No “Grounds” for Antitrust Charges against Starbucks

As often happens to successful ventures, Starbucks now faces critics who challenge the company’s leasing contracts, which specify competitors may not occupy the same building. But that’s a sensible business practice for any expanding firm, and there’s always the building next door available to those rivals, anyway. The company is also being attacked for buying out rivals or building nearby stores, as if competition itself were objectionable.

These critics allege that a firm employs “predatory” tactics to drive rivals out of business, snatch their customer base, and amass a larger market share—and charge monopoly prices after achieving all this. As aspiring rivals surface, the now-monopolist merely cuts price again. Yet when has anyone ever seen Starbucks cut its prices? There’s still plenty of room for lower-cost competitors—and even comparable chains, as any Caribou Coffee patron can tell you.

Let consumers vote with their dollars. Note that the complainants are competitors—rival coffee companies—not consumers, who queue outside the doors at many Starbucks outlets. Antitrust opportunism, like that of these challengers, has become silly. We’re talking about coffee grounds; there’s no monopoly—or even possibility of one—here. There are plenty of substitutes for Starbucks’ coffee. We all can buy our own grounds at the grocery store. And the competitors who don’t sell out can undercut Starbucks by selling their coffee for less.

This suit is entirely about protectionism for competitors, nothing more. But nothing is surprising when it comes to the frivolous application of antitrust law, where “monopolies” have been detected in “intense mints,” “jarred pickles,” and “premium” ice cream.

Real predatory behavior isn’t even sustainable, and markets deal with it adequately without governement involvement. Starbucks doesn’t operate in a vacuum. Any predator’s behavior would not go unnoticed by its upstream suppliers and downstream business customers who stand to lose from the predator’s monopolization and reduced wholesale purchases. These suppliers can discipline retailers by taking their business elsewhere—for example, to other coffee chains.

As economist George Reisman has noted, predators invite rivals and speculators to form endless numbers of small competing companies for the sole purpose of slashing the product’s price, forcing the predator to match or react, while shorting the predator’s stock.

The aim of every competitive business is to eliminate rivals and gain as many customers as possible. Starbucks is doing it by voluntary competition; these challengers are trying to use the force of law. As this case shows, abuses of antitrust to secure protection from competition are far more likely to occur than successful predatory pricing itself.