SIX - Bilateral Monopoly

Summary

Introduction

From time to time in antitrust law, there has been either an express or an implicit recognition of what might be termed a “countervailing market power defense.” This is somewhat anomalous since such a defense is a version of the argument, rejected early in Sherman Act jurisprudence, that price fixing resulting in “reasonable” prices should be regarded as lawful.

In the context of monopsony, the possibility of a countervailing market power defense requires a closer look at the phenomenon of bilateral monopoly. The issue, in its most pristine form, is whether collusion among buyers would be justified when they are faced by a monopolist on the selling side of the market. Alternatively, the same issue could arise in the context of a collusive monopoly facing a monopsonist. In theory, a full-blown version of such a defense would permit collusion designed to equal but not exceed the power of parties on the opposite side of the market even when that power fell short of monopolistic or monopsonistic levels. This chapter begins with three illustrations of instances in which antitrust law has been shaped by recognition of countervailing market power. Next, the theory of bilateral monopoly is examined. The analysis indicates that under special circumstances collusive monopsony (or monopoly) may actually lead to greater economic efficiency. The possibility of effectively recognizing this theoretical possibility in the application of the antitrust laws is then explored.