The Perils of “Keeping Up with the Joneses”: When Association Pricing Crosses the Antitrust Line
Imagine an association establishing its dues based solely on what their “competitor” association charges. However, this practice can lead to issues with antitrust regulators. The Sherman Act and Clayton Act, cornerstones of U.S. antitrust law, prohibit agreements that restrain trade or substantially lessen competition. Blindly mirroring a competitor’s pricing strategy can be construed as an implicit agreement to fix prices, undermining the free market and potentially harming consumers.
Why Do Antitrust Laws Exist?
Collaboration and knowledge-sharing can help ensure mutual success; however, collaborative good intentions can quickly turn into antitrust law violations. Antitrust laws are designed to promote fair competition and protect consumers from anti-competitive practices. Nonprofits and associations must tread carefully to avoid engaging in activities that stifle competition. Violating antitrust laws can result in significant civil and criminal penalties for associations, including their directors and executive-level employees. Antitrust laws apply to all nonprofits and associations regardless of their size.
What is Price-Fixing?
One of the most critical areas of concern with antitrust laws is price-fixing. Associations must refrain from exchanging sensitive pricing information or establishing industry-wide pricing standards. When setting prices for products or programs, nonprofits and associations should base their decisions on their own costs, market analysis, and value proposition, not on what their “competitors” are doing. Pricing based solely on the “competition” is a violation of the Sherman Act, so it is important that the association has its own, data driven pricing strategy.
What Are Other Antitrust Law Considerations?
Another pitfall lies in membership policies. Excluding competitors or imposing unreasonable restrictions on membership could be construed as anti-competitive behavior, potentially violating the Clayton Act’s prohibition on exclusionary practices. It’s essential to ensure that membership criteria is objective, transparent, and non-discriminatory. Requirements that favor certain members or create barriers to entry for new competitors can trigger antitrust scrutiny.
Sharing general industry data and trends can be beneficial but associations must exercise caution when it comes to exchanging sensitive information such as costs, membership, sales figures, or strategic plans. Exchanging information that distorts the competitive landscape is a practice called collusion, and it is a violation of The Sherman Act.
How to Avoid Antitrust Law Violations
To navigate the complexities of antitrust law, associations should proactively implement antitrust compliance programs. These programs should include training for staff and members, guidelines on permissible and prohibited conduct, and mechanisms for reporting and addressing potential violations. Associations should also maintain whistleblower, confidentiality, and conflict of interest policies that are reviewed regularly with an attorney. By understanding and respecting antitrust law boundaries, associations can continue collaborating with other businesses in a way that advances their interests while safeguarding fair competition.
Edward McMurray represents clients in Levin Ginsburg’s Corporate Law Practice and has extensive experience with advising associations and nonprofits at all stages and sizes. If you have any questions about your non-profit or association, please contact Edd through our website.
Levin Ginsburg is a full-service law firm that prides itself on being counselors for all types of businesses and individuals. Regardless of your need, our attorneys exercise great care in being thorough, organized, and efficient in serving our clients, not just their matters.
