Cities and states as agents in restraint of trade

• Published date: 01 June 1986
• Date: 01 June 1986
• DOI: http://doi.org/10.1177/0003603X8603100212
• Subject Matter: Article

The Antitrust Bulletin/Summer 1986

Cities and states as agents

in restraint

of

trade

BY GEORGE

W.

DOUGLAS* and JAMES W. MULLENIX**

505

When the power

of

a state or local government is harnessed to an

anticompetitive purpose, the results can be formidable indeed.

While purely private collusive schemes are apt to disintegrate over

time, monopoly power may remain entrenched indefinitely when

it is protected by the legal machinery of a government. Moreover,

state-supported anticompetitive actions may be more likely

than

private monopolies to generate secondary inefficiencies as firms

"compete" for the right to earn monopoly profits. Because

of

the

pervasive nature

of

governmental economic regulation, anti-

competitive acts by state and local governments represent one

of

the most significant examples

of

the effective creation and main-

tenance

of

monopoly power in the U.S. economy.

The seriousness of this threat leads us to conclude that

anticompetitive actions by state and local governments will be a

major arena

of

antitrust activity over the next decade. Much

attention will be focused on the state-action doctrine, which

assumes that the federal antitrust laws are inapplicable under

certain circumstances to acts by state officials and private parties

President, George W. Douglas and Company and, formerly,

Commissioner, Federal Trade Commission.

•• Attorney, Federal Trade Commission.

AUTHORS' NOTE: The views expressed in this article are those

of

the

authors and do not necessarily reflect the views

of

the Federal

Trade

Commission or

of

any commissioner.

©1986 by Federal Legal Publications, Inc.

506 The antitrust bulletin

when those acts were committed under color

of

state law. In

recent years the Supreme Court and lower federal courts have

grappled unsuccessfully with the contours

of

this doctrine. The

most recent cases suggest that the courts have now gone too far in

allowing state and local governments to immunize their citizens

from the consequences of antitrust violations.

The next 10 years will also see a rise in the number

of

cases

turning on the Noerr-Pennington doctrine, under which private

parties may combine to petition the government even if their

purpose in doing so is anticompetitive. Governmental involve-

ment in economic activities, either as an actor or as a regulator,

has long been on the increase, and private parties thus face

increasing incentives to turn that involvement to private advan-

tage. The first signs

of

an upsurge in reliance on the

Noerr-Pennington defense have been manifested in cases in the

lower federal courts and the Federal Trade Commission. The

significance

of

the interests at stake and the confusion generated

by prior judicial formulations

of

this doctrine suggest

that

the

Supreme Court will soon be required to address this issue as well.

While conceptually distinct, the Noerr-Pennington and state-

action doctrines are united in their effects on one another and on

the potential costs

of

anticompetitive state and local actions. An

unnecessarily permissive construction

of

the Noerr-Pennington

doctrine will encourage the aggressive pursuit

of

competitive

advantages conferred by government, advantages that depend for

their validity on the state-action doctrine. Too expensive a read-

ing

of

the state-action doctrine will in turn provide incentives for

an undesirable form

of

"competition"

-intense

competition for

governmental favor, which to some extent is protected by the

Noerr-Pennington doctrine. Both doctrines, if loosely applied,

thus threaten economic efficiency directly through the anti-

competitive effects

of

governmental actions and indirectly

through the aggravation of those effects as firms petition to take

advantage of unusual profit opportunities.

This article will explore very briefly the relationships among

the federal antitrust laws, state and local governments, and

private parties who seek to use governmental power to achieve