Who Regulates the Regulators?

Abstract:       If all raisin producers got together in a room and privately agreed to limit the quantity they produced in order to raise price, this cartel would be a per se violation of the Sherman Antitrust Act. The agreement not only would be unenforceable but also would carry significant civil and criminal penalties.

But what if the state of California created a Raisin Control Board charged with imposing the same regime by statute—perhaps after lobbying by these same raisin producers? This might be worse than the private agreement. Private agreements often break down (to the benefit of consumers) because some of the producers cheat on the deal by producing more than the agreed-on quantity or undercutting the agreed-on price, or because new producers enter the market to take advantage of the high prices. But the statutory regime would be able to control these “problems” with the force of law, and would continue until repealed by the legislature—i.e., possibly forever.

Nonetheless, in Parker v. Brown (1937), the Supreme Court held that the Sherman Act had nothing to say on the subject. The legislature that passed the Act in 1890 surely didn’t mean to control states’ sovereign activity, even if it was anticompetitive; moreover, a due respect for federalism counseled against preempting state policy in this way. This was the genesis of “state action” immunity to federal antitrust law.

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