Articles Posted in Exclusionary Conduct

Tying Agreement (Rope)

Author: Jarod Bona

Yes, sometimes “tying” violates the antitrust laws. Whether you arrive at the tying-arrangement issue from the perspective of the person tying, the person buying the tied products, or the person competing with the person tying, you should know when the antitrust laws forbid the practice. Even kids may want to know whether tying violates the antitrust laws.

Most vertical agreements—like loyalty discounts, bundling, exclusive dealing, (even resale price maintenance agreements under federal law) etc.—require courts to delve into the pro-competitive and anti-competitive aspects of the arrangements before rendering a judgment. Tying is a little different.

Tying agreements—along with price-fixing, market allocation, bid-rigging, and certain group boycotts—are considered per se antitrust violations. That is, a court need not perform an elaborate market analysis to condemn the practice because it is inherently anticompetitive, without pro-competitive redeeming virtues. Even though tying is often placed in this category, it doesn’t quite fit there either. Again, it is a little different.

Proving market power isn’t typically required for practices considered per se antitrust violations, but it is for tying. And business justifications don’t, as a rule, save the day for per se violations either. But, in certain limited circumstances, a defendant to an antitrust action premised on tying agreements might defend its case by showing exactly why they tied the products they did.

At this stage, you might be asking, “what the heck is tying?” Do the antitrust laws prohibit certain types of knots? Do they insist that everyone buy shoes with Velcro instead of shoestrings? The antitrust laws can be paternalistic, but they don’t go that far.

A tying arrangement is where a customer may only purchase a particular item (the “tying” item) if the customer agrees to purchase a second item (the “tied” item), or at least agree not to purchase that second item from the seller’s competitors. It is sort of like bundling, but there is an element of express coercion. When the seller prohibits the buyer from purchasing a product from the seller’s competitor, this is often called a negative tie.

With bundling, a seller may offer a lower combined price to buyers that purchase two or more items, but the buyers always have the right to just purchase one of the items (and forgo the discount). With tying, by contrast, the buyer cannot just purchase the one item; if it wants the first item, it must purchase the second or at least decline to purchase the second from the seller’s competitor.

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Antitrust-Group-Boycott-300x200

Author: Jarod Bona

Maybe everyone really is conspiring against you? If they are competitors with each other—that is, if they have a horizontal relationship—they may be committing a per se antitrust violation.

A group boycott occurs when two or more persons or entities conspire to restrict the ability of someone to compete. This is sometimes called a concerted refusal to deal, which unlike a standard refusal to deal requires, not surprisingly, two or more people or entities. This antitrust claim fits into Section 1 of the Sherman Act, which requires a conspiracy or agreement.

A group boycott can create per se antitrust liability. But the per se rule is applied to group boycotts like it is applied to tying claims, which means only sometimes. By contrast, horizontal price-fixing, market allocation, and bid-rigging claims are almost always per se antitrust violations.

We receive a lot of questions about allegations of group boycott actions. This is probably the most frustrating type of antitrust conduct to experience as a victim. Companies often feel blocked from competing in their market. They might be the victim of marketplace bullying.

You can also read our Bona Law article on five questions you should ask about possible group boycotts.

Many antitrust violations, like price-fixing, tend to hurt a lot of people a little bit. A price-fixing scheme may increase prices ten percent, for example. Price-fixing victims feel the pain, but it is diffused pain among many. Typically either the government antitrust authorities or plaintiff class-action attorneys have the biggest incentive to pursue these claims.

Perpetrators of group-boycott activity, by contrast, usually direct their action toward one or very few victims. The harm is not diffused; it is concentrated. And it is often against a competitor that is just trying to establish itself in the market. The victim is often a company that seeks to disrupt the market, creating a threat to the established players. This is common.

The defendants may act like bullies to try to keep that upstart competitor from gaining traction in the market. Sometimes trade associations lead the anticompetitive charge.

Group boycott activity often occurs when someone new enters a market with a different or better idea or way of doing business. The current competitors—who like things just the way they are—band together to use their joint power to keep the enterprising competitor from succeeding, i.e. stealing their customers.

Sometimes group-boycott claims are further complicated when the established competitors—the bullies—use their relationships with government power to further suppress competition. Indeed, sometimes the competitors actually exercise governmental power.

