Buyer Cartels Versus Buying Groups: Legal Distinctions, Competitve Realities, and Antitrust Policy

The existence and exploitation of buyer power is emerging as an important concern for antitrust as the public enforcement of antitrust law itself is re-emerging as part of the renewed recognition that markets require rules in order to operate efficiently and in socially desirable ways. Buyer cartels are per se illegal but buying groups are subject to the "rule of reason" in antitrust law; yet, the two types of activity are hard to distinguish in a variety of circumstances. Moreover, neither courts nor commentators have provided very satisfactory explanations and justifications for the "per se'" and "rule of reason" results. Indeed, in some circumstances, commentators and an occasional court have argued that buyers should be allowed to collude together simply to fix prices or allocate inputs. Conversely, many courts and commentators seem unaware of the potential risks that apparently legitimate buying groups can pose to the competitive process. The goal of this Article is to explicate, evaluate, and critique the differences between buyer cartels and buying groups and the resulting antitrust liability rules. First, effective policy must identify the factors both internal to such a group as well as the external market * George H. Young-Bascom Professor of Law, University of Wisconsin Law School. This Article is part of a broader project on buyer power and competition policy. The author acknowledges financial support from the University of Wisconsin Law School, Quarles & Brady Summer Research Fund, the Food Systems Research Group, and the Graduate School of the University of Wisconsin. 2 WILLIAM & MARY BUSINESS LAW REVIEW [Vol. 1:001 conditions that justify alternative characterization of the entity. Second, empirical studies and reported cases both demonstrate that buyer power arises from much smaller market shares than is usually associated with seller power. Third, the economic incentives of buyer cartels require modification of the standard predictions that antitrust law uses to facilitate the inference of agreement. Fourth, and finally, legitimate buying groups, although efficient responses to the needs of their participants, can also pose real threats to the long-term competitiveness of both the supply and demand sides of the market. BUYER CARTELS VERSUS BUYING GROUPS