Thursday, May 28, 2009

I'm Not A Lawyer...

But it seems to me that an article by Slate's Ben Sheffner on whether today's meeting of newspapers executives would violate antitrust law is a bit off. From Sheffner:

Antitrust law is complicated, but one principle is very simple: Competitors cannot get together and agree on price or the terms on which they will offer their services to their customers. It doesn't matter if the industry is ailing or if collusion would be "good" for society or necessary to preserve democracy. An agreement regarding pricing is "per se"—automatically—illegal under Section 1 of the Sherman Act, the main federal antitrust law.

All but a few newspapers currently give away their Web content for free. Many would like to start charging but are afraid that if they're the first to make the leap, their readers will abandon them for the remaining free alternatives. One obvious solution would be for them to agree to make a collective leap behind a pay wall.

But such an agreement would be blatantly illegal, says Kenneth Ewing, a partner at Steptoe & Johnson who, as head of his firm's antitrust practice, advises corporations on how to stay out of trouble. "It's Antitrust 101. If you're a competitor of another company, you violate federal and state law if you agree on the price or the general terms on which you are willing to compete."

Benign meetings of the American Widget Manufacturers Association can, in the absence of very careful lawyering, become the venue for unlawful antitrust conspiracies in which general discussions about industry conditions and trends can segue into verboten conspiracy. "To put a group of competitors together in a room and have them discuss anything even close to considering prices … is a very risky undertaking," says Maxwell Blecher, a prominent antitrust attorney who represents plaintiffs in price-fixing suits. In a 2007 presentation, Ewing advised that when competitors meet, they should "avoid topics" including "prices, payment terms, costs, wages or salaries, profit levels … [and] business strategy."

I would agree with Sheffner that this would be a worry for the American Widget Manufacturers Association. I'm not sure, though, it would be for these newspaper executives.

Sure, if the owners of two newspapers in the same city collaborated on business strategies, they would run afoul of antitrust laws. Which is exactly the reason why the Newspaper Preservation Act of 1970* allows newspapers to sign joint operating agreements that exempt them from anti-trust laws. See: the Detroit News and Free Press.

*Signed by Nixon!

But that's not the case here.

A very key concept in antitrust law is how product and geographical markets are defined. Essentially, we want to know who are a company's competitors and what are consumers' other options in every geographic market. For instance, if Trader Joe's and Kroger wanted to merge, economists would analyze how this would impact the grocery store market in Ann Arbor, Chicago, Columbus, etc.**

** Regulators always try to define markets as narrowly as possible for antitrust purposes. When Whole Foods and Wild Oats merged, for instance, the FTC tried to argue they would monopolize the market for "natural and organic food," while the companies tried to argue they were in just the grocery store market, because many competitors also sold those goods.

Although newspapers from different cities are in the same industry, I would argue they're not really competitors--even with the Internet. If the San Francisco Chronicle started charging for access to its website, the fact the Miami Herald also did this wouldn't really harm local news consumers. San Francisco-ites would instead turn to blogs, TV, or the alternative press to get their local news***. In fact, it'd be nearly impossible to argue newspapers from different cities are competitors given that local monopolies are the reason many newspapers had been so successful. And without being competitors, you can't really break antitrust law.

***UPDATE:Forgot to add this, but if we're defining a market as electronic news in San Francisco, for instance, it's relatively easy to break into. Establishing a printing press and distribution network may have created barriers to entry, but basically anyone can setup a website. And if the San Francisco Chronicle was charging for access, it'd be relatively easy to undercut them and draw traffic to your site. These people are competitors, not newspaper websites in far-off cities.

Again, I'm not lawyer. And I certainly haven't crunched the numbers an economist would. But I'd be willing to bet that newspapers would not lose an antitrust lawsuit if they all agreed to charge for access to their websites.

Whether it'd be a good business decision for them to do that, though, is a different story...

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