Blocked from Competing in Your Market? You are Not Alone

 

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Author: Jarod Bona

Business can be brutal.

Let’s say you have this business. Maybe you started it recently, or maybe you’ve been around for some time. But, in any event, you offer a good product or service. Customers like you and you are making money.

This is—for many—the American dream. You have freedom, which plays itself out by your decision to exercise that freedom by working 80 hours per week. But you are working those 80 hours for your baby—your business.

And at least you have control over your circumstances: If you keep providing your customers with great value at a great price, you will succeed.

That’s true, except sometimes it isn’t.

Competing for customers in a market isn’t just about providing the best services, products, or prices. That is, of course, the biggest part of it, most of the time. If you do well for your customers, they will usually do well for you. But sometimes it is more complicated than that.

Companies compete within markets, but they also compete for markets.

What does that mean?

Let’s say you own a restaurant and there are five restaurants on your street. You compete within the market because whoever offers the best combination of atmosphere, price, and quality and can best match the needs (i.e. demand) of the prospective restaurant customers in that geographic area will make the most money. That is competing within the market.

But the more competition there is, the harder it is to make money. Every market is different, of course, but the greater the differentiation among competitors within the market and the less competition within that market, the more profit margins increase. This, of course, is just a rough approximation. Markets are complicated beasts.

The truth is, if you want to make more money as a business, it is best to avoid or minimize competition. That is why Peter Thiel tells you in Zero to One to create new markets or to build businesses that will face minimal competition. In that sense, a restaurant is a terrible business—too much competition. We wrote about avoiding competition and Peter Thiel’s excellent book here.

So, the reality of capitalism is that businesses also compete for markets. That is, they each seek structural advantages over other competitors, including and especially potential new entrants. This is where the magic happens. The better your structural and therefore competitive advantage, the more money you will make, ceteris paribus.

This structural advantage might be an entirely new market that you create with novel technology or a brilliant idea that others can’t easily imitate. The patent laws, of course, provide structural competitive advantages, as a matter of policy to reward the inventor.

Another way that companies compete for markets is by trying to diminish some aspect of competition within that market by either locking themselves into a piece of the market, or—commonly—by trying to lock others out.

This type of competition can present itself in many ways and is the playground of antitrust lawyers.

These actions are usually anticompetitive, in some aspect, but most of them are more procompetitive than anticompetitive so would survive scrutiny in any antitrust action.

For example, most exclusive dealing contracts are legal, even though they reduce competition to some extent by limiting who can provide a supply of products to a particular buyer. If you are the “other” supplier, you are locked out of the market for that buyer.

Let’s look at the example of bundling: A company may supply several different products to customers, individually, but offer a discount to any customers that purchase the entire product line. Again, if you are the “other” supplier and you either aren’t as efficient or don’t offer the entire product line, you may be locked out of the market, at least to a certain extent.

I could go on and on with examples, but if I don’t stop now, I could end up writing an entire antitrust course, because this is a big part of what antitrust entails: dealing with the structural battles among market players as they fight for control of markets, locking and unlocking pieces of the market.

Sometimes the actions violate the laws and sometimes they don’t. Much of this antitrust blog revolves around explaining the difference between the two.

Basketball Analogy

This aspect of competition is sort of like trying to rebound an errant shot as it bounces off the rim. The players in the paint below struggle for position, elbows flying, using leverage to end up in the best spot for the rebound. They all don’t have an equal chance of catching and controlling the ball—perfect competition. Instead, whoever can put himself or herself in the best place on the floor—competing for the market—will likely come down with the ball. Having a strong vertical jump helps too.

As an antitrust attorney, my role is to help players that get fouled or to defend players that are accused of fouls. Of course, to continue the analogy, our clients play the long game, if they want to use leverage in the market, we help them understand how to do that without breaking the rules.

At the same time, some of our clients are bullied by those that break the rules, often repeatedly, and our role is to make sure that the referee (the courts or antitrust agencies) enforce them fairly.

What Should I Do Now?

If you think that someone is blocking you from competing in the market, you should at least understand that you aren’t alone. This happens in most markets, to some extent.

But you should also understand that your adversary’s conduct might violate antitrust and competition laws. To help you issue spot, you could read our article on ten ways to tell whether you have an antitrust claim.

If you need help navigating the antitrust and competition issues, one way or another, you are welcome to call Bona Law to see if it makes sense for us to work together. We don’t take all matters, but we help companies of all types, from small businesses to giant corporations and everything between.

You could also call us if you are considering actions or arrangements that might effectively lock-out one or more of your competitors. We can help you understand or reduce the risk of those actions or find a better way to achieve your goals. You might enjoy our article on counselling clients on antitrust risk.

Business can be brutal, but if you figure out competition, it sure can be sweet.

photo credit: Paul L Dineen IMG_0248 via photopin (license)