On Refusing to Deal with Rivals

Abstract

The article is about refusals to deal with competitive rivals as an antitrust offense. The basic claim of the article is that refusals to deal should be eliminated as a separate antitrust offense except in the case of essential facilities.

I begin with a brief examination of the current odd distinction between concerted refusals to deal by groups of competitors on the one hand and refusals by single firm monopolists on the other. Concerted refusals were once considered per se illegal, even though the latter have never been. In the mid 1980s the Supreme Court ruled that group refusals were not always illegal per se, but seemingly left some residual element of the per se rule to deal with cases where the group has market power or control of an element essential for competition. This residue of per se illegality makes no sense given that single firm refusals are judged by a rule of reason. There is no basis for supposing that concerted refusals are intrinsically more harmful than single-firm refusals.

The confusion about the standards of liability as between concerted and single-firm refusals pales beside a larger confusion about why refusals to deal are an antitrust offense at all. Generally firms do not have a duty to deal with rivals for the good and sufficient reason that forcing firms to do so undermines a central premise of rivalrous competition. I interpret that to imply a Schumpeterian model. Unfortunately, antitrust law has not had the courage of Schumpeter's convictions. Hence the requirement that firms with market dominance deal with rivals or give a reasonable business excuse for refusing to do so.

Requiring reasonable business justification only seems sweetly reasonable. The Supreme Court has offered neither a theory nor a coherent standard for requiring a dominant firm to deal with rivals. Essential facilities doctrine offers a coherent theory, but the Court has never formally accepted it. Critics have been unhappy with essential facilities doctrine, finding it to be a standardless invitation to impose a duty to deal on firms. I argue to the contrary that essential facilities doctrine is both a coherent and a limited framework for imposing a duty to deal.

There remain some vexing issues in both theory and application. On the theory side is the conflict between the fact that an essential facility is by implication a natural monopoly, yet the doctrine's effect is to force competition that, according to natural monopoly theory, is neither sustainable nor efficient. I argue for a reconciliation based on the fact that the sharing of essential facilities doctrine is designed to test the existence of natural monopoly. On the practical side is defining the terms of dealing and overseeing their implementation. The practical issues are illustrated by two on-going controversies in communications law, one involving competitor access to local exchange facilities, the other access by Internet service providers to cable broadband facilities.