ProMarket - History Provides a Valuable Lesson on How Monopolists Use Exclusive Deals to Fortify Their Market Power

Caricatures of Jay Gould and William Henry Vanderbilt satirizing activities of the American Union Telegraph Company and the Western Union Telegraph Company, 1914. Publisher: Charles Hart, Lith., 36 Vesey St., N.Y. Location: Boston Public Library, Print Department.

Daniel Hanley of Open Markets Institute publishes a piece in ProMarket detailing how the law can be used to ban exclusive dealing by dominant firms.

Throughout history, monopolists have been able to implement a myriad of unfair tactics that fortify and extend their dominance. Among those, exclusive deals have been a critical legal tool for dominant firms to obtain and maintain control over a market. 

Exclusive deals are contracts, implied agreements, or asserted practices that force dependent firms to engage exclusively with a firm. These contracts restrict the freedom of customers, distributors, and suppliers to conduct business with a corporation’s rivals. Rather than arising from an equal bargaining process, these agreements are often the result of a dominant firm imposing exclusivity on a smaller company merely because of their superior bargaining position and market power. Consequently, exclusive deals can block or marginalize a dominant firm’s rivals and permit them to unfairly perpetuate their market position.

Today, judicial policy favoring increased deference to corporate conduct has eroded so much of Congress’s efforts to limit exclusive deals that a company like Google can control 95 percent of the mobile search market predominantly through the use of exclusive contracts preventing smartphone manufacturers and wireless service providers from installing rival search engines. Dominant firms like Apple can use exclusive deals to limit the availability of parts for their products to inhibit the ability of third-party repair shops or consumers to be able to repair their products. Mylan, the maker of EpiPens, has used exclusive deals as a means to entrench its monopoly and prevent new and cheaper EpiPen-like devices from entering the market.

Exclusive deals have been particularly nefarious since the dawn of America’s industrial age. Since the Civil War, dominant firms have widely and repeatedly used exclusive agreements to exert, expand, and fortify their market power. These legal instruments were also an essential mechanism for some corporations to monopolize an entire industry and exert their economic dominance to impair, abuse, and destroy smaller firms. 

Read the full article on ProMarket here.