Why a Pro-Monopoly Supreme Court Ruled Against the NCAA Monopoly

Louis Brandeis once said, “If we desire respect for the law, we must first make the law respectable.” The court had to rule against this well-known tyrant, or it would lose its credibility.

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Today, a very conservative Supreme Court published its decision on whether the National Collegiate Athletic Association can continue to put rules in place to suppress the wages and terms of student athletes. In NCAA v. Alston, the court ruled 9-0 on narrow grounds for the student-athletes and against the NCAA, which is a clear labor-fixing cartel. The decision did, as Daniel Hanley points out, rhetorically uphold the consumer welfare oriented status quo, but there are a few interesting tidbits worth noting.

First, the court finally noted that suppressing competition in labor markets is an antitrust harm. This may seem like it’s already the case. But while courts have said that agreements not to hire the employees of competitors is a violation, they hadn’t yet ruled on using market power to directly lower wages. Now the court has done so, noting that “student-athletes had shown the NCAA enjoys the power to set wages in the market for student-athletes’ labor—and that the NCAA has exercised that power in ways that have produced significant anticompetitive effects."

Brett Kavanaugh’s concurrence was aggressive on this point, when he noted “price-fixing labor is price-fixing labor.” That’s a shift that is favorable to workers, at least when it comes to employers suppressing competition in labor markets. And because workers are perceived as ‘suppliers' of labor, it is a shift that could be favorable to suppliers in general, particularly of victims of ‘power buyers’ like Walmart, Amazon, or CVS, who exert their power by suppressing price to suppliers.

Second, the court made it harder for monopolies that dominant through their buying power to justify their conduct. One of the key questions at hand was whether the NCAA could justify suppressing wages to athletes if it could show that doing so improved the product in a different market, aka ‘amateur athletics’ to fans. That is, the NCAA made the case that college sports is fun for fans because fans like it that athletes aren’t paid, so to assess whether the suppression of wages is anti-competitive one has to see whether fans like amateurism more than athletes want to get paid.

This is known as a cross-balancing test, and it has significant implications for tech and finance platforms. A few years ago, the Supreme Court heard a case by American Express, which argued that it charges higher prices to merchants and used coercive contracts, but this is fine if the value that American Express cardholders get in rewards points cross-balances on net to be higher than what merchants lose. The Supreme Court agreed, in a big loss for anti-monopolists. Now, Google can use this argument to assert, for instance that its suppression of ad revenue to publishers is counterbalanced by how much users appreciate its services. And that’s what the NCAA was doing, saying that treating athletes sort of as indentured servants is fine because the end product is good for a different class of stakeholders, fans.

The court rejected the NCAA’s argument, though not cross-balancing entirely. It asserted that “the NCAA had to establish that any suppression of wages must have a “direct connection” to consumer demand.” In other words, it narrowed the scope of the AMEX decision by making it harder for defendants to use the multi-sided platform defense. Now, to assert benefits on one side of a market, the monopolist must prove a “direct connection” to the other affected stakeholder group.

And third, the court chipped away at a dangerous judicial assumption, which is that judges cannot and should not make product design decisions. The NCAA made the case that changing athlete rules was judicial meddling with an end product, and doing so is inappropriate. The court did a bunch of throat-clearing about how judges are bad central planners, but eventually said, nope, “none of that means a party can relabel a restraint as a product feature and declare it “immune from §1 scrutiny.”’ In other words, product design is a legitimate arena for judicial decision-making.

Finally, I think John Newman is basically right with this observation. It is simply impossible to square labor wage-fixing with any coherent view of consumer welfare.

And ultimately, this is why the Chicago School framework is collapsing. Senator Mike Lee recently introduced an antitrust bill to largely uphold the status quo, or even make it harder to attack the power of monopolies. One of his goals was to codify the consumer welfare standard. And yet, here is his definition of consumer:

DEFINITION OF CONSUMER.—In this section, the term ‘consumer’ includes buyers and sellers.’

Sorry, but that doesn’t make any sense. It’s pure sophistry. And so while the Supreme Court is full of pro-monopolists, and while Chicago Schoolers like Mike Lee want to uphold their philosophical position, it is simply impossible to do so without ruling that the NCAA gets to act as a monopolist in setting the terms and the wages of student-athletes. And everyone, including the man on the street, knows that would immoral. As Louis Brandeis once put it, “If we desire respect for the law, we must first make the law respectable.”

And that’s why a hyper-conservative Supreme Court ruled against a dominant labor cartel.