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

1
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 nations 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.
• 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.

3

• Collusion or conspiring to restrict output is
  typically interpreted as a per se violation of
  the Sherman Act.
• 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.)
• 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.
• 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.

4

• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• A historical example
• Monterey Bay fishery (1940s) 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 11 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.
• This is not possible for the informal property
  rights established by non-regulated associations.
• 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.