Monopsony

1. Monopsony Section 2 Committee

2. What is Monopsony? • Monopsony/Oligopsony defined. The ability of a buyer (or group of buyers) to reduce the purchase price of a purchased item (usually an input) below the competitive level, usually by restricting its purchases of the item. • “all or nothing deal”

3. Necessary Conditions • Buyer concentration • Upward sloping supply curve • Barriers to entry

4. Effects of Monopsony Power • Welfare Effects • Distributional Effects • Upstream Market • Bilateral Monopoly • Downstream Market • Monopoly; • Consciously Parallel Conduct v. Collusion

5. Other Areas of Antitrust Law • Section 1. Buyer cartels, per se rule, Mandeville Island Farms joint purchasing arrangements under a rule of reason analysis, Northwest Wholesalers. • Mergers • Health Care, U.S. v. Aetna (Prudential) • Agriculture U.S. v. Cargill (Continental) • B2B, • Covisint FTC (September 2000) • FTC Report (October 2000).

6. DeLoach v. Phillip Morris Cos., 2001 Trad. Cas. ¶ 73,409 (M.D.N.C. July 24, 2001) • Plaintiffs tobacco farmers • Defendant manufacturers: Phillip Morris (seller’s market: 49% share, buyer’s market 65%); RJR (24/10-15); B&W (14/10-15) and Lorillard (9/10-15) (Total 96/95). • Alleged Conspiracy to artificially reduce the price at which tobacco was bought at auction. Phillip Morris as monopsonist or Manufacturers oligopsonist.

7. Facts • The federal tobacco quota program. The Agricultural Adjustment Act of 1938, 7 U.S.C. A. § 1281 et seq. The USDA sets a minimum auction price and sets an annual quota. • The Unlawful Conspiracy: (1) bid rigging though tie-bids; (2) allocation of purchases, and (3) artificially limited purchases so can purchase remainder of need from reserves at lower price. Alleged desire to undermine the federal regulatory program. • Evidence of conspiracy: Meetings in hotel rooms, traveled in each others jets to auctions; distribution of “Participants Lists” and use of hospitality suites.

8. Holding and Rationale • Plaintiffs adequately alleged power and intent to exclude: Need not allege all and need not be a competitor • Abusive monopsony because of allegations of collusion. • Effects in downstream market – lowering output in the downstream market so they could artificially raise prices.

9. Sony Electronics, Inc. v. Soundview Technologies, Inc., 157 F. Supp. 2d 180 (D. Conn. July 16, 2001) • Plaintiff: Soundview, holder of patent for “V chip” technology, mandated by FCC to be in all televisions after January 1, 2000. Defendants: trade association (EIA) of television manufacturers and individual companies • Alleged conspiracy to fix low purchase prices for licenses or refusal to deal.

10. Facts • Soundview’s patent identified by EIA as necessary; Soundview offered to license “on a non-exclusive, non-discriminatory basis;” • Two EIA meetings minutes not provided; Soundview’s consultant resigned citing unidentified “conflict of interest” • call from the EIA to Soundview “the industry would consider a price of 5 cents per unit for a license to be a ‘reasonable price.’”

11. Issue, Holding and Rationale • Had Plaintiff adequately pleaded antitrust injury by pleading an “all-or-nothing pricing scheme” w/ no input reduction? Yes, because: • Distributional injuries; “there may be social welfare consequences in the long run, because suppliers will leave the industry (or cease to innovate and invent).” • While counterintuitive because monopsonist interests are not served by reducing the number of suppliers “business conduct is not always rational” and the manufacturers need only overturn the regulation or ‘invent around the patent.” • collusion and refusal to deal