It’s difficult to reconcile the American concept of “equal justice under law” with the Federal Trade Commission’s motto, “Protecting America’s Consumers.” The implication is that there is one set of laws for consumers and another set—affording lesser protection—for producers and sellers. This conflict presents itself in all “consumer protection” laws, and it stems from an awkward premise: That in any given economic exchange, the party trading cash holds the legal and moral high ground over the party trading a good or service.

Put another way, try to fashion a consumer protection or antitrust law in a purely barter economy. If A trades two pounds of flour to B in exchange for a bushel of apples, which party is the “consumer” entitled to government protection? It’s easy to apply common law principles regarding fraud to such a transaction, but virtually impossible to employ contemporary consumer protection standards, which require a presumption that one trader is good and the other is bad.

Antitrust regulators obsess over short-term prices. They deem a price “anticompetitive” when they think it should have been lower. The seller is liable for trading a good at anticompetitive prices. But why isn’t the buyer equally liable? If the government sets the competitive price of a good at x and a seller trades that good at x+1, both the buyer and seller undermine the competitive price level.

The rejoinder to this is that the buyer is “forced” to pay the anticompetitive price because the seller controls the supply of an item desired by the buyer. But the reverse is also true. The buyer controls a supply of an item desired by the seller—cash. The seller lacks the ability to obtain cash from anyone except those cash-holders willing to trade for the seller’s item.

Then there’s the impact on third parties. A potential buyer who is only willing to pay the government-determined competitive price—loses out when another buyer chooses to pay the anticompetitive price. Why, then, doesn’t antitrust law permit suits against those buyers who perpetuate anticompetitive price levels?

Last term the Supreme Court decided a case that fits into this discussion. In Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., the Court faced an unusual challenge to “predatory bidding,” the parallel to predatory pricing. Ross-Simmons accused Weyerhaeuser of paying too much for raw materials, rendering the smaller Ross-Simmons unable to compete and stay in business. Ross-Simmons prevailed at a jury trial and on appeal to the Ninth Circuit, but a unanimous Supreme Court held that the lower courts failed to apply the same standard to predatory bidding as they did to predatory pricing. (The Ninth Circuit reasoned that predatory pricing can benefit consumers in the short term, while predatory bidding offered no similar benefit, thus it should be easier to challenge under the antitrust laws.)

Predatory bidding raises the same question addressed above. If there’s a case against a company for paying too much for raw materials, there should also be a claim against the firms that sold the raw materials, since they benefited from anticompetitive prices to the detriment of companies unable to pay the same price as the predatory bidder. Indeed, since the predatory bidder trades cash in exchange for the raw materials, an antitrust claim against the raw material producer should be even stronger.

Obviously, I’m not hoping for more antitrust litigation. It’s simply worth noting the logical incoherence of antitrust doctrine. It comes back to the question, why does trading cash afford one greater legal protection than trading a good or service? Or has modern ideas about “consumer protection” rendered equal justice a dead letter?

Filed under: antitrust