This is what occurred in the NC Dental v. FTC case (discussed here, and here; our amicus brief is here): A group of dentists on the North Carolina State Board of Dental Examiners engaged in joint conduct, using their government power, to thwart teeth-whitening competition from non-dentists.

This, in my opinion, is the most disgusting of antitrust violations: a group of bullies engaging government power to knock out innovation and competition. And we, at least in the past, have watched  the Federal Trade Commission take a pro-active role against such anticompetitive thuggery.

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Author:  Steven J. Cernak

Recently, I was researching 2021 antitrust developments to update my Antitrust in Distribution and Franchising book and draft a long article for another publication. That research confirmed that new government antitrust enforcers and their actions gathered the most attention last year — but this blog covered those issues already, such as here and here and here. This post discusses the private antitrust litigation developments affecting distribution that I uncovered but that might have flown under your radar.

Refusal to Deal and Predatory Pricing

Despite the impression left by the mainstream media, not all antitrust cases involving claims of monopolization involved Amazon or Facebook.  Other defendants faced claims of gaining or maintaining a monopoly through refusals to deal or predatory pricing schemes.

Careful readers will recall the anticipation last year that Viamedia Inc. v. Comcast Corp. might generate a Supreme Court opinion on refusal to deal issues.  Here, the defendant monopolist had stopped dealing with the plaintiff after years of doing so and, allegedly, caused competitive harm.  The district court had dismissed the refusal to deal claim by explicitly following the Tenth Circuit’s opinion in Novell, Inc. v. Microsoft Corp., authored by then-Judge Gorsuch, because it found that the defendant’s conduct was not “irrational but for its anticompetitive effect.”  The Seventh Circuit reversed, finding the court’s application of the Novell standard inappropriate at the motion to dismiss stage when a plaintiff need only plausibly allege anticompetitive conduct even if the defendant might later try to prove a procompetitive rationale.

The defendant sought Supreme Court review and the Justices asked for the views of the Solicitor General. The Solicitor General did not recommend that the Court hear the appeal. In June, the Court denied the writ of certiorari. After remand, the plaintiff chose to drop its refusal to deal theory of the case and proceed only on a claim of illegal tying. Therefore, the opinion will stand and future monopolist defendants, at least in the Seventh Circuit, will have more difficulty dismissing refusal-to-deal claims. Instead of simply asserting that some rational potential procompetitive purpose or effect is self-evident from the complaint, the defendant will have to show that the allegations do not raise any plausible anticompetitive purpose or effect, a much more difficult burden.

In another refusal to deal case, OJ Commerce LLC v. KidKraft, LP, the defendant won summary judgment on plaintiff’s refusal-to-deal claim. Plaintiff was a discounting online retailer that had sold defendant’s products, including children’s wooden play kitchens, for years. An affiliate of plaintiff then began making wooden play kitchens that plaintiff also sold on its website.  Defendant objected, claiming that the affiliates’ kitchens were knock-offs of defendant’s products and that plaintiff’s sales of defendant’s products were plummeting. Eventually, defendant terminated its relationship with plaintiff, who then sued alleging illegal monopolization through a refusal to deal.

The court began with the proposition that even a monopolist is not required to do business with a rival. The court recognized that the Supreme Court had found an exception to that proposition in Aspen Skiing Co. but only if defendant’s termination of prior conduct was irrational but for its anticompetitive effect.  The court found “this is hardly the case here” as the defendant had shown several other potential explanations for its termination of plaintiff. As a result, the court granted defendant’s summary judgment motion.

Predatory pricing remains a popular claim by plaintiffs against alleged monopolists, despite the difficult standard for such claims imposed by the Supreme Court. In such claims, the plaintiff alleges that the defendant’s extraordinarily low prices will drive out competitors, which in turn will allow the defendant to later raise prices and harm consumers. In Brooke Group, the Court set a difficult standard to meet because “there is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.” Also, it can be difficult to distinguish low pro-competitive prices from predatorily low ones. Subsequent plaintiffs have found it difficult to successfully allege, let alone win, such claims.

