Bootleggers & Baptists-XXXV: Multiple Listing Services & Real Estate

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It is well known that trade associations and related organizations have an anticompetitive effect on the market. One salient example of such consequences is American Real estate. Per Vol. 44, Issue 2 of Regulation Magazine, the rules favored trade association, National Association of Realtors (NAR), has created an implicit tying-agreement. The NAR established the networks known as Multiple Listing Services which home listing with a NAR-affiliated realty agent are posted (p.28). Frequently potential homebuyers are persuaded to avoid purchasing homes listed outside of the MLS network, referred to as For-Sale-By-Owner (FSBO), in a practice known as steering (p.28, 30). In such a system, the commission for the broker is not only predetermined but also “… the listening agent must make a blanket-unilateral offer in advance to pay the buyer’s broker’s fee… despite not having information on the services provided…” (p.30). It should be noted that tying agreements are often scrutinized by the U.S government (see the USA v. Microsoft Corp, No. 97-5343 (D.C. Cir. 1998)).

As another variant of anticompetitive market behavior, there are generally moral arguments for supporting the measure. This means that advocacy for maintaining this system is subject to Bootlegger and Baptist’s (1983) dynamics. Concurrently, while some argue that the MLS system from a consumer interest standpoint inevitably NAR realtors are the ones that benefit. Our Bootleggers realtors profit handsomely. Not only does this practice allow the buying brokers from having to negotiate fees, but American realtors are paid “… two to three times higher than in other developed nations..” (p.30). Effectively operating as a transfer of wealth from the consumer to the service provider (p.30). However, some realty companies such as Clever Real Estate assume as a Dual-Role Actor. Such a firm is a beneficiary of the current trade practices; they also argue that the MLS system is more convenient for sellers to expediently sell their homes

Bootleggers and Baptists- XXX: USB-C Mandate in Europe

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USB (Universal Serial Bus) connections and ports have become a ubiquitous item in our daily lives. Whether it temporarily storing documents on USB flash drives and other peripherals (e.g. hardwired keyboards), we all use USB connections in some capacity. The matter of USB connections would hardly be a topic that could be conceivably politicized. However, the European Union has succeeded in turning the USB ports on electronic devices into a public policy debate. Next month the European Commission intends on presenting a “draft law” that would require all electronics producers to have a “common charging interface”. This would effectively prohibit the Lightning connections utilized by iPhones. If passed all other formats other than a USB-C connection would be banned in the European Union.

The question becomes what is a USB-C connection and why is the European Union so adamant about making it the compliance standard for the continent? USB connections and ports have been in existence since 1996. One of the latest innovations in USB connections came in the form of the USB-C (software version 3.1) in 2014. The USB-C connection boasts several technological advantages USB 2.0 and USN 3.0. Some of the benefits include thinner cables, greater capacity for transmitting data, and backward compatibility. Although these are most likely not the reasons why the EU is pushing for all electronics to have the USB-C standard for charging ports. The campaign for the USB-C mandate is arguably not directed towards consumer protection. Rather is more oriented towards environmentalism. One outstanding advantage of the USB-C format is that is more durable, meaning that it will not wear out as quickly as previous models of electronic port connections. The goal of mandating USB-C connections would be to reduce the amount of E-Waste a plank in the platform of the EU’s New Circular Economy Action Plan.

This initiative brought forth by the European Commission cannot escape the potential of a Bootleggers and Baptist (1983)  coalition from forming. The moralizing agent in this situation would be the European Union. Yes, there are some political gains for advocating for environmental causes. For instance, you look “progressive” and you earn the right to virtue signal. Above all, you win over the progressive vote, which is presumably sizable in Europe. The EU  may be a potential Dual-Role Actor, but for the sake of clarity, let’s assign the role of “Baptist” to the EU. Who are the Bootleggers in this scenario? It is highly unlikely that no one would benefit from the EU placing such compliance requirements on the charging ports for electronic devices. Regardless of whether the regulation is purported to target consumer safety or environmentalism disparate effects are inevitable. This was an observation implicit in Yandle’s theory since the nascent period of its development. Hence why in Yandle’s seminal paper he suggests there is a “demand” for regulation among corporations. The implementation of regulations operates as a backdoor way of reducing competition without violating antitrust laws. Granted, antitrust laws in the EU are different than those in the United States; however, this is still circuitous means of subverting the legal constraints of anti-competitive market behavior among firms.

