NBA Star Explains the Economics of Collusion
Miami Heat player Dwayne Wade becomes a free agent on July 1. So does LeBron James of the Cleveland Cavaliers, Joe Johnson of the Atlanta Hawks, and Chris Bosh of the Toronto Raptors. The four men are the cream of the 2010 NBA free agent crop. And according to Wade (via the Chicago Tribune), they plan to consult one another about their decisions on where to sign:
Wade said he’s not sure when the top free agents will discuss their respective plans, though they have spoken informally in the past.
“(Free agency) has been three years coming,” Wade said. “We’ve discussed it prematurely, at different times. (But) you don’t know what guys are thinking and where they’re going. I think we’ll all sit down, and before one of us makes a decision, all of us will have spoken to each other and (listened to the) thinking.
“A lot of decisions (will be based on) what other players are willing to do and what other guys want to do. So it’s not just a ‘me’ situation here. We all have to look and see what each other is thinking.”
There’s nothing remarkable about Wade’s statements — except that he’s admitting to a felony punishable by a $1 million fine and ten years imprisonment. That’s the “max contract” for price fixing these days. And what Wade describes is in fact an illegal price-fixing cartel.
Scoff if you will, but if four firms in any industry meet to discuss what customers they plan to negotiate with, the Justice Department and the FBI will come barging in with guns blazing. Heck, as former Congressman Tom Campbell once told a House committee, if “three eye doctors in Elgin, Illinois” have lunch to discuss a proposed HMO contract, they’ll get a letter from the Federal Trade Commission advising them that said lunch violated the Sherman Act.
Campbell was not exaggerating. The FTC has prosecuted over 18,000 physicians during the past decade for essentially doing what Dwayne Wade wants to do with his fellow All-Star players — sit down and discuss potential contract offers. Former Commissioner Thomas Leary explained that it was illegal for physicians to even discuss their contract situations with one another because, “Their prime focus is on using negotiations and contracts for the purpose of enhancing their bargaining power.” And that would be a bad thing in Antitrust World; sellers are never allowed to improve their bargaining power without the federal government’s consent.
Most “price fixing” cartels are in fact little more then discussions. There are no contracts, as those would be unenforceable in government courts. An exchange of information — what contracts do you plan to bid on, what do prices do you expect to charge next year, etc. — can be mutually beneficial to “competing” firms without the need for more formal arrangements. As Wade said, “A lot of decisions (will be based on) what other players are willing to do and what other guys want to do … We all have to look and see what each other is thinking.”
Again, there’s nothing controversial in Wade’s statement. But contrast it with a press release issued by the Justice Department’s Antitrust Division announcing a coerced guilty plea from an Iowa concrete executive, Kent Stewart:
According to the charge, Stewart participated in a conspiracy in which he engaged in discussions concerning project bids for sales of ready-mix concrete in Iowa, submitted rigged bids at collusive and noncompetitive prices and accepted payment for sales of ready-mix concrete at collusive and noncompetitive prices.
Now how would this differ from Wade, LeBron James, and Chris Bosh having a discussion, agreeing they’ll all sign with the Chicago Bulls — or maybe Bosh agrees to sign with a Western Conference team so as not to compete directly against Wade and James in Chicago — and refusing to entertain offers from any other teams? This would be a case where the market participants (a) engaged in discussions concerning bids from NBA teams, (b) submitting rigged bids at “collusive and noncompetitive prices,” and ultimately (c) accepting contracts at said prices.
And although price fixing is a per se antitrust violation — meaning it’s unnecessary to show there’s any monopoly or exercise of “market power,” as in a merger case — the antitrust violation is arguably worse in the basketball players’ case then in the Stewart case cited above. Stewart colluded on the sale of concrete in Iowa City; that’s not even interstate commerce. Collusion by three or four NBA All-Stars, however, can fundamentally alter the fortunes of several teams and cities, not to mention the league’s worldwide business.
Obviously nobody expects the Justice Department to prosecute Wade or his fellow players for violating the Sherman Act. That goes against the “business model” of the Antitrust Division, which is to prey on individuals, like Kent Stewart, outside the public eye who won’t mount a defense. Prosecuting NBA players for collusion would bring unwelcome public and press scrutiny. Ideological consistency must yield to preserving the antitrust establishment’s position in the social structure.
The benefit of Wade’s remarks is that they reiterate how commonplace “collusion” is within the marketplace — and how the two are compatible, despite over a century of antitrust propaganda to the contrary. Humans are not interchangeable widgets in a machine; they’re unique individuals with their own subjective preferences. Economic decisions are not made in a vacuum, or by mathematical formula, but within a series of social relationships. When Wade says, “We all have to look and see what each other is thinking,” he’s describing an essential act of economic calculation.
This equally applies to “teams” of individuals, be they a basketball team or a business firm. If one firm chooses to share information with another about its possible business plans, that’s not a violation of anyone’s rights or destructive of marketplace competition — as opposed to the antitrust regulator who imprisons people for sharing information and demands individuals obey a rigid, illogical concept of “competition.”