THE DANGERS OF VERTICAL MONOPOLIES: A CALL FOR STRICTER STANDARDS

Author: Hunter Doughman, Senior Editor

Vertical monopolies, while often perceived as less harmful than horizontal monopolies, pose significant threats to market competition that warrant them being held to high standards.[i] The ongoing lawsuits against Live Nation Entertainment (“Live Nation”), a global leader in live event promotion, venue management, and ticketing services, provide a prime example of how vertical monopolies can negatively impact markets, stifling competition and harming consumers.[ii]

United States federal law traditionally treats horizontal and vertical monopolies differently due to their distinct impacts on market competition.[iii] Horizontal monopolies involve agreements or mergers between direct competitors at the same level of the market.[iv] These are often deemed per se illegal because they inherently reduce competition and increase prices.[v] In contrast, vertical monopolies occur between companies at different levels of the supply chain, such as a manufacturer and a distributor.[vi] These are typically analyzed under the "rule of reason," which considers whether the vertical arrangement unreasonably restrains trade by examining its actual market effects.[vii] While vertical integration can create potential efficiencies, it requires heightened scrutiny to prevent anti-competitive practices.[viii]

Live Nation, which merged with ticket sales platform Ticketmaster in 2010, is an excellent example of a vertical monopoly with significant control over multiple live event supply chain levels.[ix] As a result of this merger, Live Nation manages and promotes live events, owns several of the venues where these events take place, and now operates the ticket sales.[x] This extensive vertical integration has led to several anti-competitive practices. Competitors are effectively shut out as venues and artists feel pressured to use Ticketmaster for ticket sales to gain access to Live Nation's promotional services and venue management.[xi] This kind of market foreclosure stifles competition, leading to less choice and higher prices for consumers.[xii] With its dominant market position, Live Nation imposes high ticket service fees, significantly increasing consumer costs.[xiii] The lack of competition means there is little pressure to reduce these fees, harming consumers.[xiv] By controlling various levels of the supply chain, Live Nation can dictate terms across the industry.[xv] This control limits the ability of new entrants to compete, thus entrenching Live Nation's market power.[xvi]

Given the significant market power and potential for anti-competitive behavior exhibited by vertical monopolies like Live Nation, they should be held to similar standards as horizontal monopolies.[xvii] Vertical monopolies can harm consumers just as severely as horizontal monopolies.[xviii] By controlling multiple levels of the supply chain, companies can set higher prices, limit choices, and reduce overall market efficiency, as evidenced by Live Nation's practices.[xix] Vertical monopolies can entrench their market position by creating barriers to entry.[xx] This entrenchment reduces competition over time, leading to a debilitated market that is less responsive to consumer needs and innovations.[xxi] Concentrating such power in a single entity across various market levels creates systemic risks.[xxii] If such a company engages in anti-competitive behavior, it can distort the entire market, making it more difficult for regulatory bodies to restore competitive balance.[xxiii]

Adopting a more stringent approach to vertical monopolies would better protect market competition and consumer interests. While vertical monopolies can offer efficiencies, their potential to harm competition and consumers necessitates heightened Federal Trade Commission scrutiny and regulation.[xxiv] The vertical monopoly power of companies like Live Nation can be just as dangerous as traditional horizontal monopolies, allowing single-entity control over multiple stages of the supply chain, reducing competition, inflating prices, and limiting consumer choice.[xxv]

Currently, the Department of Justice and 29 state Attorneys General have filed lawsuits alleging antitrust violations against Live Nation.[xxvi] The lawsuits claim that Live Nation’s dominant position in live events and ticketing has led to anti-competitive practices, inflated prices, and unfair terms for artists and venues.[xxvii] These ongoing lawsuits illustrate the dangers of unchecked vertical integration, reinforcing the need for a higher standard to ensure fair competition and protect consumer welfare.[xxviii] By treating vertical monopolies with heightened legal scrutiny, the legal system can more effectively safeguard market health and consumer interests.

[i] Daniel Corn, Is vertical integration the new monopoly, SUPPLY CHAIN MGMT. REV. (June 17, 2024), https://www.scmr.com/article/companies-adopt-vertical-integration-but-is-it-a-new-monopoly.

[ii] Josh Sisco, DOJ and states sue Live Nation, could seek breakup of company, POLITICO (June 17, 2024), https://www.politico.com/news/2024/05/23/doj-and-states-sue-live-nation-could-seek-breakup-of-company-0015964.

[iii] Sun Dun, Inc. v. Coca-Cola Co., 740 F. Supp. 381 (D. Md. 1990).

[iv] Id.

[v] Food Lion, LLC v. Dean Foods Co. (In re Se. Milk Antitrust Litig.), 739 F.3d 262 (6th Cir. 2014).

[vi] Sancap Abrasives Corp. v. Swiss Indus. Abrasives, 19 F. App’x 181 (6th Cir. 2001).

[vii] Id.

[viii] In re Disposable Contact Lens Antitrust, 329 F.R.D. 336 (M.D. Fla. 2018).

[ix] Paul Weis, Breaking Down the DOJ’s Complaint to Break Up Live Nation-Ticketmaster (June 17, 2024), https://www.paulweiss.com/practices/litigation/antitrust/publications/breaking-down-the-doj-s-complaint-to-break-up-live-nation-ticketmaster?id=51772.

[x] Id.

[xi] Id.

[xii] Id.

[xiii] Bryan Koenig, DOJ Sues Live Nation 14 Years After Ticketmaster Deal, LAW360 (June 17, 2024), https://www.law360.com/articles/1826241/doj-sues-live-nation-14-years-after-ticketmaster-deal.

[xiv] Id.

[xv] Id.

[xvi] Id.

[xvii] Irwin M. Stelzer, AT&T and the Danger of Vertical Integration, WALL STREET JOURNAL (June 19, 2024), https://www.wsj.com/articles/at-t-and-the-danger-of-vertical-integration-1511823288.

[xviii] Id.

[xix] Id.

[xx] Edwards Corwin, Vertical Integration and the Monopoly Problem, 17 JOURNAL OF MKTG. 404, n.4 (1953). https://doi.org/10.2307/1247017.

[xxi] Id.

[xxii] Id.

[xxiii] Id.

[xxiv] Decision and Order, Google Inc., FTC Docket No. C-3576 (Sept. 19, 1996) (Consent order), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes/volume-119/ftc_volume_decision_119_january_-_june_1995pages_618-723.pdf.

[xxv] Stelzer, supra note xvii.

[xxvi] Weis, supra note ix.

[xxvii] Id.

[xxviii] Corn, supra note i.