When does 'collective bargaining' become a cartel?

Dr Eric Crampton
The Dominion Post
13 December, 2021

“We made him an offer he couldn’t refuse.”

It’s a cliché from old gangster movies. Either side can just walk away from normal business negotiations if a deal is not in their mutual interest. But if it’s gangsters on the other side of the table, walking away can be risky. You might find a knife in your back as you reach the door.

The mafia can make offers that can’t be refused.

It makes for a bit of fun in movies. But it is not a good approach to policy.

Two weeks ago, a consortium of media companies sought Commerce Commission permission to collectively negotiate with Google and Facebook.

Newsmedia companies have a problem. The classified ads that once paid the bills disappeared with Craigslist, EBay, and TradeMe.

Internet advertising platforms are often better than traditional billboard, radio, television or newspaper ads for businesses trying to find customers.

And most people just are not willing to pay enough for newspaper subscriptions to cover the bills for proper journalism.

Bank robber Willie Sutton targeted banks in the 1930s “because that’s where the money is”. And newsmedia companies look to Google and Facebook.

Normally, cartels are banned; in some cases they are criminalised. The Commission is being asked for permission to form what might otherwise be considered a cartel, justified by the size of the tech companies.

The real problem is not tech platforms’ bargaining power.

The problem rather is media companies wishing government to use force of law to restore market conditions that slipped away with technological change.

But it is worse than that if there is any intention of following the Australian example cited by The Spinoff’s Duncan Greive.

The Australian media bargaining regime is anything but. Negotiation and bargaining imply a right to walk away.

That is not how the Australian regime works.

Worse than that, the Australian regime threatens the fundamental principles on which the Internet we know has operated since it began.

If the Minister determines that a platform company has not done enough to pay off news companies, the Minister can compel bargaining to determine how much the platform will pay them, under threat of final offer arbitration.

Now you might think that this would apply only if the service were, for example, reproducing substantial parts of the content which should otherwise come under a licensing arrangement. But it is much broader than that.

Simply linking to a newspaper’s website counts.

The web we know was built on the principle that websites are allowed to link to each other without restriction. That link might simply lead to a paywall. But being able to link to websites is a cornerstone of how the web works.

And so we come back to New Zealand media companies’ collective request of the Commerce Commission.

New Zealand seems to have a longstanding principle that cartels are forbidden unless they are mandatory.

Private cartels are difficult to maintain. Every cartel member has strong incentive to defect to their own private benefit. But legislated cartels are durable. And because they are legislated, they get a free pass.

Regulations mandating that pharmacies be owned by pharmacists are little more than a cartel enforcement mechanism hindering entry by international chains, resulting in prices far above international norms. But the Commerce Commission will not prosecute anyone involved in setting rules that prevent competition.

And the Commission’s inquiry into supermarkets was far more interested in beating up supermarket chief executives than in asking council officials just why they set zoning rules that make it nearly impossible for a new entrant to emerge.

Such seems to be the New Zealand way.

And that makes the news companies’ request of the Commission particularly worrying. The Commission seems to like cartels, so long as they are duly authorised. New Zealand’s media companies have requested authorisation.

Taxing a sector you do not like to fund a sector you do like is not a good basis for tax policy. One might as well impose a tax on hipsters’ beard oil to fund tīeke recovery programmes.

If you think that tech companies do not pay enough in local tax, you should want Inland Revenue to make sure the tax code is rigorous.

If you think good journalism deserves better funding, you should contribute to it yourself and encourage others to do likewise.

There may be a public interest case in tax-funding public interest journalism. But no principle of public finance in existence that says that that funding should be compelled from Google or Facebook through compulsory arbitration rather than being provided from the public purse more generally.

Breaking basic principles of public finance, and the basic principles on which the web was founded, to compel tech companies to fund journalism – that belongs only in bad modern-day gangster movies. Not in New Zealand public policy.


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