Most electronics producers are on board and have already adopted all of the purposed EU requirements; except for Apple. While other Apple products have been reformed to include USB-C ports, the iPhone still uses a Lightning connection. Apple has even openly stated that such a requirement would hinder innovation. Yet, the other giants such as Samsung have remained silent on the matter; expressing tacit agreement with the purposed EU measure. It should be noted that Apple is a major competitor in the Smartphone market. The iPhone has approximately a 50% market share of the Smartphone market in the U.S. However, the global market share is primarily held by Samsung and other competitors. Nevertheless, Apple is still a serious competitor for companies such as Samsung in the global market. The silence of other producers most likely is due to rational business interests rather than the normative virtues of environmentalism. Therefore, Apple’s competitors in the Smartphone market are the “Bootleggers” of the EU’s USB-C mandate.

Bootleggers & Baptists: XXV- The Energy Drink Crusader

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One of the greatest insights from Bruce Yandle’s seminal paper Bootleggers and Baptists-The Education of a Regulatory Economist (1983) was that there was a demand for regulation. This observation is quite counter-intuitive, but corporations due benefit from regulation. As Dr. Yandle once mentioned in a lecture that they often have an anti-competitive impact on the market. Often the costs are of compliance tend to be much lower for larger companies but can be disastrous for small start-ups. Frequently eliminating competition without violating antitrust laws. Quickly dispelling the myth that large companies are vehemently opposed to regulation. Although the state action of taxation is a whole other story.

Whenever there is a public outcry for regulation, it is a corporation’s dream come true. Why? Because it requires little to no effort on their part.  If the measure curries favor with the public, there is no need to even enlist the help of lobbyists, you can let the average-Joe voter do all the dirty work for you. Demonstrating a common misconception about safety regulations. Often they are not truly essential to the public good. From a prima facie standpoint, they seem advantageous to the average citizen. May even seem essential for promoting public welfare. The downstream consequences are typically divorced from the implementation of the policy. The disconnect due to the temporal separation between cause and effect generates repercussions mirroring the effects of fiscal illusion. Instead of severing the connection between spending and taxation, time distances the connection between policy and results. Leading to the misconception that safety regulations are beneficial to the public.

The emergence of exigent circumstances amid a public health crisis is an opportune time for the general public to unwittingly act as covert lobbyists. In most cases, these “public health crises ” tend to be more so perceived than real. Sometimes, perception carries more weight than truth. One prime example of an emerging health disaster is the public health emergency of the risk of energy drinks. Particularly the consumption of energy drinks by children. For the record, kids really should not be consuming energy drinks. However, this is not the job of the government departments to enforce this safety measure. But rather is the duty of parents to be diligent regarding the actives of their children. Easier said than done. However, one only needs to look at age restrictions on tobacco, alcohol, recreation Marijuana, pornography, and vaping products to know such measures usually fail to meet the goal of limiting youth consumption.

One recent advocate for placing age restrictions on energy drinks made international news.  U.K. bar owner Lee Kamen spent years consuming a staggering twelve cans of energy drinks a day. After suffering a near-fatal heart attack he swore off these hyper-charged caffeinated beverages for life. Recently the former avid energy drinker imbiber caught his daughter in possession of one of these high octane beverages.  Subsequently poured it down the drain.  He then called the school to alert them that children were purchasing these deleterious drinks from a local shop. In several published articles Lee was quoted as expressing a need to place age restrictions on energy drinks. His intentions are pure and coming from the ethical need to protect children from the consequences of choices they are not mature enough to make.  Making him our energy drink Baptist.

Several parties benefit handsomely from Mr. Kamen’s advocacy for age restrictions on energy drinks. For one, the school does. Unfortunately, public schools have taken on too invasive of a role in child-rearing. Ranging from the inculcation of normative values to even being overly invested in the wellbeing of the students. One salient example of this is the advent of mandated reporter laws in the United States. The schools not having to do the leg work to discover this issue makes it easier for them. Instead of devoting resources to investigating this issue now all they have to do is alert other parents and enforce a prohibition of energy drinks on campus.  The next benefiting party would be local coffee shops (whether mom-and-pop or corporately owned). Despite Mr. Kamen’s good intentions, he cast too narrow of a net. Sugary iced mocha lattes may not pack the same punch as a can of Red bull, but can still have detrimental effects on a child’s health. Not including all caffeinated beverages under the umbrella of “dangerous beverages” leaves coffee shops free and clear to see their products to minors. Even if the sale of all caffeinated beverages to minors was prohibited, there would still be the issue of the sugar content in beverages. Leading us to infer that producers of sugary juices and soda (regardless of caffeine content) would still be legally permissible to children. Apparent the prospect of a sugar buzz eluded all the anti-energy drink advocates. High-sugar beverages are a welcomed substitute to offset the absence of caffeinated beverages. Kids already hooked on Monsters and Red bulls could just consume more sugar to replace the missing caffeine.

