Monday, June 28, 2010

Is Lollapalooza anticompetitive?

The Illinois Attorney General is investigating the so called "radius" clause that prevents acts from performing within 300 miles of a Lollapalooza site:
The C3 radius clause for Lollapalooza is generally six months before the festival and three months after, and extends for 300 miles outside Chicago. Local promoters and venues have complained in the past in Chicago and other cities with major festivals that restrictive radius clauses cut into the number of acts that can be booked by other talent buyers in the market.  
Interestingly, the radius clause, which reduces competition between Lollapalooza and rival concerts seems analogous to the restrictions on price discounting and advertising sought by PolyGram and Warner in the three tenors case. 
In 1997, PolyGram and Warner, two of the world’s largest music companies, formed a joint venture to distribute recordings of the 1998 World Cup concert. PolyGram independently had distributed recordings of the Three Tenors concert at the 1990 World Cup (3T1), and Warner alone had distributed recordings of the Three Tenors concert at the 1994 World Cup (3T2). The Commission found that PolyGram and Warner, concerned that the recording of the 1998 concert (3T3) would be less original and commercially appealing than the 1990 and 1994 concerts, agreed to a “moratorium” to restrict price discounting and advertising for 3T1 and 3T2 before and after the public release of 3T3.

The economic issue seems a little easier than the legal one. If the Lollapalooza concert would not be profitable without the radius restrictions, then the restrictions anti-competitive costs (rival concert output goes down) have to be weighed against their pro-competitive benefit (the Lollapalooza concert is performed).

This is similar to the economic issue in the 3 tenors case. If the third record would not be profitable without the price and advertising restrictions on the first two, then the restriction's anti-competitive costs (sales of the first two records go down) have to be weighed agaisnt their pro-competitive benefit (the third record gets made).

UPDATE:  Josh Wright weighs in by noting that the three tenors case involved restrictions between competitors (i.e. horizontal agreement) while the Lollapalooza restraints are unilaterally imposed on input suppliers. This is a classic exclusive dealing case which would require showing that Lollapalooza had antitrust market power. Not so in three tenors --- as Josh has written elsewhere.

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