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Don’t pass go: restrictions on the “buyer’s monopoly”

7/16/25

Transfer of money from hand to hand.

By: Cameron N. Regnery

Whether from the classic board game bearing its name, or from vague recollections of high school history class, many are familiar with the concept of a monopoly—an economic condition in which a single seller dominates a market. In such an arrangement, the seller is able to control prices and exclude competitors. Monopolies are accordingly prohibited by Section 2 of the Sherman Act,1 the seminal antitrust law designed to protect fair competition. But despite widespread recognition of the monopoly and its dangers, most are unfamiliar with its counterpart: the monopsony. 

In a monopsony, a single buyer dominates a market. The buyer is able to control prices and exclude competitors, establishing what is sometimes referred to as a “buyer’s monopoly.” Monopsonies are rare, but can significantly impact a given market when present. To take a famous example, the Supreme Court recently noted that the NCAA exercised a monopsony in the market for student-athlete services.2 In upholding a lower court order enjoining certain NCAA rules, the Court ushered in monumental changes to college sports.3 Needless to say, monopsonies can drastically alter entire industries.  

Given their infrequency, however, monopsonies have not been a heavy focus of antitrust law. That said, in the 2007 Weyerhaeuser case, the Supreme Court evaluated a particular business practice used in monopsonies: predatory bidding.4 Predatory bidding occurs when a buyer bids up the price for an input beyond what its competitors can match, thereby forcing those competitors out of the market. Once all of the buyer’s competitors have been pushed out, the buyer can use monopsony power to sharply lower its bids, which suppliers are in turn forced to accept in the absence of any other offers. This practice is akin to predatory pricing in monopolies, whereby a seller reduces the prices of its outputs below what competitors can match, only to then increase those prices once all competitors have been squeezed out of the market. 

In Weyerhaeuser, a sawmill owner sued its competitor for bidding up the prices for logs to such high levels that the sawmill owner was forced out of the market. Justice Thomas, writing for a unanimous majority, initially noted the symmetry between predatory bidding and predatory pricing. In both instances, the predatory buyer/seller will incur short-term losses on the chance that they might eliminate competition and reap outsized profits in the future. Because the practices so closely align, the Court elected to analyze predatory bidding under the same test used for predatory pricing. Using that two-prong test, a competitor suing a buyer for predatory bidding must prove: (1) below-cost pricing on the front end, and (2) likely recoupment on the back end.5

Below-cost pricing occurs when a buyer spends more on its inputs than it sells its finished product for, thereby operating at a loss. The Court acknowledged that only severe predatory bidding will result in below-cost pricing, and that a “rational business will rarely make this sacrifice.” But the Court reasoned that below-cost is the only objective metric by which a court may feasibly judge the legality of a buyer’s decision to increase bidding offers. Indeed, there are many legitimate, non-predatory reasons why a buyer may choose to increase its bids to suppliers, and adopting “too lax” a standard may “chill” procompetitive business behavior. 

If a competitor shows that a buyer was operating below-cost on the front end, it must then demonstrate likely recoupment on the back end. Specifically, there must be a “dangerous probability” that the buyer will recoup its losses sustained while operating below-cost once it has achieved a monopsony. That is to say, once the buyer forces all of its competitors out of the market, the buyer will be able to reclaim those amounts it lost in clearing the market. The Court admits that proving likely recoupment requires a thorough analysis of the buyer’s scheme and the relevant market. But the Court explained that such proof was necessary because without it, “predatory bidding makes no economic sense.” 

The test to prove unlawful predatory bidding is therefore a difficult one. A competitor must first prove that a buyer is defying conventional economic logic by operating at a net loss. Then, the competitor must engage in a thorough analysis of the buyer’s behavior and the relevant market to show that there is an ill-defined, “dangerous probability” that the buyer’s losses will likely be recouped in the future. This is a difficult hill to climb; but that difficulty is intentional, and reflects an understanding of three important aspects of monopsonies.  

First, a successful predatory bidding scheme is unlikely, specifically because it requires a buyer to incur significant hardship in the short term on the faint hope it will be rewarded in the long term. Second, predatory bidding is, in many respects, “the very essence of competition”—it is understandable that buyers will compete for the best inputs by trying to outbid others. Third, predatory bidding presents less of a direct threat to consumers than predatory pricing, since the pricing manipulation affects inputs from suppliers, not outputs to consumers. In fact, a predatory bidding scheme can be a “boon to consumers,” as the increased acquisition of inputs on the front end can create a resultant increase in outputs, which may in turn lower the prices customers pay for those outputs. 

Understanding the economic realities of monopsony is therefore crucial in determining the extent to which it affects fair competition. Going forward, courts will continue to wrestle with the application of antitrust law to monopsonistic practices like predatory bidding. While monopsonies may be little-known and rarely tried, they may be the subject of important antitrust developments in the future. 

The commercial litigation attorneys at Freeman Mathis & Gary, LLP are well-versed in antitrust matters and have litigated complex Sherman Act cases in federal courts throughout the United States.  

For more information, please contact Cameron Regnery at cameron.regnery@fmglaw.com or your local FMG attorney. 

Information conveyed herein should not be construed as legal advice or represent any specific or binding policy or procedure of any organization. Information provided is for educational purposes only. These materials are written in a general format and not intended to be advice applicable to any specific circumstance. Legal opinions may vary when based on subtle factual distinctions. All rights reserved. No part of this presentation may be reproduced, published or posted without the written permission of Freeman Mathis & Gary, LLP.

  1. 15 U.S.C. § 2. ↩︎
  2. NCAA v. Alston, 594 U.S. 69, 90 (2021). ↩︎
  3. For a more detailed discussion of the effect of the Alston decision on college athletics and NIL law, see https://www.fmglaw.com/wp-content/uploads/2023/10/Calling-an-Audible-Article.pdf.  ↩︎
  4. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007). ↩︎
  5. Id. at 325 (adopting the test formulated in Brook Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993)). ↩︎

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