Cooperation and Conflict

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Staying within the structure of methodological individualism it is important to see how Smith’s Pin factory example (p.54-55) exemplifies the coordination of a group of economic agents. All working in unison towards the common goal of producing pins. All of these individual works comprise the overall assembly line. The totality of all the adjacent departments related to manufacturing makes up the internal structure of the firm. Any social institution whether it be a hobbyist club, social club, buyers club (e.g. Sam’s Club, BJ’, Costco), government, business, trade association, private governing bureau/authority (e.g. homeowners association), charitable foundation, research institute, study group, etc. are comprised of multiple individuals forming the group. It is flat-out erroneous to speak of the entire organization without any consideration for its members. The collective action of all the group members acting harmoniously to achieve the same ends is much more complex than treating these collective efforts as lumped together aggregate.

Each member of an organization has their internal objectives, thoughts, feelings, and desires. It can be said that all the active participants have their utility functions (p.25-26). Meaning that to some extent their wants, needs, and desires align with the overall group goals. For example, very few people like their jobs, but they voluntarily consent to the terms of employment because of their desire to earn money. Whether it is for the intrinsic satisfaction of possessing money or what currency can be redeemed for. Keeping within the theme of a Smithian analysis of social institutions, it is important to note that more than tangible goods are exchanged through interaction with others. We exchange ideas, culture, skills, knowledge, friendship, guidance, sympathy, morality, and moral support among other forms of desirable forms of social currency. Political activities tend to be a form of social association that is frequently marred by corruption and various forms of abuse. However, is the dynamic of politics overtly a zero-sum game? Not necessarily. As it can be viewed as a form of exchange, individual actors engage in various exchanges for mutual benefits (p.25). One example being logrolling the practice of lawmakers trading votes/favors.

The intangible exchange of social commodities cannot be understated in formulating effective working relationships. One crucial assumption of Smith’s Theory of Moral Sentiments (1759) that we seek the “approbation” of others. In other words, we seek to praise and approval from others. We are constantly seeking the acceptance of our peers. Being well-liked on the individual level wields a significant amount of social currency. If the ability to seek acceptance and cooperation is applicable on the individual level, couldn’t it also apply to the harmonious relationships between groups of people? After all the scope of social and economic interactions operates on a continuum of scale, what is applicable on a minuscule level should also work on a larger scale. The principle is a general maxim governing social interactions, therefore it should be transferrable. One of the best ways to overcome cultural barriers is through finding a form of social exchange desired by both parties. It does not mean that it must take the form of economic exchange. It possibly manifests itself in alliances and treaties among nations. Special agreements, pacts, contracts among nonpolitical social units. Most often it takes the form of economic trade between foreign nations. The necessity of unilateral trade agreements is refutable. Consumer sovereignty is the true impetus of international trade. Despite the bluster and theatrics of vociferous diplomats and other garden variety elected representatives.

Why voluntary association over other coercive means do we yield harmonious interactions? There isn’t a magic bullet answer to this question. However, some insights from Public Choice pioneer Gordon Tullock may help elucidate a potential variable that sheds some light on this occurrence. It is the ability to choose our partners in voluntary social arrangements that reduce the instance of Prisoner’s Dilemma. If our trading partner is not being cooperative, we can easily do business with someone else. Because of the mobility of free association (which is purportedly protected under the First Amendment) we do not need to be held captive by aggressive or hostile social relations. Due to this consideration, it is easy to see the original sentiment behind antitrust laws, but much like all laws, they suffer from loopholes and other issues. Even from the standpoint of the definition of a monopoly. One of the common attributes of monopolistic market behavior is assessed by is market concertation. However, this is problematic how do we determine which market is categorically correct for the assessment of market concentration? Nevertheless, we can freely choose our partners whether in trade or other forms of social situations it reduces the occurrence of the perverse incentives to be noncooperative. Sullying our reputation deprives us of the esteem that Adam Smith surmised we all crave.