Last year, we described an exception where a defunct ride-hailing company’s predatory pricing claims against Uber survived a motion to dismiss. In 2021, a taxi company was not as successful and its similar claims were dismissed (although other non-antitrust claims survived). In Desoto Cab Co. v. Uber Technologies, Inc., the court dismissed the claim because the plaintiff did not allege barriers to entry or expansion for new or existing competitors sufficient to allow defendant to recoup its losses. Plaintiff’s mere invocation of network effects without any allegations regarding how they might create entry barriers in this market also was not enough. Finally, unlike the plaintiff in last year’s case, this plaintiff failed to allege why Lyft no longer could prevent defendant’s recoupment through higher prices.

Tying and Agreement

2021 also brought opinions on some of the basic elements of a tying claim and what facts amounted to an agreement.

One element of a successful tying claim is that the defendant is selling two separate products, the tying and the tied product.  To make that determination, courts must find that “there is a sufficient demand for the purchase of [the tied product] separate from [the tying product] to identify a distinct product market in which it is efficient to offer [the former] separately from [the latter].”  In AngioDynamics, Inc. v. C.R. Bard, Inc., the court denied competing summary judgment motions from the parties on this question. The defendant had sought and received regulatory approval to sell the tied product separately; however, it had actually made only a few such sales and then just to a single customer. The only other competitor that sold both products did sell them separately; however, it was not clear that its conditions were identical to defendant’s. The court, therefore, could not determine as a matter of law that the consumer demand was sufficient to make it efficient for defendant to offer the tied product separately.   

For every Sherman Act Section 1 case, a successful plaintiff must show an agreement between defendant and some other entity. To meet that burden at summary judgment or trial, plaintiff must present “evidence that tends to exclude the possibility that the [the defendants] were acting independently.” In a typical distribution case, a terminated distributor claims an anticompetitive agreement between its supplier and some other distributor, usually based on some complaints about the terminated distributor to the supplier from the other distributor.

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Author: Jarod Bona

Sometimes parties will enter a contract whereby one agrees to buy (or supply) all of its needs (or product) to the other. For example, a supplier and retailer might agree that only the supplier’s product will be sold in the retailer’s stores. This usually isn’t free as the supplier will offer something—better services, better prices, etc.—to obtain the exclusivity.

If you compete with the party that receives the benefit of the exclusive deal, this sort of contract can seem quite aggravating. After all, you have a great product, you offer a competitive price, and you know that your service is better. Then why is the retailer only buying from your competitor? Shouldn’t you deserve at least a chance? Isn’t that what the antitrust and competition laws are for?

Maybe. But most exclusive-dealing agreements are both pro-competitive and legal under the antitrust laws. That doesn’t mean that you can’t ever bring an antitrust action and it doesn’t mean you won’t win. But, percentage-wise, most exclusive-dealing arrangements don’t implicate the antitrust laws and are uncontroversial.

You can read our article about exclusive dealing at the Bona Law website here.

It is important that I deflate your expectations a little bit at the beginning like this because if you are on the outside looking in at an exclusive-dealing agreement, you are probably angry and you may feel helpless. From your perspective, it will certainly seem like an antitrust violation. And your gut feeling about certain conduct is a good first filter about whether you have an antitrust claim. What I am trying to tell you is that with regard to exclusive dealing, your gut may offer some false positives.

Of course, the market is full of exclusive or partial-exclusive dealing agreements and there are relatively few of these that turn into federal antitrust litigation. So if you see an exclusive-dealing claim in federal litigation, it may be one of the rare instances of an exclusive-dealing antitrust violation. We receive a lot of calls about exclusive-dealing agreements that are antitrust violations or close to antitrust violations. And we counsel clients on their own exclusive-dealing agreements. But people don’t call us for most varieties of exclusive dealing, which is perfectly legal under the antitrust laws.

So what is an exclusive dealing agreement?

An exclusive dealing agreement occurs when a seller agrees to sell all or most of its output of a product or service exclusively to a particular buyer. It can also occur in the reverse situation: when a buyer agrees to purchase all or most of its requirements from a particular seller. Importantly, although the term used in the doctrine is “exclusive” dealing, the agreement need not be literally exclusive. Courts will often apply exclusive dealing to partial or de facto exclusive dealing agreements, where the contract involves a substantial portion of the other party’s output or requirements.

