Antitrust’s Monopsony Problem

Four cases from the past decade alleging employer collusion against workers show that at present, antitrust law is ill-equipped to protect workers. A root cause is the prevailing philosophy of antitrust today, which focuses on consumer welfare and relies on a narrow interpretation of the law and its history.

 

 

Zion Williamson playing for Duke. Photo by Keenan Hairston, via Flickr [CC BY-SA 2.0]

 

In recent years, the word “monopsony,” referring to a market with a single dominant buyer, has become unexpectedly popular in mainstream discussion. The power of buyers of goods and services, particularly employers in labor markets (who “buy” labor services), has grabbed the attention of commentators and policymakers. Millions of Americans, especially those living in rural areas, have only a few potential employers and, as a result, earn significantly lower wages. Dominant retailers, such as Amazon and Walmart, use their size to depress wages up their entire supply chains. This raises the question: Is antitrust law up to the task of defending workers?

 

Four recent antitrust cases alleging wage-fixing by employers suggest that antitrust, at present, is ill-equipped to protect workers. (Full disclosure: The Open Markets Institute filed amicus briefs or comment letters in support of the injured workers in the NCAA, shepherds, and therapists cases described below.) A root cause is the prevailing philosophy of antitrust: consumer welfare. With this objective, enforcers and courts are principally concerned with how a corporation’s conduct or merger is likely to affect consumers. Such a narrow interpretation is bad history and bad policy. It also means that employers will be able to get away with hurting workers unless courts and enforcers start to seriously treat workers and consumers as equally worthy of antitrust protection.

 

All four cases involve collusion, which antitrust lawyers today consider categorically bad and relatively easy to challenge in court. Collusion occurs when rival corporations agree not to compete, such as by fixing the prices of the things they sell or buy. The Supreme Court has described this sort of behavior as “the supreme evil of antitrust.” As a result, collusion is per se unlawful, meaning it is illegal if it happens, regardless of its ultimate effects on workers or consumers. Nonetheless, the courts, the Department of Justice (DOJ), and the Federal Trade Commission (FTC) have been willing to minimize or excuse employer collusion against workers.

 

The main entry in the Department of Justice Building in Washington, DC.

 

An ongoing antitrust suit against the National Collegiate Athletic Association (NCAA) reveals the current limits of antitrust in protecting workers. The NCAA is probably the most famous—and most open—employer cartel in the American economy today. The NCAA and its member colleges and universities cap the compensation players can receive at the cost of attendance and a modest stipend. Through their skills and hard work, players generate billions in annual revenue for NCAA members. NCAA rules, however, bar them from earning competitive salaries and, as a result, many college athletes struggle to subsist while studying, practicing, and playing up to 80 hours a week.  

 

Outside of college sports, the NCAA’s conduct likely would be condemned as an employer cartel. Non-NCAA institutions and their executives might even face criminal prosecution for collusively suppressing wages for players. A 1984 Supreme Court decision, however, permits colleges and universities to collude without triggering the categorical ban on the practice. The Court directed judges to evaluate the NCAA’s conduct under the rule of reason, meaning that the NCAA can present “pro-competitive” justifications for its otherwise illegal activity.  

 

In the case now on appeal, a district judge ruled last March that although the NCAA’s rules hurt athletes, the NCAA offered an acceptable justification. Viewers of college sports, the judge concluded, enjoy college basketball and football, in part, because the athletes are amateurs and not competitively paid as professional athletes. In short, the NCAA was permitted to continue capping compensation for players because the viewing public purportedly believes that college athletes should not be fairly paid for their hard work and skills.  

 

This sacrifice of the players’ interest to cater to viewers’ tastes is indefensible, factually doubtful, and would rightly cause outrage if applied to any other line of work. The court’s decision, in the words of one scholar, “leads to the abhorrent result of allowing purchasers of labor to unlawfully exploit one class of people (in this case, predominantly African American college athletes) for the purpose of benefiting another, presumably a more important class of people (the consumers of college athletics, in particular the viewers of televised men’s football and basketball games).” 

 

In another recent case, a federal court of appeals in Denver excused a cartel of Western ranchers suppressing the wage of shepherds. These shepherds came to the United States from Peru on guest worker visas and performed demanding and skilled work under extremely harsh conditions in the Rocky Mountains, often without basic amenities such as access to a toilet. The ranchers successfully held down wages to the local minimum, which in some places was as low as $4.50 an hour. The court permitted the ranchers’ cartel because they did it through two trade associations, instead of in secret in the proverbial “smoke-filled room.”

 

The court ignored the longstanding antitrust rule that competitors cannot evade the ban on collusion simply by setting up special associations. The Supreme Court has described an association or other entity that’s controlled by competitors as, “in essence, a vehicle for ongoing [illegal] concerted activity.” The court of appeals, in dismissing the shepherds’ case, carved out a huge loophole and created a legal path for would-be wage- and price-fixers. Under its ruling, groups of corporations can collude so long as they collude through an association.  

