By Steven C. Salop, Georgetown University Law Center
Exploitative pricing by powerful firms with legitimately obtained market power, including non-innovative oligopolists that succeed in coordinating prices without illegal agreements, are permitted (even blessed) by U.S. antitrust law. This exploratory essay develops an antitrust exemption to countervail the dominance of these powerful firms by permitting formation of voluntary associations of small market participants to jointly negotiate with powerful counterparties. If the association achieves “moderate” bargaining power to countervail the dominant bargaining power of the powerful counterparty firm, the result will lead to increased output, lower downstream prices and increased allocative efficiency, as well as increased economic welfare of association members. The associations can be formed by either small input suppliers, small input purchasers, or even final consumers. An antitrust exemption permitting competitors to jointly price does create a slippery slope with the potential to erase Section 1. To resolve such concerns, the proposal is delimited to benefit the small participants without harming downstream consumers or economic efficiency. Joint pricing would be permitted only by a group of small participants and only with respect to powerful counterparty buyers or sellers, that is, firms that have substantial classical market (or monopsony) power or dominant bargaining power. The scope and conduct of the associations would be constrained in ways to prevent broader collusion or exclusion. Permitting even this narrow range of joint negotiations by competitors obviously would be a major policy change. But current concerns about market and monopsony power in the new Gilded Age, along with associated concerns regarding economic inequality, suggest that such a limited exemption might benefit society as well as economic efficiency.