Considering that trade is one of the forms of association that fosters cooperation. Even if free trade is not the key to world peace, it still makes us less apt to raise the sword to our geographic neighbors. To repudiate the previous administration’s trade policy, international trade should be encouraged. It is only natural to perceive David Ricardo’s concept of comparative advantage as an extension of Smith’s pin factory.  The premise of comparative advantage is that it can make production global and explains why we tend to import higher-order goods to produce commodities domestically. No one climate can best produce glass, grapes, and corkwood in the Cognac region of France. However, all of these components are required for assembling a commercially produced bottle of Cognac brandy. This specific region in France has some of the best grapes in the world for brandy production. The climate is wholly inappropriate for cultivating and harvesting the wood used in the stopper placed in every Cognac bottle. To avoid placing great restrictions on our ability to manufacture sophisticated goods, we need to trade with other nations. We can only truly achieve this through peaceful relations. Free trade in itself helps to facilitate peaceful relations.

Privatizing Mail: Lysander Spooner V. U.S. Postal Service

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What was that power? It was, as has been shown, merely a power concurrent with that of the states and people, .. to establish post offices and post roads.” Only a concurrent power, then, having been delegated, and a like power not having been prohibited to the states or people, it necessarily follows, from the terms of the amendment itself, that a concurrent power to establish them is .. reserved” to the states respectively, or to the people-or to both.

Lysander Spooner (P.21 The Unconstitutionality of the Laws of Congress, prohibiting Private Mails. 1844)

Before the founding of private parcel carriers, such as UPS or FedEx, the United States Postal Service had a monopoly on the delivery of small packages. Until one man, Lysander Spooner decided to openly challenge the government’s industry dominance. Ultimately, the U.S. government won the battle. Spooner arguably won the war. His victory immortalized in the fact that he forced the hand of the U.S. Mail service to lower the costs of stamps through his valiant entrepreneurial efforts. Effectively driving the cost of stamps down to actual market rates. Earning the bold political philosopher the moniker “Father of the Three Cent Stamp”. Spooner observing the illegitimate manner in which the government monopolized this service, braving the risk of legal action, decided to create his private mail service. Servicing parcel and letter delivery from Boston through the mid-Atlantic. All the while undercutting the grossly inflated shipping rates set by the government.

Lysander Spooner was born on a rural farmhouse in Athol, Massachusetts on January 19th, 1809. He was one of nine children. It was speculated that Spooner’s fervently religious upbring influenced his later turn towards deism. Along with a commitment to religion, his family also were staunch supporters of the abolition movement. At the age of sixteen, he entered an agreement with his father to work on the farm until he was twenty-five. In exchange, Spooner was provided with food, room and board, and “educational advantages”. After fulfilling his obligation to his father, Spooner worked as a clerk for the Register of Deeds in Worcester, Massachusetts. In 1833, studied law under John Davis while working in his office. Spooner eventually went on to start his legal practice. Acting in defiance of the Massachusetts mandate that lawyers either have a college degree or study five years under a practicing lawyer. Spooner perceived this law as being discriminatory towards the “well-educated poor”. Drawing parallels to the artificial barriers to entry created through state occupational licensing requirements. Spooner even petitioned the Massachusetts General Court to challenge the veracity of this requirement in 1835.

In 1844, Spooner founded the American Letter Mail company. Audaciously announcing the incorporation of his enterprise to the U.S. Postmaster General. Reacting to the skyrocketing costs of postage in the 1840s. The cost of sending a letter from Maryland to Massachusetts was 18.75 cents. Approximately twenty-five percent of workers’ daily wages at the time. Two weeks after his grand announcement Spooner was delivering letters between Boston, New York, and Baltimore. Offering patrons this service for a mere 5 cents per stamp rate. A drastically more economical option than the exorbitantly priced stamps required to be delivered by the USPS. Doing something the Postal Service of the nineteenth century could not accomplish. Deliver mail quickly, efficiently, and all at a fair price. All benefits could not be achieved by the U.S. Mail due to the organization be rife with corruption and bureaucratic red tape. The U.S. Postal Service possessing a monopoly position in the market afforded the organization the ability to set prices.