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large-monopoly-bus-300x169

Author: Jarod Bona

Do you or your competitor have a monopoly in a particular market? If so, your conduct or their conduct might enter Sherman Act, Section 2 territory, which we call monopolization.

If you are in Europe or other jurisdictions outside of the United States, instead of monopoly, people will refer to the company with extreme market power as “dominant.”

Of course, it isn’t illegal itself to be a monopolist or dominant (and monopoly is profitable). But if you utilize your monopoly power or obtain or enhance your market power improperly, you might run afoul of US, EU, or other antitrust and competition laws.

In the United States, Section 2 of the Sherman Act makes it illegal for anyone (person or entity) to “monopolize any part of the trade or commerce among the several states, or with foreign nations.” But monopoly, by itself, is not illegal. Nor is it illegal for a monopolist to engage in competition on the merits.

As an aside, I have heard, informally, from companies that are considered “dominant” in Europe that the label of “dominant” effectively diminishes their ability to engage in typical competitive behavior because they are under such heavy scrutiny by EU Competition authorities.

If you are interested in learning more about abuse of dominance in the EU, read this article.

In the United States, monopolists have more flexibility, but they are still under significant pressure and could face lawsuits or government investigations at any time, even when they don’t intend to violate the antitrust laws. There is often a fine line between strong competition on the merits and exclusionary conduct by a monopolist.

Here are the elements of a claim for monopolization under Section 2 of the Sherman Act:

  • The possession of monopoly power in the relevant market.
  • The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

This looks simple, only two basic elements, but it isn’t.

The Possession of Monopoly Power in the Relevant Market

To determine whether an entity has monopoly power, courts and agencies usually first define the relevant market, then analyze whether the firm has “monopoly” power within that market.

But because the purpose of that analysis is to figure out whether certain conduct or an arrangement harms competition or has the potential to do so, evidence of the actual detrimental effects on competition might obviate the need for a full market analysis. If you want to learn more about this point, read FTC v. Indiana Federation of Dentists (and subsequent case law and commentary).

Sometimes this element leads to difficult questions about the line between monopoly power in a relevant market and something slightly less than that. Other times, the monopoly-power element comes down to how the court will define the relevant market. A broader market definition may create a finding of no monopoly power, while a more narrow definition means the powerful company has monopoly power.

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predatory-pricing-venture-capital-221x300

Author: Jarod Bona

The US Supreme Court said in 1986 that “[T]here is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.”

This was the famous Matsushita Elec. Indus. Co. v. Zenith Radio Corp. case that is known mostly for stating that to survive summary judgment on antitrust conspiracy, a plaintiff must present evidence that tends to exclude the possibility of independent (rather than conspiratorial) activity. 475 U.S. 574 (1986). Unfortunately, many federal trial judges have misunderstood this standard to apply to the motion-to-dismiss level.

If you don’t know what predatory pricing is, you should first read Steven Cernak’s outstanding article detailing the doctrine’s history and requirements (and rarity).

The purpose of this article is much more modest—to ask whether the quote above from the 1986 Supreme Court decision is out-of-touch with current scenarios that may or may not be reality (you decide).

As you learned from reading Steve Cernak’s article, a predatory pricing claim is one that asserts that defendants (with monopoly power) harmed competition by pricing below cost to run competitors out of the market in the short run, so they could raise prices later, after the pesky competitors are out of their way (that is called recoupment).

To prevail, besides antitrust injury, a predatory-pricing plaintiff must show that defendant has monopoly power, priced below some appropriate measure of cost, and had the ability to recoup the costs of taking a loss after they vanquished competition and could again raise prices. This is one form of a monopolization claim.

Let’s look at that 1986 Matsushita Supreme Court quote again: “[T]here is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.”

If you are an antitrust attorney or have studied antitrust, this quote is familiar to you and shows up in the defense briefing of just about every predatory-pricing case. And judges like to cite it too. Indeed, it represents the dismissiveness with which courts and, frankly, the entire antitrust world view predatory-pricing claims. And there is some good reason for that.

But is the statement correct and will it continue to be correct?

Let’s reminisce for a moment to the “olden days.” It used to be, I think, that companies sought to make a profit from the start to the finish. And if they didn’t make a profit, they failed, and whoever ran them would face scandal, scorn, and certain involuntary succession. Each company rise and stood alone, so each would try to be profitable. And if the business wasn’t profitable and didn’t survive, the equity of its shareholders or owners would perish, along with hopes and dreams.

