GET THE MONOPOLY OUT OF THE GUTTER: RECLAIMING COMPETITION IN A SYSTEM OF OVERPROTECTION

Author: Reagan Dumke, Lead Notes Editor

The Modern “Only Option” problem

One call to a plumber should not require navigating a geographic monopoly.[i]  Yet many consumers encounter precisely this problem: a service provider explains that they cannot perform work in a particular county because it falls outside their assigned territory.[ii] The homeowner is left with only one “authorized” provider – often at a significantly higher price.[iii] Territorial exclusivity agreements are common across industries ranging from plumbing and HVAC services to waste management and broadband internet.[iv] Although these arrangements are frequently justified as promoting efficiency and encouraging investment, they can also operate as de facto local monopolies that leave consumers without meaningful alternatives.[v] When exclusivity eliminates competition in essential local services, the arrangement begins to resemble the very restraints of trade that antitrust law has historically sought to prevent.[vi]

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Territorial exclusivity agreements, while often justified as efficient market arrangements, can function as de facto local monopolies that undermine consumer protection principles and resemble the types of restraints of trade historically disfavored under antitrust law.

The Legal Roots of Restraints of Trade

‍Historical Suspicion of Market Restraints

The historical suspicion of market restraints in U.S. antitrust law is rooted in the principles established under the Sherman Act.[vii] Courts have developed a framework to evaluate such restraints, distinguishing between those that are per se illegal and those analyzed under the rule of reason.[viii] Certain restraints are deemed so inherently anticompetitive that they are conclusively presumed illegal without requiring detailed market analysis.[ix] These include horizontal agreements among competitors, such as price-fixing or market division, which "always or almost always tend to restrict competition and decrease output."[x] The U.S. Supreme Court has emphasized that per se rules apply to practices with "manifestly anticompetitive effects" and no redeeming virtues.[xi]

‍Modern Antitrust Framework

For restraints not falling into per se categories, courts apply the rule of reason, which involves a comprehensive analysis of the restraint's history, nature, and effect on competition.[xii] This approach weighs procompetitive justifications against anticompetitive harms.[xiii] ll restraints, such as those between entities at different levels of the market structure, are typically analyzed under this standard due to their potential to stimulate intrabrand competition and achieve efficiencies.[xiv]

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For restraints that do not fall into per se categories, courts apply the rule of reason, which involves a comprehensive analysis of the restraint’s history, nature, and effect on competition.[xv] This approach weighs procompetitive justifications against anticompetitive harms.[xvi] Vertical restraints, such as those between entities at different levels of the market structure, are typically analyzed under this standard due to their potential to stimulate intrabrand competition and achieve efficiencies.[xvii]

‍Territorial Restrictions in Antitrust Law

Horizontal territorial restrictions, which involve agreements among competitors to divide markets geographically, are considered per se violations of antitrust law.[xviii] Such agreements are inherently anticompetitive because they restrict competition and reduce output.[xix] Once the existence of such an agreement is established, no further inquiry into its actual market effects or the parties' intentions is required to establish a violation.[xx] Courts have consistently held that these “naked restraints of trade” serve no purpose other than to stifle competition.[xxi]

How Territorial Exclusivity Creates Local Monopolies

Franchise and Licensing Structures

Under Section 1 of the Sherman Act, agreements that restrain trade are prohibited.[xxii] Territorial exclusivity in franchise agreements may be scrutinized if it substantially lessens competition or forecloses competitors from entering the market.[xxiii] For example, exclusive dealing arrangements, which require a franchisee to source goods or services solely from the franchisor, can be lawful if they provide procompetitive benefits, such as increasing efficiency or reducing free-riding.[xxiv] However, they may violate antitrust laws if they foreclose competition in a substantial share of the relevant market.[xxv]

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Section 2 of the Sherman Act prohibits monopolization or attempts to monopolize.[xxvi] Territorial exclusivity in franchise agreements could lead to monopolization if it enables a single entity to dominate a market and exclude competitors.[xxvii] However, the mere existence of exclusivity does not automatically constitute a violation; the plaintiff must demonstrate that the exclusivity forecloses competition and creates or maintains monopoly power.[xxviii]

‍Municipal Contracts and Government-Sanctioned Exclusivity

Municipal contracts and government-sanctioned exclusivity can also create local monopolies, but such arrangements may be shielded from antitrust liability under the state action immunity doctrine.[xxix] This doctrine exempts anticompetitive conduct by states acting in their sovereign capacity from federal antitrust laws.[xxx]

