Antitrust and the commons: cooperation or collusion?

• Author: Yandle, Bruce

Long before Garrett Hardin (1968) explained the "tragedy of the commons," ordinary people were aware that unbridled access to fisheries and other natural resources could result in ruin for all. Whether by custom, kinship, or out right ownership, people found ways to assign limited rights for the sharing of pastures, streams, and hunting grounds. Indeed, the story of property rights, whether common, public or private, is itself a story about limiting access to otherwise common-access resources. Efforts to sustain stocks of species and to increase the productivity of natural resources inevitably lead to restriction of access. In the absence of rules for managing common-access resources, output will be higher and prices lower initially, but eventually the unbridled use will destroy a pasture, fishery, or wildlife population. Imposed systematically and competitively, access restrictions assure long periods of sustained environmental use, allowing us to avoid the tragedy of the commons.

In the minds of some, rules, customs, and property rights that limit access and production raise the specter of monopoly control. As Adam Smith ([1776] 1937) reminds us, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices" (128). But the perception of monopolizing is a different matter from the fact of monopoly. In any event, we live in a world with antitrust statutes, which can make socially beneficial conservation efforts a risky business (Milliken 1994; Johnson and Libecap 1982, 1008). For example, a community of oystermen and shrimpers aware of the effects of overfishing may form an association, meet together, and coordinate their actions to limit the catch.(1) In doing so, they run the risk of violating federal and state antitrust laws, whose broad language prohibits collusion and other anticompetitive behavior. To illustrate, section two of the Sherman Antitrust Act (1890) states in part that "every person who shall monopolize, or attempt to monopolize, or combine and conspire with any other person or persons to monopolize any part of the trade or commerce among the several States... shall be deemed guilty of a felony" (15 U.S.C.A.). Interpreted literally, the statute precludes a meeting of competing fishermen who seek to coordinate and limit production activity.

Conservationists find themselves caught between the pit of natural resource tragedies and the swinging, pendulum of antitrust enforcement. Actions taken to avoid a tragedy of the commons can and do trigger antitrust investigations. The mere possibility of felony conviction suffices to discourage sound natural resource management.

Although restrictions on overfishing to conserve a natural resource may be difficult to distinguish from blatant efforts to raise price and gain monopoly profits, the underlying logics of the two actions are entirely different. Successful cooperative efforts to conserve a common-access resource yield an increase in wealth and social well-being whereas it is widely argued that collusive efforts to monopolize markets yield a net reduction in social well-being while redistributing wealth from consumers to producers.

In their discussion of the twin problems created by over fishing and by cooperative efforts to prevent it, Terry L. Anderson and Donald Leal (1995, 166-167) and Ronald N. Johnson and Gary D. Libecap (1982, 1008) refer to a 1950s antitrust action affirmed on appeal in the U.S. District Court. The case, Gulf Coast Shrimpers and Oystermans Association v. United States (236 F. 2d 658, 1956) involved an association of Gulf Coast shrimpers and oystermen that had operated across five major Mississippi ports since the 1930s. The association's price committee did indeed set floors under the prices to be charged dealers by all members. Many dealers were also owners of boats that operated in the association. Gulf Coast dealers who sought to purchase oysters and fish from nonmembers were boycotted by cooperating members of the association.(2) Viewed as an attempt to monopolize, the association's action was simply an effort to raise fish prices and limit the entry of competing fishermen--a naked effort to gain market power. Seen instead as a device for managing a commons, the association's intent was to ration the harvest, thereby maintaining an otherwise depletable natural resource. In affirming the lower court's antitrust decision, the appellate judge referred to the Fishermen's Collective Marketing Act, which states: "A cooperative association of boat owners is not freed from the restrictive provisions of the Sherman Antitrust Act... because it professes, in the interest of conservation of important food fish, to regulate the price and the manner of taking fish unauthorized by legislation and uncontrolled by proper authority."(3) We are left with the question: Is it better to ravish a commons than to form an association that limits access and thereby preserves a fishery?

In recent years, policy analysts have again reviewed the evolution of property rights as they have searched for appropriate institutions for managing environmental use. Rather than relating to overfishing or overhunting--the traditional natural resources issues--the newer problems have to do with the unrationed discharge of wastes into streams of water and air, yet another common-access management challenge. River-basin associations and government-sponsored airshed management schemes now offer market-based alternatives to command-and-control regulation of each and every discharger by centralized authority, which in truth yields the ultimate form of monopoly control.(4) Were they not sanctioned by government, the new institutional counterparts to fishing associations would trigger an antitrust response. But, should we incur the political and administrative cost of building government-managed institutions that inevitably involve monopoly restrictions enforced by federal authorities when common-sense actions taken by ordinary people can deal with resource problems in ways less likely to impose systematic monopoly costs on the economy? Should timber owners who join together to limit cutting for the purpose of maintaining the habitat of the red-cockaded woodpecker be forced to defend themselves in an antitrust investigation? Should a group of bison ranch operators who seek to expand the bison population avoid meetings where price and management of herd size are discussed? Cooperative arrangements can be collusive, but they can also form the basis of sound conservation.

I argue here that the tragedy of the commons represents a real problem in many areas of natural resource and environmental protection and that current antitrust laws inhibit society's ability to resolve those problems efficiently and creatively. At a minimum, antitrust authorities should become aware of the conflict between the two policy areas and be more receptive to environmental reasons for organizing cooperative access restrictions. Barring more fundamental changes in antitrust law, exemptions should be provided to cooperative endeavors undertaken for the purpose of conservation and pollution control. These exemptions should be similar to those now granted to labor arrangements, research and development ventures, baseball, and many other activities in the economy. The threats of wasted and destroyed fisheries, extinguished species, and diminished water quality in rivers are real, but the possibilities that associated monopoly restrictions will impose significant costs on the economy are purely speculative and, if realized, are apt to be small and fleeting.

Counterbalancing the real with the speculative provides a motivating principle for reviewing the twin problems: The nation's natural resource management policies should avoid antitrust enforcement actions that are purely speculative when users of natural resources seek to avoid real losses from a tragedy of the commons. The nation will never be able to afford enough environmental police to manage the problem. The natural and logical incentive for users of natural resources to conserve resources by informal means should be fortified, not chilled by antitrust authorities who intervene when cooperative plans are under way.(5)

I proceed as follows. First, drawing on economic principles, ! discuss briefly the common-access problem and how avoidance of overuse of an environmental asset leads logically to access restrictions. I explain how the search for efficient use of a commons actually provides the basis for firms and all other economic organizations. Considered in the most restrictive way possible, every firm, fishing community, even every family imposes restrictions on the use of inputs and hence on output. I conclude this part of the argument with a discussion of the rare circumstances that might cause some such restrictions to impose a monopoly deadweight loss on society. Next, I discuss more fully the development of cooperative institutions for managing environmental assets. Examples of cooperative arrangements illustrate how access restrictions logically follow. I identify a small set of conditions that must be met before one concludes that an antitrust risk exists. In that section, antitrust concerns are largely put to rest.

Avoiding the Tragedy of the Commons

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In the classic account of the tragedy of the commons, Garrett Hardin tells of shepherds who move their sheep to a common pasture.(6) An unstated but critical assumption undergirds the story: Each shepherd acts independently and is totally indifferent to the well-being of every other shepherd. No kinship relations, customs, rules, or prospects of reciprocal dealing affect their actions. Caught in a prisoner's dilemma, each shepherd seeks to maximize the weight gained by his sheep, disregarding the effect of expansion on the total grazing...