The Problem:

State antitrust law, like that at the federal level, is inadequate for challenging the actions of dominant corporations. As described in the introduction, this is largely the result of decades of bad case law and bipartisan neglect. Because enforcers and judges have focused almost exclusively on what’s known as the “consumer welfare standard,” antitrust cases hinge on consumer prices and so-called “efficiency” within businesses, rather than antitrust law’s traditional role of protecting workers and small businesses from abusive or anti-competitive tactics by powerful firms.[1]

Effective enforcement against unilateral anti-competitive conduct has been impeded by courts. A brief survey shows how courts have adopted narrow definitions of monopolization in a manner that excludes scrutiny of powerful firms,[2] turned a blind eye to anti-competitive “vertical” restraints that stymie competition,[3] limited the scope of unilateral conduct covered by federal antitrust laws,[4] and heightened the pleading standards that plaintiffs and government enforcers must overcome in order to have their day in court.[5]

By adopting a narrower view of the very definition and impact of monopolization, the United States has differentiated itself from parts of the world with more robust regulation and enforcement against unfair anti-competitive conduct.[6] This gradual winnowing of antitrust regulation and enforcement has harmed workers, small and midsized businesses, and consumers. A few large corporations have become dominant in many sectors of the economy, and regularly leverage — or abuse — that dominance to box out would-be competitors.

The Solution:

State lawmakers should adopt an “abuse of dominance” standard for state antitrust or unfair competition laws, thereby dispensing of the narrow consumer welfare standard, which has allowed rampant consolidation and anti-competitive behavior to occur, unchecked, for decades. In doing so, state lawmakers should set forth an objective and quantifiable definition of “dominance,” which lowers the high threshold under current law for showing a firm has monopoly power. Once dominance is demonstrated, dominant corporations are subject to greater scrutiny to ensure that they do not stifle competition.

Model Legislation:

Model “abuse of dominance” legislation would:

• Establish “dominance” or “a dominant position” as a corporation having a share of 40% or more of a relevant market for sellers, and 30% or more of a relevant market for buyers[7] (recognizing that “dominance” is not per se unlawful but establishes a threshold capacity to abuse a dominant position).
• Alternatively allow for dominance to be shown through direct evidence, such as the ability to unilaterally change prices, degrade quality, or change contract terms without compensation.
• Once dominance is established, generally set forth the types of conduct that would qualify as an abuse of that dominance, such as:
  • Imposing unfair purchase or selling prices, or other unfair trading conditions, for instance, when a price poses no reasonable relation to the economic value of the product supplied;
  • Conduct that tends to foreclose or limit the ability or incentive of one or more actual or potential competitors to compete, such as leveraging a dominant position in one market to limit competition in a separate market;
  • Tying or bundling goods or services in a manner that coerces a buyer into purchasing a second good or service it may not want, or which it prefers to purchase from a different seller;
  • Refusing to deal with another person with the effect of unnecessarily excluding or handicapping actual or potential competitors;
  • Applying dissimilar conditions to equivalent transactions with other trading partners, thereby placing them at a competitive disadvantage; and
  • Predatory pricing, including cutting prices below costs, without a legitimate reason, or for the sake of eliminating or disciplining one or more competitors.[8]
• Address the impact of labor market dominance on workers by barring dominant employers from:
  • Imposing “noncompete” contracts by which a person is restrained from engaging in a lawful profession, trade, or business of any kind, and
  • Restricting the freedom of workers and independent contractors to disclose wage and benefit information.
• Prohibit the introduction of pro-competitive effects or a benefit to the consumer to offset or cure other demonstrable harms of anti-competitive behavior.
• Empower citizens to join class action suits to enforce their rights.
• Enhance criminal penalties for antitrust violations.

The Pushback:

Critics may claim that an abuse of dominance standard, while aimed at major corporations, will sweep up smaller firms. But most small and midsized businesses simply do not have enough market share or sufficient power to be considered dominant. Crucially, being found dominant is not in and of itself illegal — what’s illegal is abusing that dominance by foreclosing opportunities for other businesses, using power to unilaterally push down wages or otherwise restrict workers’ ability to sell their labor in a free market, or engaging in any of the above-referenced types of conduct.

Critics may also be concerned about the impact of an abuse of dominance standard on collective bargaining or project labor agreements. Model legislation can be drafted to explicitly protect labor organizing and exempt any consideration of collective bargaining or project labor agreements as evidence on their own of an abuse of dominance.

Example Law: New York Senate Bill S933C, the “21^st Century Antitrust Act” (link); Pennsylvania House Bill 2677, the “Open Markets Initiative” (link)

Notes

[1] “The Courage to Learn: A Retrospective on Antitrust and Competition Policy During the Obama Administration and Framework for a New Structuralist Approach.” American Economic Liberties Project, January 12, 2021.

[2] United States v. Grinnell Corp., 384 U.S. 563 (1971) (rejecting the possibility of liability for no-fault monopolization, even in the presence of excessive pricing).

[3] Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) (merchant gag orders imposed by American Express did not “unreasonably restrain trade” even though they were anti-competitive and raised prices on consumers).

[4] Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) (ruling, in pertinent part, that restraints of trade are subject to scrutiny “only when they pose a danger of monopolization”).

[5] Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (heightening the pleading standard for plaintiffs alleging illegal price fixing).

[6] Waller, Spencer Weber. “The Omega Man, or The Isolation of U.S. Antitrust Law.” Submission to the House Judiciary Committee, Subcommittee on Antitrust, 2018.

[7] One important distinction between monopoly and monopsony is the market share needed to infer significant, or dominant, power. Retailers with as low as a 20% market share can enjoy significant buyer power over sellers. See Stucke, Maurice E. “Looking at the Monopsony in the Mirror.” 62 Em. L.J. 1509, 2013; citing Carstensen, Peter C. “Buyer Power, Competition Policy, and Antitrust: The Competitive Effects of Discrimination Among Suppliers.” 53 Antitrust Bull. 271, 2008.

[8] See Waller, supra note 19, for a more exhaustive survey of the history and prevalence of “abuse of dominance” standards in other jurisdictions, including those outside of the United States.