Of course, like most general descriptions of a time or the past, this statement has holes and exceptions and could, in many instances, be plain wrong. But it is the narrative that was told (purposeful passive voice here) and that informed statements like that in the 1986-Matsushita-Supreme-Court decision, which is all that really matters for my point.

So, to price below cost, a company risked bankruptcy because pricing below cost, even for part of the company’s offerings, threatens profits, which threatens survival. And it may take a long time to vanquish competition to be able to later increase prices at monopoly-profit levels. And most companies weren’t willing or able to do that. So “predatory-pricing schemes were rarely tried,” as the quote goes. And, I suppose, those that did try them probably did mostly fail. But I haven’t reviewed the empirical evidence on that.

With that narrative, which is part of the history of predatory-pricing doctrine, we can see why the dismissive quote makes sense.

But what if this is the true world?

But what happens if you have a culture in which financial resources are aggregated into individual entities and you have smart people that place bets on large numbers of companies with the knowledge that most of them are going to fail? The financial entities, however, know and accept that and, instead, make their money from the extremely small percentage of companies that blow up (in a good way) and turn into unicorns or otherwise take over an entire market or industry.

And, at the same time, let’s say that a substantial percentage of these companies that are the subject of these financial bets are the type that succeed only if they reach the scale of monopoly. Maybe these are the sort of companies that create two-sided markets or exchanges, in which network effects are necessary to succeed?

And, what if, to obtain sufficient participants on both sides of the market (and the scale necessary to dominate the market), each of the companies (subject to the bets by the smart-financial entities) priced their products or services at zero or some extremely low amount in a race to get everyone on their website or app or system?

If that were to happen, I wonder if most of these companies would fail—they are pricing below cost, after all—and not everyone is going to be able to pull of a victory in these circumstances. But I bet a handful or more of them would survive and end up dominating their market. And I imagine that some of them would continue pricing below cost between the points of market penetration and complete market domination.

After all, profitability isn’t necessary because the money funding these companies—in this scenario—is not incented by mediocre or even strong profits. What makes these smart financial entities rich are the big winners—the companies with monopoly profits that dominate their markets.

If that were to happen, how would that change the accuracy of the 1986-Matsushita-Supreme Court quote: “[T]here is a consensus among commentators that predatory pricing schemes are rarely tried, and even more rarely successful.”

In the scenario I just described—you can decide for yourself whether it sounds familiar or is true—I think that predatory pricing schemes would be commonly tried and periodically successful.

Here is another possible scenario:

Let’s say there is a foreign country that owns or controls a substantial number of companies. It is possible, I suppose, that the bureaucrats in the government are calculating profits and forcing decisions based entirely or mostly on profit-maximization. It is possible that control, power, and influence have nothing to do with their decisions. And that the funding acts just like any other market funding.

But let’s pretend for a second that this isn’t true. Maybe the government money (and control and incentives usually follow the money) is less concerned about profit-maximization and more concerned about other goals. In that case, I wonder if this government money would have the same reluctance to risk profits as companies in the narrative we told earlier. If that is the case, I probably wouldn’t be dismissive of the idea that a predatory-pricing scheme could be tried or successful. Money seeking power or control likes monopoly and may be willing to fund it.

What about this?

This is a little outlandish, but let’s pretend that the people in the government making decisions about bailouts haven’t heard of the term “moral hazard” and are willing to send taxpayer dollars to giant companies whenever the companies have trouble making a profit. For the sake of the story, let’s call them, I don’t know, maybe “too big to fail.”

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Author: Luis Blanquez

Good news––the answer is yes. The bad news, however, is that antitrust laws only help you in very limited scenarios.

As a general rule, “Businesses are free to choose the parties with whom they deal, as well as the prices, terms, and conditions of that dealing” Pacific Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438, 448 (2009). This means that firms, even those enjoying market power, are not typically required to cooperate with rivals by selling them products that would help them compete. Indeed, antitrust laws do not generally impose limitations on a competitor’s ability to “exercise his own independent discretion as to parties with whom he will deal.” Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 411 (2004).

