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Source link: http://archive.mises.org/5681/who-are-the-consumers/

Who are the Consumers?

September 26, 2006 by

A new lawsuit against Starbucks exposes one of the important logical flaws in antitrust theory. The plaintiff in this case—who is seeking class action status—is the owner of a small competing coffee company in Washington state. She claims Starbucks has unlawfully extended its coffee “monopoly” by renting commercial space at “above market” rates in exchange for exclusivity over operating coffee shops in said commercial buildings. The plaintiff defines a monopoly here as the alleged 73% share Starbucks has in the “coffee shop” market. Starbucks, in reply, said that it only has an 8% share of the overall market for coffee sales.It’s become fashionable in antitrust circles to accuse a firm of being a monopolist if they pay “too much” for basic materials. Last year, the U.S. Ninth Circuit Court of Appeals upheld such a complaint against paper manufacturer Weyerhaeuser, whom a bankrupt rival accused of paying “above market” prices for a particular type of lumber. The smaller company said it couldn’t afford to match Weyerhaeuser’s spending, and thus it was a victim.

The constant refrain of antitrust supporters is that they want to protect competition, and more specifically protect consumers. Modern antitrust policy is geared towards maintaining and manipulating short-term prices on the belief that consumers are “injured” if they pay more than a given price. Yet in the Starbucks and Weyerhaeuser cases, who exactly are the “consumers”? Starbucks sells coffee of course, but they also “consume” various resources in order to produce and market their products. In this case, that includes renting commercial space from a property owner.

If you follow antitrust-type reasoning, one might conclude that Starbucks is “price gouging” itself by paying supposedly higher rents. Of course, the allegation here is that Starbucks is paying a premium in exchange for “exclusivity” rights to sell coffee in a particular building. All property rights incorporate such exclusivity, but the plaintiff here seems to dispute that. She’s saying the property owner has no right to decide how many coffee shops should exist within its building—that it’s somehow a decision best left to lawyers and judges based on the need to restrain Starbucks “monopoly”.

Even the ultimate consumers of coffee aren’t free from antitrust scorn, since it’s presumably their support for Starbucks’s product that allowed the company to pay “inflated” prices and obtain exclusivity in particular buildings. These consumers should, by the plaintiff’s theory, divide their own coffee purchasing among different outlets to ensure some arbitrary level of “competition” in the marketplace.

The great trick pulled of by antitrust supporters is convincing the public that there are two separate categories of people, producers and consumers, that require a government-managed wall to protect them from one another, especially the consumers from the producers. Antitrust creates a legal caste system where different parties—and sometimes the same parties in different contexts—are afforded different rights. It’s just as ridiculous as assigning different legal rights to people based on skin color. In a truly free market, everyone is a trader, both a producer and a consumer.

If you take certain actors out of context, however, and reduce everything to a scary-looking “empirical” model, you can make any intervention seem reasonable or logical. Most people will look at this new Starbucks complaint and laugh, but others, including many antitrust lawyers, will see a genuine opportunity here. The next question then becomes, when do we see antitrust lawsuits against the commercial property owners who “collude” with Starbucks or even the customers who are acting against their own best interests in thwarting “competition”?

{ 4 comments }

buddah September 27, 2006 at 9:33 am

makes no difference to the buddah — i am already hooked –

i will travel to the next building or the next to get my SBUX

when you aren’t as efficient as your competitiors– you seek the govt’s help —

that is all the govt can offer — inefficiency — in the name of “fairness” –

not fair SBUX is suceeding — not fair

again, don’t matter to the buddah — i walk a mile for my SBUX — and who knows — i may have to one day

Doug McKnight September 27, 2006 at 9:46 am

Exclusivity clauses are very common in retail leases. Given this fact, it’s hard to see how a premium paid for a lease with an exclusivity clause could be considered “above market.”

Ryan September 29, 2006 at 12:02 am

I’m sipping my grande drip right now as I write this. I started drinking coffee because of Starbucks. It’s a wonderful company that outshines almost all of its competitors. Great coffee, outstanding service, and a warm, comforting atmosphere. I rarely get all three when I’m at a competitor’s store. The coffee and service may be as good but the atmosphere doesn’t invite me to stay there. The atmosphere may be inviting but the service sucks. You get the point.

It’s been fashionable for competitors to run to big daddy government whenever they feel threatened. Remember Microsoft in the 90s? It wasn’t consumers crying foul, it was their lousy competitors.

Go Starbucks! In fact, I will be there tomorrow morning for my lovely venti drip!

Me January 13, 2007 at 12:49 am

Next time you want to open any little shop anywhere U.S.A. and, after over a year of looking, commercial realtors are still telling you that you aren’t allowed in that plaza, mall or building because Starbucks is either there, plans to go in there or may possibly someday decide the demographics are right to be there and they are hoping that will happen, then trot on over to the closest one (and it won’t be far because the others are written out) and get yourself one of dem’ deluscious icy frapperchinos or a cuppa and say “Shoot, it’s all worth it. I couldn’t live without this. Better a decent cup of Joe than making a living.”

Argh. Competition is dead when you can’t find a decent location to compete in.

P.S. We did. :) And we’re not even coffee. Our commodity is now also written out by Big Green.

Come on along with me to Bucks. Slurp, slurp, slurp: Those superautos can really punch ‘em out and the atmosphere makes me feel so well….important.

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