The Allocation of Economic Coordination Rights

Sanjukta Paul —

The concept of economic competition is central to policymaking deliberation in this country. Yet even as our understanding of that concept evolves to take better account of corporate power, our thinking about competition retains a fundamental blind spot. Simply, the boundaries of the business firm insulate many instances of economic coordination that would be deemed anti-competitive if they were to take place between firms or individual persons. The regulatory discrepancies that flow from this fact tend to entrench existing distributions of advantage, power, and opportunity rather than to balance it.

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Economic life necessarily involves competition and coordination; it always has, although our policy choices about how to allocate coordination rights change. Presently, both antitrust law and our dominant frame for economic policy more generally tend to favor top-down, hierarchical forms of coordination

grounded in ownership rights, while viewing more democratic, horizontal forms of coordination with skepticism. This deep-seated preference, which itself precedes the contemporary concern with promoting competition, can be traced in part to antitrust’s (and the law’s) original preference for protecting property rights over workers’ freedom of association and contract – even as the pre-New Deal courts invoked the freedom of contract in other areas of economic and labor policy.

The New Deal order, on the other hand, has cognized coordination among working people as an exception to a more general principle in favor of promoting competition. But once again, as I argue in forthcoming work,[1] the deeper tendency of the law has been to allocate coordination rights on the basis of ownership, now largely through the form of the business firm. Some such allocation is necessary because promoting competition, as an organizing principle, is both broad enough to require its own limitation, and logically insufficient on its own to furnish decision criteria for deciding among those limitations. As a result, the law reverts to its pre-New Deal biases while cloaking this underlying preference in terms of the influence of economic theory.

Today, as the New Deal order breaks down, the business model of certain “gig economy” firms has made this allocation of coordination rights more vivid by stretching its limits. That’s because many such firms expressly set the prices of commodities that they don’t sell, or at least purport not to sell. Uber, for example, sets the prices of fares even though drivers are purportedly “independent contractors,” pushing the conventional limits of the insulating power of the firm for antitrust purposes. Indeed, Uber drew a lawsuit from consumer plaintiffs for price-fixing on a theory that survived a motion to dismiss, but which Uber recently managed to scuttle into private arbitration.

In an earlier paper, I described the inability of the law to make real sense of the fact that Uber is effectively a labor contractor with a great app. As such, its effects on the market in which it operates are indistinguishable from any effects that a “cartel” of drivers engaging in direct, horizontal price coordination might have, for example if drivers coordinated their rates through a hiring hall. Yet the latter is illegal on the current, conventional interpretation of antitrust law: the labor exemption to antitrust is limited to the (legal) category “employment,” which excludes an increasing number of workers and individual service-providers who may be labeled independent contractors, freelancers, or something else. Indeed, Uber has deployed that very contention in its currently pending attack on the City of Seattle’s bid to guarantee collective bargaining to its drivers; both the FTC and a sizeable number of antitrust academics sided with it by filing amicus briefs against the ordinance. Because that contest is in fact about the reach of the state action exemption, it illustrates the powerful way in which the norm against economic coordination beyond firm boundaries operates. Even where the positive law is unsettled (here, in terms of the precise reach of the state action exemption to immunize the Seattle ordinance), key institutional actors are moved by a feature of the deep grammar of antitrust (and indeed of economic policy more generally): the notion that economic coordination undertaken by firms and grounded in ownership of capital is presumptively acceptable, while horizontal economic coordination beyond firm boundaries is inherently suspect.

Indeed, this method of allocating coordination rights already characterizes the regulation of many firms outside the so-called gig economy. For example, in the trucking industry, firms that contract with truck drivers are permitted to engage in price coordination that would be denied to a “cartel” of individual truck drivers, of exactly the same size, collectively selling its services in the same market. Notably, incorporation isn’t dispositive of this issue, the law suggests that even incorporation may not protect a “cartel,” while economic coordination beyond firm boundaries that is directed by a firm, vertically rather than horizontally, often is permitted. Wherever individual service-providers are prevented from engaging in economic coordination –whether indirectly, by pooling their bargaining power to affect the terms and conditions of their bargains with the firms that retain them, or directly, by collectively setting the prices of services they sell to consumers– we’ll end up with an inconsistent application of our supposedly sacrosanct norm against price coordination and in favor of competition.

This argument is distinct from the claim that the position of selling labor (and living on that activity) constitutes an inherent disadvantage relative to the   positions of other actors in the market. It’s also distinct from the claim that firms have monopsony power over workers. It’s distinct even from the claim that labor combination is more closely scrutinized than capital combination. (It is certainly compatible and harmonious with each of these contentions.) Rather, the argument is about the inconsistent application of a principle about coordinating the price of labor or services itself. As I’ve previously argued:

“… [O]wners/investors do not just benefit from combining the economic power of their capital. In markets where there is a price premium to be realized from coordination, they also benefit from combining the power of others’ labor. They coordinate the prices of services others perform, through the mechanism of the firm (and thereby realize any premium), while the service-providers themselves, if they are not employees, are barred by antitrust law from benefitting from the economic power of their own combination. This is made stark in the case of service-sector firms that sell the very same services that they buy …”

In an economy based increasingly upon services, and in an economy in which the coordination rights of the persons who perform those services are increasingly limited (whether on the basis of antitrust law or simply on the basis of ineffective labor law), this anomaly is increasingly sharp. We ought to remedy it.

Sanjukta Paul (@sanjuktampaul) is an Assistant Professor of Law at Wayne State University

[1] The arguments described in this post are further developed in a book project entitled Solidarity in the Shadow of Antitrust (forthcoming from Cambridge University Press).

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