So, most of the time, once your distribution contract expires, your supplier is free to either renew your contract or stop dealing with you. After all, this is what the free market is about: you are free to decide your own commercial strategy in order to make profits and beat your competitors. But this is not always the case, and the recent case from the Seventh Circuit, Viamedia, Inc. v. Comcast Corp., is a very good example of it.

The willingness to forsake short-term profits

Courts have been cautious to recognize an antitrust exception to the general rule that businesses are free to choose the parties with whom they deal, as well as the prices, terms, and conditions of that dealing. The cases below provide a road map to better understand what you would need to succeed.

Aspen Skiing Co. v. Aspen Highlands Skiing Co., 472 U.S. 585 (1985)

The U.S. Supreme Court has stated in the past that even an actual monopolist has no duty to deal with its competitors. A narrow exception to this rule, however, was established in Aspen Skiing. The Court provided some guidance to explain when a monopolist’s refusal to deal becomes contrary to antitrust rules.

In this case, the defendant monopolized the market for downhill skiing services in Aspen (Colorado). Defendant originally agreed to offer a joint lift ticket with plaintiff because it helped attract skiers. But defendant later decided to discontinue the successful joint-ticket program. By doing so, it rejected, for example, selling lift tickets to the plaintiff at full retail price. Defendant’s justifications included several administrative issues such as splitting revenues, suffering brand image injury, and others.

The Court concluded that defendant’s unilateral termination of a voluntary––and thus presumably profitable––course of dealing suggested a willingness to forsake short-term profits to achieve an anticompetitive end: to push plaintiff out of the market and achieve monopoly power to avoid any sort of competition.

Novell, Inc. v. Microsoft Corp 731 F.3d 1064 (10th Cir. 2013)

Microsoft provided independent software vendors access to a pre-release version of Windows 95––the so called “beta” version of the operating system available to all independent software vendors, including Novell––to facilitate their ability to write software for Windows 95. The reasoning behind this was to develop compatible programs while increasing both the utility of the operating system for users and the sales for Microsoft. Later on, however, Microsoft changed its strategy and revoked such access. It decided to give its proprietary applications the “competitive advantage” of “being the first applications useable on Windows 95.” Novell alleged that Microsoft intentionally altered its existing business practice of providing competitors with Windows technical information in order to monopolize the market for operation systems.

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Law Library Books

Author: Jarod Bona

Law school exams are all about issue spotting. Sure, after you spot the issue, you must describe the elements and apply them correctly. But the important skill is, in fact, issue spotting. In the real world, you can look up a claim’s elements; in fact, you should do that anyway because the law can change (see Leegin and resale price maintenance).

And outside of a law-school hypothetical, it typically isn’t difficult to apply the law to the facts. Of course, what I like about antitrust is that the law evolves and is often unclear and applying it (whatever it is) challenges your thinking. Sometimes, you even need to ask your favorite economist for some help.

Anyway, if you aren’t an antitrust lawyer, it probably doesn’t make sense for you to advance deep into the learning curve so you are an expert in antitrust and competition doctrine. It might be fun, but it is a big commitment to get to where you would need to be, so you should consider devoting your extra time instead to something like CrossFit.

But you should learn enough about antitrust so you can spot the issues. This is important because you don’t want your company to violate the antitrust laws, which could lead to jail time, huge damage awards, and major costs and distractions. And as antitrust lawyers, we often counsel from this defensive position.

It is fun, however, to play antitrust from the offensive side of the ball. That is, utilize the antitrust laws to help your business. To do that, you need a rudimentary understanding of antitrust issues, so you know when to call us. Bona Law represents both plaintiffs and defendants in antitrust litigation of all sorts.

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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.

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Aspen Mountains

Author: Jarod Bona

Yes, in certain narrow circumstances, refusing to do business with a competitor violates Section 2 of the Sherman Act, which regulates monopolies, attempts at monopoly, and exclusionary conduct.

This probably seems odd—don’t businesses have the freedom to decide whether to do business with someone, especially when that person competes with them? When you walk into a store and see a sign that says, “We have the right to refuse service to anyone,” should you call your friendly antitrust lawyer?

The general rule is, in fact, that antitrust law does NOT prohibit a business from refusing to deal with its competitor. But the refusal-to-deal doctrine is real and can create antitrust liability.

So when do you have to do business with your competitor?

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