In Case You Thought Anti-Trust Was About Consumers, Part 2

In this post I said:

I could spend all day discussing the follies of anti-trust law.  But
one of the memes that still seems to hang on is that anti-trust was
designed as a form of consumer protection, with the government
protecting consumers from the monopoly power of consolidated
enterprises.

I am not enough of a business historian to comment on whether
anti-trust has ever been used for consumer protection, but it is clear
that it is not any more.  That has been one very expensive lesson we
can all learn from the Microsoft anti-trust cases, both in the US and
Europe.

Here is further proof.  NicSand, who used to have 2/3 of the retail channel for sandpaper locked up with exclusive deals, is complaining that 3M has usurped them and has taken their market share.   NicSand enjoyed monopoly margins for years, finally faced long-overdue price competition from 3M, and lost a lot of the business.  So they sued for anti-trust.

Between 1997 and 2000, 3M entered into contracts to supply automotive sandpaper
to Advanced Auto, Autozone, CSK and KMart and did so at prices ranging from 10%
to 30% over NicSand's costs. But nothing about this sequence of events suggests
an antitrust violation. As to the market share that 3M garnered over these
years, "it takes one to know one" is hardly an accredited hallmark of antitrust
liability"”particularly when NicSand's apparent solution to this problem is not
to encourage the entry of other suppliers to this lopsided market but to
preserve its 67% market share. As to 3M's discounting, NicSand of course has no
right"”under the antitrust laws no less"”to preserve 40"“50% margins on a product
that (so far as the allegations are concerned) does not take any ingenuity to
make. One can fairly doubt the size of NicSand's and 3M's R&D departments
for automotive sandpaper.

Unable to argue that 3M's discounting amounted to anything but legitimate (and
apparently long-overdue) competition, NicSand focuses on the fact that 3M
entered into exclusive contracts with the four large retailers that switched
from NicSand to 3M. Yet according to NicSand's amended complaint, the retailers
made exclusivity one of the preconditions for doing business with a new
supplier. The complaint says that the large retailers (1) choose to carry just
one brand of automotive sandpaper for sale to consumers, (2) re-negotiate these
one-brand contracts just once a year, (3) require a new supplier to purchase the
retailer's existing supply of automotive sandpaper, (4) require a new supplier
to provide racks and other display equipment, (5) require a new supplier to
produce a full line of automotive sandpaper and (6) require a new supplier to
provide a discount on the retailer's first order. NicSand of course complied
with these requirements in obtaining the supply business it held in 1997, and 3M
complied with them in winning some of that business away. If retailers have made
supplier exclusivity a barrier to entry, one cannot bring an antitrust claim
against another supplier for complying with that precondition. Put another way,
NicSand did not sue 3M insisting that it had a right to share shelf space; it
sued 3M because it wanted that shelf space all to itself"”just as it had it in
1997. This is precisely the kind of all-for-one-and-all-for-one competitor claim
that the antitrust laws do not protect.

Anti-trust is not about the consumer.  It is about one company trying to use the government to sit on its competitors.

Update: Oh, and in case you thought liscencing of professionals was about consumers rather than protecting incumbent competitors, example number 439,126:

If you've spent as much time on farms as I have, you may imagine that
floating horse teeth has something to do with a backup of equine urine. It
actually refers to the time-honored practice of filing horses' teeth to prevent
them from getting uncomfortably long. At the behest of veterinarians (who
else?), the state of Minnesota is trying to limit
the service to veterinarians, and the Institute for Justice (who else?) is challenging
the protectionist regulations in state court.

Should you balk at going to veterinary school just so you can file horse
teeth for a living (a technique veterinary schools don't even teach), Minnesota
will give you a pass if you 1) have more than 10 years of experience or 2) pass
an exam given by the Dallas-based International Association of Equine Dentistry.
"To qualify to take the IAED's test," I.J. notes, "you must float the teeth of
250 horses under the supervision of an existing IAED member. Not only are there
no IAED members in Minnesota, it is illegal to float without a license. So, to
abide by the law in Minnesota, you must break it."

  • JoshK

    I normally agree with you 100%, but on anti-trust I'm a little more cautious. The AT&T breakup caused a lot of good.

  • Agammamon

    The only reason the ATT breakup was good is that they had been granted monopoly control of the phone infrastructure in the first place - this is a case of a government action taken to correct the problems caused by a government action.