Justice Scalia and the Demise of the “Genteel Monopolist”

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A year before he took his seat on the Supreme Court, Justice Scalia’s future colleagues issued a decision encouraging dominant firms to behave more like that genteel, top hat wearing fellow from the Monopoly game than like any business baron commonly found in the marketplace. That decision, Aspen Skiing vs. Aspen Highlands Skiing, would later be described as the “last gasp” of the “Harvard School” of antitrust, the more interventionist branch of antitrust theorists. Twenty years later Scalia would author an opinion snuffing out that last breath, for good.

Aspen Skiing arose during a transitional time in antitrust. Robert Bork’s seminal critique of antitrust enforcement as doing more harm than good, The Antitrust Paradox, hit shelves in 1979. A wave of sharp thinkers partial to the Chicago School of Economics approach to antitrust, the less interventionist branch, especially Judges Posner (appointed in 1981), Bork (1982), and Easterbrook (1985), took seats on appeals courts and published widely. In Section 2 matters (Section 2 addresses monopolization), the “Chicago School” favored more bright line tests to proscribe claims about conduct that in practice rarely hurt consumers. While such tests would necessarily lead to some “false negatives” (the blessing of anticompetitive conduct), the free market’s ability to chisel away at monopoly, and high enforcement costs, made rooting out those rare instances not worth the candle. The Harvard School, in contrast, had less faith in markets and more faith in the ability of courts to distinguish aggressive conduct from unlawful conduct.

In Aspen Skiing, Harvard won the battle, but lost the war. That case considered whether Section 2 encompassed a three-mountain ski resort’s refusal to continue a joint marketing agreement with its one-mountain rival. Though it acknowledged the traditional “right of a monopolist to deal with whom he pleases,” the Court carved out an exception when the monopolist ceases to deal with a rival in a way that worked “an important change” in a market that consumers liked as it was, when that change was not made exclusively for approved reasons, like cost savings. The Court was also taken with uncivil actions by the defendant, like telling customers that its mountains were the only ones in the area, and refusing to sell the plaintiff tickets to its mountains, even at retail.

The decision was odd. The defendant terminated an agreement between itself, the most dominant firm in the market, and its rival, which had its own large slice. Antitrust typically prefers that a market’s leading rivals do not reach agreements, especially like this one, which set a joint price. And because the rivals were setting a single price (as a monopolist would) the likelihood that prices would rise further, in the absence of an agreement, was low.

But it was Aspen Skiing’s focus on the monopolist as a “bad apple” that became its legacy. The Third Circuit applied it while condemning the defendant’s discounting practices, which while not demonstrably predatory, were “unnecessarily restrictive.” The Sixth Circuit did the same in a case in which uncouth actions by the defendant – including the trashing of its rival’s retail racks and displays – were in focus as much as consumer injury. The Microsoft decision also contains Aspen Skiing’s DNA, conflating brutal or brutish competition, like giving away Internet Explorer for free, or deceiving JAVA developers, with conduct that restricts output.

Scalia’s 2004 opinion in Verizon v. Trinko changed the narrative. At issue was whether Verizon’s refusal to give rivals access to its network infrastructure, as the new Telecommunications Act required, was exclusionary conduct subject to Section 2. Trinko’s breakthrough was its setting aside of the propriety of the regulatory violation for a focus on whether that sort of conduct was something antitrust law cared about. Perhaps because Scalia wanted to avoid a dissent by Justice Stevens – Aspen Skiing’s author, and Scalia’s frequent foil in antitrust cases, who would concur only in Trinko’s judgment – Trinko did not overrule Aspen Skiing. It merely jettisoned it to “the outer boundary of §2 liability,” which, given Trinko’s quiet decimation of its reasoning, is someplace far, far away.

The chance to act like a monopolist, Scalia explained, is what draws competitive verve into the market in the first place. Given a choice between a bright line rule immunizing dominant firms for refusing to help their rivals, and case-by-case scrutiny whenever a litigant decides “some other approach might yield greater competition,” good sense compelled the Court to choose the former. In Chicago School terms, the “cost of false positives” counsels against this sort of claim, as courts are “ill-suited” to draw the fine lines between procompetitive and anticompetitive refusals to lend rivals a hand.

So thorough was the triumph of the Chicago School that the Harvard School would over time essentially morph into and rechristen itself the “Post-Chicago” School. While that variation has made its contribution, the Genteel Monopolist of days gone by remains relegated to his box.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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