Naturally, Spooner soon came under fire from the U.S. Post Office. Less than a week of being in business “… Congress introduced a resolution to investigate the establishment of private post offices..”. After only being in business for several months Spooner and a few of his employees were detained for transporting letters by train to Baltimore. After being incarcerated for nearly three months and grappling with other legal troubles Spooner was released from prison. The American public became accustomed to lower postage rates, meaning the U.S. post office had to lower the cost of their stamps. This resulted in many of the customers using private carriers returning to using USPS. This combined with the legal fees incurred through Spooner’s legal battles with the U.S. Government contributed to the bankruptcy of his business. After the failure of his business venture, Spooner went on to be an influential figure in the abolitionist movement.

Spooner was able to give the inefficient appendage of the federal government dedicated to delivering mail a run for its money. Through this market distribution despite the failure of Spooner’s business, he succeeded in lowering the price of postage in the United States. He did so through market forces. Directing the U.S Post Office to follow suit with providing comparable pricing to the public. This was achieved in the absence of legislation or other typical forms of political action. Truly living up to his reputation as an anarchist. Regulation suffers from the lethargy of political processes. Changes made to adjust to market conditions are much more instantaneous. Demonstrated how quickly postage rates dropped after Spooner started delivering letters.

In the spirit of Spooner and his contributions to anarchist political theory, it is interesting how there is a discrepancy between when the government engages in questionable conduct and when a private citizen does. Few questioned the government monopoly on mail delivery, but when a private citizen attempts to bring competition into the market he is ligated out of business. However, when private companies start to dominate specific industries at the end of the 19th century, there was then a moral imperative to break up this concentration of market power. The christening of this crusade was punctuated by the passage of the Sherman Antitrust Act in 1890. It would be fair to respond to this charge of hypocrisy, by stating that when Spooner waged war on the monopoly in letter carrier services there wasn’t any precedence for antitrust law in American jurisprudence at the time. Good point, but even in the light of the fully developed and sophisticated antitrust law we have today there are still state-dominated monopolies on the production of goods and services. The most salient example being defense. Some cling to the Samuelsonian public goods argument for keeping the government monopoly on defense. Keen scholars of political economy may even invoke Coase’s Theorem to justify state provision of defense services. For those who are skeptical of the legitimacy of state intervention, there still appears to be a double standard.

United States v Microsoft (1998)- Licensing Agreements

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At the roaring apogee of the 1990’s era tech industry, Microsoft was king. Naturally, astronomical success will be with skepticism. The presumption being that such gains must result from dishonest conduct. The merits of such assumptions at times can be questionable considering the broad and preemptive nature of most antitrust legislation. Notably, the Clayton Act (1914).

 

The extreme amount of flexibility in the interpretation of per se antitrust violations can be problematic. We encounter the potential issue of judicial bias influencing the outcome of the case. When the ruling does not even operate as a form of consumer protection. The commonly purported function of antitrust legislation. Making the potential for top performers in the industry being targeted more probable (McKenzie & SHUGHART II,1998, P.31) [1]. To some extent, the Rule of Reason helps counterbalance any anti-market bias resonating from the misapplication of judicial digression. Some economists and jurists believe that back in the 1990’s Microsoft was being unfairly targeted for antitrust complaints due to their success. Institutional and public bias may have been potentially been reflected in the United States V. Microsoft (1998).

 

In my podcast, I discussed how the 1998 suit included complaints the tech giant engaging  in tying agreements. That isn’t the whole story. The case was built upon multiple complaints. I would be remiss to represent this case as being built solely on a tying agreement complaint. Per the Department of Justice’s Website:

 

III. Prohibited Conduct

  1. Microsoft shall not retaliate against an OEM by altering Microsoft’s commercial relations with that OEM, or by withholding newly introduced forms of non-monetary Consideration (including but not limited to new versions of existing forms of non-monetary Consideration) from that OEM, because it is known to Microsoft that the OEM is or is contemplating:
  1. developing, distributing, promoting, using, selling, or licensing any software that competes with Microsoft Platform Software or any product or service that distributes or promotes any Non-Microsoft Middleware;

  2. shipping a Personal Computer that (a) includes both a Windows Operating System Product and a non-Microsoft Operating System, or (b) will boot with more than one Operating System; or

  3. exercising any of the options or alternatives provided for under this Final Judgment. [2]

 

There may be some credence to the claims of a tying agreement. However, it would be more less reasonable to blindly accept the claims of Microsoft’s licensing practices. Which is why it is important to acknowledge the potential for bias in judicial proceedings. Back in the late 1990’s the media lambasted Microsoft for its business practices. Microsoft was already crowned a monopoly with quips oozing antimarket sentiment. Microsoft back then was often paralleled to Philip Morris (McKenzie & SHUGHART II,1998, P.4) [3]. Such an equation is not only hyperbolic but puts into question if popular perception influenced the outcome of the case.  Licensing agreements deployed to secure proprietary applications and coding seems like a reasonable measure. This is merely speculation on my end.

