Local Government Action and Antitrust Policy: An Economic Analysis

At least partly as a result of the Supreme Court decision in Community Communications Co. v. City of Boulder, cities are facing antitrust challenges to their rights to franchise cable television systems. Other municipal activities have been similarly challenged. The prospect of costly and uncertain antitrust litigation challenging local government actions will restrict the scope and extent of local regulatory activity. Such restrictions could, in turn, preempt city residents’ ability to choose, through their elected representatives, the goods and services they prefer. This Article proposes that as a mater of policy the burden of proving a municipal antitrust violation should be on those who seek to restrict municipal action. This Article discusses the merits behind the general case for municipal antitrust immunity and the specific circumstances in which cities might face liability under antitrust laws. Further, this Article sets out three criteria by which the potential for adverse effects of a city’s action may be determined, then assesses the leading “state action” cases using these criteria. Finally, this Article concludes by describing the appropriate policies for dealing with potentially inefficient city actions and makes specific recommendations consistent with the current case law.