistic (to
the extent that they may be result in higher prices).
Simultaneously they can also form a foundation for vital
conservation. The “common sense actions” taken by ordinary
people can effectively deal with the over-use problem with few
costs to the consumers/tax payers (as compared to a government
managed scenario).
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At the very least, antitrust authorities should become more receptive to
environmental reasons for organizing cooperatives to restrict access to a
common-pool resource. In light of the potential abuse of these
cooperatives to purposely raise prices against the gains to society of
preventing resource degradation, cases brought to court should be
argued as rule of reason violations, not per se.
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To obtain true monopoly power, the association must control a substantial
portion of the “relevant market”. The relevant market encompasses all
products that are so similar that once can be used as a replacement for
the other.
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Whether a restriction of access and output will lead to higher prices
depends on the availability of relevant substitutes. The ability for a
colluding group to make a small but significant non transitory increase in
price depends on the substitutability of other goods. Antitrust concern
would depend on how the market is defined (narrow definition - more
concern ; broad definition - little concern).
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Argument: The government concern should not be so
shallow as to only consider potential higher prices (i.e. per
se illegal). The inquiry should be so profound as to
consider whether the monopolistic deadweight loss is less
than the harm caused from a collapse of the resource.
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Research Proposal: Estimation of the loss to society from
the collapse of a fishery could help illuminate the “rule of
reason” umbrella to the legal and political arena.
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A historical example
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Monterey Bay fishery (1940’s): An association was formed
to protect the sardine industry from over fishing. Canners
and processors agreed to buy sardines at prices negotiated
by the association. (violation of Sherman act).
Argument of the Association: They were trying to protect
the fishery from degradation.
Argument of (private) Plaintiff: The Association conspired to
restrain trade.
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Judge ruled in favor of Plaintiff and said,
“If an exclusive monopolistic arrangement can be legally made as
to fish, it can be made as to milk, as to meat, and as to other
necessities of life.”
Years later the unconstrained fishing access practically destroyed
the fishery.
Had the benefits to society of resource degradation been
estimated against the deadweight loss of trade restraints (and
price increases), this tragedy of the commons could have been
avoided. So long as these types of cases are not tried as per se
violations, the reasonableness of the collusive behavior to prevent
over-use may very well outweigh the potential price increase.
ITQ managed resources are also subject to antitrust scrutiny. See
Individual Transferable Fishing Quotas and Antitrust Law, Ocean
and Coastal Law Journal Vol 1:1 35-55.
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In ITQ managed common pool resources, by anticipating antitrust
concerns– for example, building quota ownership limits and
processor licensing requirements into the systems, the
government can design ITQ systems in which violations of
antitrust laws are unlikely.
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This is not possible for the informal property rights established by
non-regulated associations.
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Instead, associations whose collusive behavior could benefit
society by preventing the collapse of a common-pool resource
should be granted exemption from per se violations of the
Antitrust laws.
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“ Even if we accept the traditional case for
rigorous antitrust enforcement, a small and
probably temporary monopoly restriction could
be considered a minute price to pay for
maintaining a viable fish population”. Bruce
Yandle Independent Review Vol 3 n1.