The bigger question is how a licensing agreement can constitute an antitrust violation?  Per Shenefield and Stelzer in most instances licensing agreement are perceived as being competitive market behavior.

 

“ Licensing arrangements, like other agreements involving intellectual property are routinely pro-competitive because they increase the rate of diffusion of new technology.” (Shenefield  & Stelzer, 1998, P. 89) [4].”

 

The water becomes a little murkier when we get into the royalties attached to licensing arrangements. When royalty rate is based off a factor other than use of the patent trouble can arise. Microsoft mandated a licensing fee for each computer even if  their software wasn’t installed (Shenefield  & Stelzer, 1998, P. 91) [5]. On its face, it does seem like a blatant barrier to entry. However, is it possible that Microsoft is attempting to protect their product?

 

The attempt to cite Microsoft’s licensing practices can be seen as more than just a misuse of licensing fees.  It could be argued that that the DOJ perceived the Microsoft operating system as an essential facility (McKenzie & SHUGHART II,1998, P.27) [6]. Essentially facility doctrine entails that firm provides access to facility at a “reasonable price” [7]. Through Microsoft requiring licensing fees for developers creating software compatible with the Windows operating system. Due to the fact developers would require the operating systems code to make their application fully compatible, this could be seen as protecting a trade secret  (McKenzie & SHUGHART II,1998, P.28) [8]. Allowing access to their own proprietary code makes it very easy to replicate Microsoft’s operating system. Depleting the value of the product that Microsoft put a significant amount of money and man hours into developing.  It may be fair to charge a fee to access such information to account for the resources spent to create their operating system. While such gate keeping measures may seem like a barrier to entry, in most instances it is the prerogative of the firm. The possibility that if Microsoft didn’t possess a large market share would they have even been prosecuted for their licensing practices? Especially, when they were only engaging in sensible recourse to protect their bottom line.

The Antitrust Exemptions for Private Conservation Collectives

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Introduction

 

It is intellectually dishonest to frame an argument in a misleading manner. In my previous essay, I explained how antitrust laws obstruct collective conservation efforts. However, I would be remiss if I did not expound upon the antitrust exemptions for specific collective conservation arrangements. Such examples include the Fishermen’s Collective Marketing Act and harvest collectives. There is certainly a formidable argument that antitrust laws could be made less restrictive to facilitate private conservation initiatives. It is still important to acknowledge what exemptions do exist for the sake of conservation.

 

The Precedence of Antitrust Exemptions

 

Antitrust exemptions for various collective arrangements run across many industries. Ranging from Major League Baseball [1], agricultural collectives, to even labor Unions (Adler, 2004, P.37) [2]. Per Adler (2004) the structural architecture of most antitrust exempts stems back to the Capper-Volstead Act.  This act originally provided small-scale farmers with more leverage against large distributors. Enabling them to engage in collective efforts that were mutually beneficial to collective members (Varney, 2010, P.2-3) [3]. The Capper-Volstead Act was oriented towards agricultural collectives but did influence legislation such as The Fishermen’s Collective Marketing Act. Which allowed members to :

 

“Specifically, the FCMA authorizes “persons engaged in the fishing industry” to “collectively catch, produce, prepare for market, process, handle and market… such products of said persons so engaged…”

 

The act does not allow associated firms to initiated prohibited boycotts or refusals to deal. Due to the specified nature of the above exempt activities (Adler, 2004, P.39) [4]. The market behaviors permitted under FCMA are to the benefit of collective members. Unfortunately, there aren’t any terms to enforce catch quotas (Adler, 2004, P.41) [5]. Presents a major problem pertaining to the ability of the FCMA to reduce the environmental impact of over fishing. The facts are once the prices rise the temptation to breach a cartel agreement increases over time.

 

 

Harvest Collectives:

 

Due to the lack of formal property rights and quota enforcement legally acknowledged harvest collectives prove to be effective alternatives. The Pacific Whiting Conservation Cooperative and North Pacific Pollock fishery being fine examples. Often legislation can be easily circumvented. For example, Magnus Act attempted to impose catch limits through a licensing system (Adler, 2004, P.42) [6]. A natural consequence of such measures is the creation of a “race to fish” scenario. Limited licenses, pushed producers to exhaust quotas within 14 days (Adler, 2004, P.42) [7]. Clearly not aligning the incentives of fishing companies with conservative harvesting practices.

