A Study of Exclusionary Coalitions: The Canadian Sugar Combination, 1887–1889
Asker, John and C. Scott Hemphill (2020), A Study of Exclusionary Coalitions: The Canadian Sugar Coalition, 1887–1889, Antitrust Law Journal, 83(1), 99-126.
28 Pages Posted: 22 Jun 2020
Date Written: May 28, 2020
The standard The standard account of exclusionary conduct features a monopolist that excludes its rival by coercing a customer or supplier. Often, however, the matter is not so simple. In this article we examine exclusion accomplished by a coalition of firms––frequently, a coalition of suppliers and customers––that share the benefits of exclusion. The coalition is held together by an interlocking lattice of explicit agreements and parallel conduct.
We examine this subject through the lens of a particular historical example. In the late 1880s, the Canadian sugar industry was controlled by a complex coalition of refiners and wholesalers. Our analysis assesses the incentives and conduct of the parties, making use of the records of a House of Commons inquiry into anticompetitive practices in the sugar industry. Aside from its value as an illustration of exclusionary coalitions, studying the Canadian sugar combination is also of historical interest. The inquiry led directly to passage of the world’s first modern antitrust law, the Competition Act of 1889.
Drawing upon our analysis of the Canadian coalition, we offer a typology of exclusionary coalitions. Horizontal coalitions consist of competitors engaged in parallel exclusion of their rivals. Vertical coalitions of sellers and buyers (for example, manufacturers and wholesalers) eschew coercion in favor of sharing the benefits from exclusion of rivals. As we explain, the Canadian sugar coalition had both horizontal and vertical elements. We connect our typology to existing economic theories about how exclusion of a rival may be accomplished.
Our examination illustrates two points of intersection between exclusion and collusion. First, competitors may collude to exclude. For example, a price-fixing cartel may pursue exclusionary conduct because entry threatens cartel stability, and thus exclusion helps to protect the cartel’s ill-gotten gains. But such conduct is hardly limited to cartels. Rivals may engage in parallel, often interdependent exclusionary conduct without any provable agreement among them.
Second, though less frequently recognized, a group of competitors might instead trade exclusion for collusion. That is, the colluding competitors engage in exclusion for the benefit of a supplier or customer, rather than themselves. In exchange, the competitors receive assistance with their collusive project.
We identify and assess several doctrinal approaches to establishing antitrust liability for anticompetitive exclusionary coalitions. The approaches differ in the degree to which they reflect or omit important economic features of the coalitions. Some coalitions are challenged as the action of a single excluder, an approach that ignores the collective economic effect of a horizontal coalition. Others are litigated as horizontal conspiracies, an approach that unduly elevates the formal question of agreement over the economic substance of the coalition’s effects. We argue that for coalitions with a vertical element, a more appealing approach is to allege parallel vertical contracts under Section 1 of the Sherman Act and aggregate their collective foreclosure effect.
Keywords: Antitrust, Cartel, Sugar, RPM, Vertical Restraint
JEL Classification: L41
Suggested Citation: Suggested Citation