Balkinization: Anti-Trust Violation?

Anti-Trust Violation?

Ian Ayres

The presidents of dozens of liberal arts colleges have decided to stop participating in the annual college rankings by U.S. News and World Report.

The decision was announced Tuesday at the end of an annual meeting of the Annapolis Group, a loose association of liberal arts colleges. After two days of private meetings here, the organization released a statement that said a majority of the 80 presidents attending had “expressed their intent not to participate in the annual U.S. News survey.”

The commitment, which some college presidents said was made by a large majority of participants, represents the most significant challenge yet to the rankings, adding colleges like Barnard, Sarah Lawrence and Kenyon to a growing rebellion against the magazine, participants said.

Hmmm, a group of competitors enter into a horizontal agreement where they agree not to compete on quality. Could this be a per se violation of the Sherman act?

The Justice Department went after a group of elite schools in early 90s for agreeing not to compete on price (or rather the net price ... net of financial aid).

Of course, individual schools have a right to decide whether to cooperate with U.S. News ranking. But anti-trust law outlaws agreements among competitors that dampen competition.

Posted 11:48 AM by Ian Ayres [link]

Comments:

Since USNWR is not a "customer" of these "merchants," there is by definition no "trade," hence no "restraint of trade," hence no "conspiracy in restraint of trade," etc.

# posted by

KipEsquire : 1:18 PM

where they agree not to compete on quality

This is the inferential leap that you have failed to support, Prof. Ayres. I don't see where they've done this at all. There is no evidence that Barnard and Sarah Lawrence won't be competing against each other, they have merely agreed not to participate in a ranking that -- in their opinion -- misrepresents the competition that does take place.

Let's play law school professor with a slightly silly hypothetical. The Wall Street Journal decides to rank "the best" law schools, ostensibly on the "objective" merits, and contacts schools for survey info. It turns out that the WSJ gives overwhelming weight in the rankings to the proportion of Federalist Society members in those schools, the extent to which alumni go on to positions in the Bush adminstration, etc. (The WSJ Editorial Page obviously being the ones to do the ranking.) Are you saying that law schools could not agree with each other to decline future participation in this blatantly skewed survey?

# posted by

Anonymous : 1:48 PM

Kip: The customers here are the students. Agreement not to participate in the USNWR rankings is a practice that restricts the schools' manner of competing for those customers. The USNWR rankings clearly foster competition between schools by providing potential students with a simple quantification tool.

I think Professor Ayres is correct that this could be a problem for the schools. I also think that's a shame.

GlennNYC: Hopefully, the schools would individually decide not to participate in your hypothetical survey. An agreement not to participate would create antitrust questions.

# posted by

QuiteAlarmed : 4:31 PM

Good god, this is a nonsensical argument. I expect better from this blog.

The customers here are the students.

No, the students are potential customers of USNWR. Colleges aren't beholden to USNWR any more than they're bound to provide information to any other private organization -- Glenn's WSJ hypothetical is spot-on.

Furthermore, there's a perfectly reasonable argument to be made that if the USNWR rankings are that beneficial, then the schools might be hurting themselves by not being part of the ratings. It's a private decision between two private entities. This is absurd.

# posted by

A : 5:42 PM

You and several of the commenters here are also missing a crucial point, which is that there are other ways of ranking colleges than USNWR. In fact, the colleges mentioned all pointed to another ranking system they felt is more unbiased and fair (I should also mention here that some of the colleges doing this fare quite well in USNWR rankings, so it's not out of self-interest they are doing this, either).

Saying that this is equivalent to refusing to compete on quality is just silly. Even if they didn't specifically refer to another ranking system to use instead, there are a number of other ways to compare colleges. I didn't even look at the USNWR rankings when I was deciding which college to go to.

# posted by

mfoley : 8:29 PM

"It's a private decision between two private entities. This is absurd."

That's not exactly the most convincing argument against antitrust liability.

# posted by

Chico's Bail Bonds : 11:33 PM

"That's not exactly the most convincing argument against antitrust liability."

Oh, how very pithy of you; albeit willfully obtuse. Antitrust liability attaches to collusive behavior between competing entities against their customers. The relationship between the colleges and a private, for-profit news organization doesn't fit that particular bill.

Feel free to explain how it's anticompetitive for a group of private entities to opt-out of another private entity's for-profit evaluation of the first group, all the other problems with USNWR rankings notwithstanding. You'd have to come up with a pretty strained notion of collusive behavior to justify that argument.

# posted by

A : 1:44 AM

I don't think the colleges violated the antitrust laws, but I still stand by my pithy statement.

If you're an antitrust defense lawyer and argument I.A. of your brief is "this is a private decision between two parties," you are not doing your client any favors. You are just admitting the element that's usually the hardest for the government to prove in antitrust case.

Now that you explain that its a "private decision between two parties" means that the agreement does not harm customers, I see your point. But still, that's a roundabout way of making your point. That's why I said its not the most convincing argument against antitrust liability.

# posted by

Chico's Bail Bonds : 7:35 PM

Sorry, you're right -- it was a very poorly phrased statement on my part. It's a good thing I'm not an antitrust lawyer. :) Nevertheless, this isn't a collusive agreement by any stretch of the imagination; Prof. Ayres' argument is wide of the mark.

# posted by

A : 10:58 PM

To those skeptical that there might be an antitrust problem here:

Have antitrust laws have ever been applied to agreements among competitors to limit the sort of advertising they conduct?

# posted by

Simon : 8:54 AM

A: No, the students are potential customers of USNWR.

We're concerned about an antitrust violation by the schools, not by USNWR. The trade conducted by the schools is the sale of education. The customers of that trade are the students.

Assuming that the "committment" reported in the NYT rises to the level of an agreement between the schools, then the question is whether an agreement not to participate in the USNWR rankings is an unreasonable restraint of that trade. If so, then it would be declared illegal by 15 USC Sect. 1 (Sherman Act). One could credibly argue that the agreement unreasonably restrains trade by limiting the manner in which the schools compete for students.

Despite your ridicule, this should be a concern for the schools, depending on the extent of their committment. If you want more from this blog -- as do I -- then I suggest that you focus more on legal analysis in your posts and use greater caution with terms like "nonsensical."

Mark: You and several of the commenters here are also missing a crucial point, which is that there are other ways of ranking colleges than USNWR.

I don't agree that the existence of alternative ranking systems is crucial. Of course, there would be no problem with the schools, individually, choosing to withdraw from the USNWR rankings and rely on other rankings. I don't believe, however, that the Sherman Act allows an industry to collectively foreclose one manner of competition in favor of others.

# posted by

QuiteAlarmed : 5:10 PM