 

On the other hand, the Pacific Whiting Conservation Cooperative has achieved greater success.  The cooperative operates by “… allocating portions of the catch among its members, creating informal property rights in the harvest..” (Adler, 2004, P.43) [8]. The allotments were easily determined due to the “coordination costs” being low enough to do so with little hassle (Adler, 2004, P.43) [9]. Per Adler, the implementation of the PWCC increased the recovery of saleable fish by approximately 20%.  Beyond that, it has reduced the number of operating vessels and increased overall fish volume and quality (Adler, 2004, P.43) [10]. The implementation of such collectives not only are more ecologically congenial but are more economically productive. Making it a winning solution and preserving the balance between free markets and environmentalism. Striking the balance that most assume to be unattainable.

 

Does the question now become how do collectives such as PWCC fair under the scrutiny of antitrust laws?  Better than you might think. The Department of Justice (DOJ) found the practices of PWCC to be lawful despite the broad nature of current antitrust laws. The participating companies agreed to “… continue processing, marketing, and selling their products…” in a competitive manner. It was deemed by the DOJ that such coordinated efforts would not substantially reduce supply nor inflate prices (Adler, 2004, P.43) [11].

 

 

Conclusion:

 

Free-market Capitalism and conservation efforts do not need to be adversarial. The PWCC is proof. The interaction between private conservation cooperatives and antitrust laws can contemptuous. Depending on the agreed-upon parameters of the collective it may still be legal. While the ambiguous quiddity of antitrust statues can be an obstacle they are not necessarily a brick wall. Unfortunately, you are somewhat held hostage by another individual’s interpretation of vague laws.

 

Navigating antitrust laws much like another aspect of the law is far from cut-and-dry. It can be mildly tainted with subjectivity. My natural inclination is to abolish such statues. Such a hasty reaction ignores the potential impact on the consumer. There certainly should be a great deal of nuance when addressing the issue of antitrust laws alone. Never mind the extra layer of complexity by examining how these laws interact with conservation initiatives. While such statutes can be restrictive, depending on the circumstances they may not impede the privatization of conservation efforts.

 

 

 

How Antitrust Laws Impede Conservation Efforts

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Introduction:

Quite often capitalism and environmentalism are viewed as being at odds. The very word “industry” conjures up images of factories releasing caustic smog into the air. Filling our waterways with toxic sludge. This perpetuated image is somewhat anachronistic. Stringent environmental regulations strongly discourage such wanton disposal of production byproducts. It should also be noted that the majority of industrial production has shifted overseas.

Despite the persistence of such misconceptions, business interests, and conservation efforts are not antithetical. The proliferation of the “Green” Business movement solidifies this point exquisitely. Environmental consciousness is absolutely imperative for anyone in the business of harvesting natural resources. That includes fishermen, loggers, and even recreational hunters. All groups that have it within their own interest to conserve finite resources. Limited resources in which access is not constrained by definitive property rights.

Due to resources being scant and access unfettered we soon are faced with the Tragedy of the Commons. This concept was first postulated by William Foster Lloyd back in 1833. Then was revived in the modern era and applied to population ethics by Garrett Hardin. Hardin elaborates upon Lloyd’s grazing rights example by stating:

“… the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another…. But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit-in a world that is limited. Ruin is the destination..” (Hardin, 1968, P.2) [1].

It only stands to reason that consumption limits need to be placed upon commonly shared resources. Typically, such restrictions take the form of government regulations. Couldn’t private fishing firms merely mutually agree upon daily catch quotas? Per researcher Bruce Yandle “… Ronald H. Coase has taught us, every firm is a transaction-cost minimizer..” (Yandle 1998, P.7) [2]. Another way of putting it is that private firms could more efficiently and effectively coordinate such measures. Private enterprises face one large obstacle and that is antitrust laws. Frequently antitrust laws hamper conservation efforts made by private businesses (Yandel, 1998, P.4)[3]. In this essay, we will examine how mutually agreed upon conservation efforts qualify as antitrust violations.

