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159 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0156 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. August 25, 2003 Advisory No. 159 ANTITRUST LAW AND THE POSTAL SERVICE Executive Summary The U.S. Court of Appeals for the Ninth District has ruled in the Flamingo Industries case that the Postal Service is not exempt from federal antitrust laws. The Supreme Court has agreed to hear the case. The Postal Service's position is that the antitrust laws do not apply to it because, as part of the federal government, it has sovereign immunity. The opposing position is that sovereign immunity has been waived by explicit statutory language saying it has the power to sue and be sued in its official name. A number of courts have previously found in different types of cases that statutory language and the Postal Service's businesslike character limit its claim to sovereign immunity. Without attempting to predict how the Supreme Court will rule, it can be said on economic grounds that efficiency and fairness will be served if avenues are open administratively and in the courts for challenging the Postal Service's market behavior. This paper looks at the economic benefits of waiving sovereign immunity in several areas - procurement rules and contracts, antitrust, and truth in advertising - and finds gains in all these areas. With regard to antitrust, a basic economic fact is that the Postal Service is a major presence in the commercial world. It has annual sales of approximately $70 billion, describes itself as the hub of a $900 billion mailing industry, and operates in many markets outside its statutory monopoly. Placing such a large, sprawling, and powerful enterprise beyond the reach of antitrust law would open a major legal breach with significant economic impact. Further, government enterprises have strong incentives to expand commercially and to suppress competition, which invites antitrust abuses. Shielding the Postal Service from antitrust law would harm the public, if antitrust law has any economic merit. It would also result in the legal anomaly that the Postal Service could behave with impunity in a manner that would bring vigorous legal action if carried out by any of its rivals in a competitive market or by any of its partners in the strategic alliances it is forming with increasing frequency. Although the Postal Service has clear Congressional approval for some anticompetitive behavior within its statutory monopoly, its claim of total antitrust immunity, covering its activities in competitive markets as well as in its statutory monopoly, ignores the line Congress has drawn. From an economic perspective, it is to be hoped that the Supreme Court either sustains the Flamingo Industries ruling, or, if it determines that the case's specific facts do not involve antitrust issues, reverses on narrow grounds. g~em A3. S I 66. 6

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