Municipalities, as subdivisions of the state, are not automatically immune from antitrust liability.[xxxi] To qualify for immunity, the municipality must act pursuant to a "clearly articulated and affirmatively expressed" state policy to displace competition with regulation or monopoly public service.[xxxii] This requirement ensures that the anticompetitive conduct is a foreseeable result of state authorization.[xxxiii]

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These territorial agreements can function as a horizontal market allocation, which is typically treated as a per se restraint of trade under the Sherman Antitrust Act.[xxxiv] If independent service providers are informally or contractually agreeing to stay out of each other’s zoning, it would resemble the competitors dividing markets, rather than a vertical distribution.[xxxv] However, these arrangements may be framed as vertical, which demonstrates the classification is essential in determining if it would go against market competition.[xxxvi] The system in function works where consumers aren’t choosing between brands in any meaningful sense if only one provider is allowed to operate in their area.[xxxvii]

‍Conclusion

Territorial exclusivity is not inherently problematic. In many contexts, it can encourage investment, promote efficiency, and stabilize service networks. But when these arrangements eliminate competition in essential local service markets, they risk producing the very harms that antitrust law and consumer protection principles were designed to prevent. For homeowners who discover that only one plumber, internet provider, or waste management company is permitted to serve their area, the promise of competitive markets becomes largely theoretical. As local economies become increasingly structured around exclusive territories, courts and policymakers may need to reconsider whether these agreements still serve legitimate economic purposes – or whether, in practice, they function as modern restraints of trade that leave consumers with no real choice at all.
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[i]Geographic Monopoly Definition Economics, ReviewBookU, https://reviewbooku.com/review/geographic-monopoly-definition-economics-5011437 (last visited Mar. 16, 2026).

[ii]Id.

[iii]Id.

[iv]Exclusive Dealing or Requirements Contracts, Fed. Trade Comm'n, https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/dealings-supply-chain/exclusive-dealing-or-requirements-contracts (last visited Mar. 16, 2026).

[v]Id.

[vi]Id.

[vii] 15 U.S.C. § 1.

[viii]Id.

[ix]In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 317 (3d Cir. 2010).

[x]Id. at 312.

[xi]Id. at 322. E.g. in, Fourqurean v. NCAA, 143 F.4th 859, 867 (7th Cir. 2025) (noting that per se violations are "so plainly anticompetitive" that their pernicious effects are presumed).

[xii]Opelousas Gen. Hosp. Auth. v. La. Health Serv. & Indem. Co., 318 So. 3d 259, 268 (La. Ct. App. 2021).

[xiii]Id.

[xiv]Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 55 Cal. App. 5th 381, 404 (Cal. Ct. App. 2020).

[xv]Opelousas Gen. Hosp. Auth. v. La. Health Serv. & Indem. Co., 318 So. 3d at 270.

[xvi]Id.

[xvii]Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 55 Cal. App. 5th at 401.

[xviii]In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1191 (9th Cir. 2015).

[xix]Id.

[xx] 15 U.S.C. § 14.

[xxi]McDill v. McDonald Cooperative Dairy Co., 283 N.W.2d 819, 823 (Mich. Ct. App. 1979).

[xxii] 15 U.S.C. § 1.

[xxiii]Hytera Commc'ns Corp. Ltd. v. Motorola Sols., Inc., 623 F. Supp. 3d 857, 877 (N.D. Ill. 2022).

[xxiv]Id.

[xxv]Id.

[xxvi] 15 U.S.C. § 2.

[xxvii]Hytera Commc'ns Corp. Ltd. v. Motorola Sols., Inc., 623 F. Supp. 3d at 877.

[xxviii]Id.

[xxix]Parker v. Brown, 317 U.S. 341, 351 (1943).

[xxx]Id.

[xxxi]Western Star Hosp. Auth. Inc. v. City of Richmond, 986 F.3d 354, 361 (4th Cir. 2021).

[xxxii]Id. at 358.

[xxxiii]Id.

[xxxiv]Opelousas Gen. Hosp. Auth. v. La. Health Serv. & Indem. Co., 318 So. 3d at 268.

[xxxv]Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 55 Cal. App. 5th at 401.

[xxxvi]Id.

[xxxvii]Id.‍ ‍