Per the Law Conservation Collectives = Collusion

Coordinated efforts among private enterprises to conserve a commonly shared resource may be a novel solution. Unfortunately, under current antitrust statues could be defined as a collective effort to constrain competition.  Collusive behavior among competitors is explicitly prohibited under the Sherman Act (1890). Section 1 of the Sherman Act states:

“… every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce…” (Shenfield & Stelzer, 1998, P. 15) [4].

The emphasis on cooperative efforts is considered a major legislative flaw in the Sherman Act (Shenfield & Stelzer, 1998, P. 16) [5].  However, it is broad enough to encompass privately formed conservation collectives. Restricting supply can be construed as an indirect form of pricing fixing. One of the more salient behaviors associated with cartel arrangments (Shenfield & Stelzer, 1998, P. 43)[6]. It seems like such an effort would qualify as an antitrust violation.

The Conspiracy or Cooperation?

The broad interpretation provides some malleability to the application of the law. Which can be a double-edged sword. Above all the intent of Antitrust laws is to act as a form of consumer protection. Insulating patrons from inflated prices and artificially reduced supply (Alder, 2004, P.20) [7].  A laudable goal that could, unfortunately, conflict with other genuine interests such as environmental conservation. For this reason, the courts need to carefully access any potential benefit of the anticompetitive behavior (Adler, 2004, P.21) [8].

Unless protected by statutory exemptions most agreements that seem anti-competitive can be prosecuted under the Sherman Act (Alder, P.10) [9]. The problem becomes that in most cases intentions of the participating businesses are not taken into consideration.  In the case of Manaka v. Monterey Sardine Industries (1941)reflects such a misstep.  Frank Manaka was prohibited from fishing in Monterey Bay by the Monterey Sardine Industries. To make matters worse the local canneries wouldn’t purchase fish from  Manaka. The efforts of the collective were clearly “.. to conserve fish stocks..” (Adler, 2004, P.4) [10].  The court wasn’t on the same page:

“Such an association as that of the boat owners is not freed from the restrictive provisions of the anti-trust act, because they profess in the interest of conservation of important food fish to regulate the price and the manner of taking such fish “unauthorized by legislation and uncontrolled by proper authority.” (Adler, 2004, P.31) [11].

Unless there is clear documentation intentions are subject to speculation. Even there is still the threat of a Per se antitrust violation. Defined as “… the rule permits the court to make a categorical judgment as to the permissibility of a given business practice..” (Adler, 2004, P.22) [12]. Leaving individuals at the mercy of a judge’s digression.  Incredulity towards the claims of colluding businesses seems reasonable. The waters muddied by the faults of human nature.  Cases such as Hawaiian Tuna Packers Ltd. v. Int’l Longshoremen’s & Warehousemen’s Union (1947) the motives were much murkier. The plans to manipulate prices of fish sold to the Hawaiian Tuna Packers cannery by members of Local 150 were not overtly environmentally minded (Alder, P.13) [13].

Have Conservation Regulations Failed?

Informal restrictions in a resource “commons” are far from a new concept. Gentlemen’s agreements managed rights to hunting grounds in medieval Europe. Native tribes indigenous to Pacific Northwest established customary rules for managing salmon fishing (Yandle,1998, P. 9) [14]. It wasn’t until nascent years of the Progressive era that such arrangements became problematic.

In theory, antitrust laws are aimed to protect the customer. However, aren’t “… high-priced fish are preferable to no fish at all?” (Adler, P.11) [15]. This question may sound exaggerated but does hold some merit. Circling back to the case against the Monterrey Sardine Industries, overfishing decimated the fish population in the area (Yandle, 1998 P.14) [16]. Despite the implementation of regulations restricting fishing quotas, 65% of all fisheries are either “.. fully exploited or overexploited…” (Adler, 2004, P.6) [17]. Regulations have made a meager recovery to nearly depleted fish stocks globally. Overall, government initiatives to replenish fish stocks globally have failed (Adler, 2004, P.7) [18].

It is only natural to questions why such efforts end up falling short. It is expected that in the absence of property rights formal restrictions would aid resource conservation. As Bruce Yandle would put it governments often adopt a “one-size-fits-all” solution. When the Canadian government implemented a system of fishing permits, even individuals not actively fishing purchased them. Reducing the fisheries once again to a state of common access (Yandle, 1998, P. 10) [19]. While this is only one example of regulatory failure it demonstrates a common pattern. The porous nature of many regulatory solutions leaves them open to loopholes. Gaps that can be easily exploited.