 

All of this just goes to show that courts have failed to protect workers alleging antitrust violations. So have the DOJ and FTC. The agencies talk a big game but offer silence or whimpers in the face of employer collusion. Since 2016, the DOJ has touted its nominally hardline position against conspiracies among employers not to recruit each other’s employees. That stance was part of a wider pledge to criminally prosecute employer cartels. But the DOJ has yet to indict a single wage-fixer. 

 

“Protecting workers requires recommitting to controlling corporate power and not only promoting consumer welfare.”

 

The DOJ’s most famous antitrust case against employers in recent times reveals its timidity in going after employer cartels. In 2010, the DOJ announced that six of Silicon Valley’s leading corporations, including Apple and Google, had agreed not to recruit each other’s employees. Despite alleging per se illegal collusion, the DOJ’s punishment for antitrust’s “supreme evil” was a slap on the wrist. Don’t do it again, DOJ said. Nor did DOJ require these multi-billion-dollar corporations to identify the conspiring executives publicly or admit guilt.  

 

Thanks to a private, class-action lawsuit brought by Silicon Valley workers, the public learned years later that Steve Jobs, Sergey Brin, and Eric Schmidt were among the principal conspirators against their software engineers. According to one estimate, the conspiracy robbed the affected workers of $3 billion in salaries and wages. At a time when the DOJ refused to prosecute Wall Street executives for fraud leading to the financial crisis, it practiced similar restraint against the titans of Silicon Valley.  

 

The FTC’s actions are hardly any better. In a recently settled case, the FTC found that two home health agencies had colluded to pay therapists less for their work. In its final settlement, announced on Halloween, the FTC proudly proclaimed its “commit[ment] to ensuring that workers receive the benefits of a competitive market for their services.” As the DOJ did in its case against the giants of Silicon Valley, the FTC punished the companies by telling them not to break the law again.  

 

In dissent, FTC Commissioner Rohit Chopra castigated his colleagues for the weak settlement, quoting one of us for warning that the settlement effectively tells employers that they can collude without fear of any real consequences. Chopra argued that the FTC should have at least required the health agencies to admit guilt or notify the injured workers. Both would have helped affected workers bring a lawsuit on their own. The FTC did neither. 

 

At the same time that antitrust enforcers meekly accept abuses of labor, they also are eager to affirmatively crush collective worker action using antitrust. In a November filing, the DOJ sided with the big four Hollywood talent agencies to support the agencies’ antitrust suit against the Hollywood writers’ union, the Writers Guild of America. Some 7,000 writer-members fired their agents in April after the agencies refused to eliminate business practices that pose conflicts of interest, such as being producers for shows that hire the writers they represent. The DOJ contends that their collective activity falls outside the antitrust exemption for labor unions. It’s a weak argument, ignoring the purpose of the boycott—the writers are acting in concert to ensure that their representatives renounce conflicts of interest and honor their fiduciary obligations.

 

Antitrust law’s failure to protect workers is a product of philosophy, not just questionable enforcement practices. The present antitrust focus on consumer welfare explicitly subordinates workers’ interests, as seen in the NCAA case. The consumer welfare ideology also operates in more subtle ways and likely steers the DOJ and the FTC toward consumer cases and away from worker cases. A former FTC official has observed that courts are “lenient toward many types of buyer conduct” and that enforcers “typically” focus on consumers because they consider it a “straightforward story.” 

 

One of the heads of the DOJ’s Antitrust Division in the Obama administration unintentionally revealed the awkwardness of attempting to protect workers under the consumer welfare philosophy. He said, “[T]he antitrust laws guarantee the benefits of competition to all consumers, including working men and women.” That confusing construction (workers are consumers?) reveals a deeper impulse among antitrust officials. They attempt to protect the interests of workers and other producers while remaining faithful to a narrow consumerist interpretation of antitrust law.

 

Protecting workers requires recommitting to controlling corporate power and not only promoting consumer welfare. Thus far, the federal antitrust agencies and the courts have not even held employers accountable for what, by their own policy statements and legal precedents, is an egregious antitrust violation—cartels directed at workers. Enforcers and judges discount or dismiss injuries to groups besides consumers. Until and unless the DOJ, the FTC, and the courts recognize that Congress enacted the antitrust laws to protect all market participants from powerful cartels and monopolies, employer collusion and other unfair practices against workers will continue largely unchecked.

 

Sandeep Vaheesan is the legal director at the Open Markets Institute. He previously served as a regulations counsel at the Consumer Financial Protection Bureau, where he helped develop and draft the first comprehensive federal rule on payday, vehicle title, and high-cost installment loans. 

 

Matthew Buck is a reporter-researcher at the Open Markets Institute. He previously served as a paralegal in the Justice Department’s Antitrust Division from 2017 to 2018 where he worked on criminal antitrust investigations. During his time at the DOJ, he did not work on any of the cases discussed above.

 

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