Antitrust 101: The Book Publishers Lawsuit And Monopsony Power

• Published date: 09 December 2021
• Subject Matter: orporate/Commercial Law, Anti-trust/Competition Law, M&A/Private Equity, Antitrust, EU Competition
• Law Firm: Winston & Strawn LLP
• Author: Scott A. Sherman and Sofia Arguello

On November 2, the U.S. Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia, seeking to halt the world's largest book publisher, Penguin Random House, from acquiring its competitor, Simon & Schuster. The case represents the most recent and high-profile example of the DOJ's focus on monopsony theories of competitive harm.

The Antitrust Division's complaint alleges that as two of the "Big Five" U.S. publishers, Penguin Random House and Simon & Schuster currently "compete vigorously to acquire publishing rights from authors and provide publishing services to those authors. This competition has resulted in authors earning more for their publishing rights in the form of advances (i.e., upfront payments made to authors for the rights to publish their works), and receiving better editorial, marketing, and other services that are critical to the success of their books." Complaint ' 2. The DOJ argues that "[i]f consummated, this merger would likely result in substantial harm to authors of anticipated top-selling books and ultimately, consumers" by making Penguin Random House double the size of its next-closest competitor, "leaving authors with fewer alternatives and less leverage." Id. at 7.¹

Both the complaint and the DOJ press release announcing the lawsuit explicitly argue that the merger will harm authors via buyer consolidation, creating a monopsony. "The Antitrust Division's Horizontal Merger Guidelines lay out a straightforward framework to analyze monopsony cases, and under those guidelines this transaction is presumptively anticompetitive," the release says.

This blog post provides an overview of monopsonies, with a focus on how they have been historically treated under the antitrust laws.

OVERVIEW OF MONOPSONIES

A monopsony, according to Black's Law Dictionary, is at its core "a market with only one buyer," or at least one dominant buyer. Unlike a monopoly, where a single seller controls a marketplace, a monopsonized market is typically dominated by a single purchaser. The monopsonist is therefore able to buy fewer goods than would otherwise be the case in a competitive marketplace'in turn reducing prices for the seller's product to sub-competitive levels and leaving sellers with little-to-no market power'or to reduce the quality of the goods it purchases and thereby decrease innovation in an otherwise-competitive marketplace. The lessened output can ultimately increase the price consumers pay for the product. See Roger D. Blair and Kelsey A. Clemons, Is Monopsony the New Monopoly? Yes!, 34-Fall Antitrust 84, 88 (2019).

For this reason, "[t]he economic effects of monopsony on the input...