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Students Sue for Right to Drink Cheaply

That's the title of a story ($) in today's Chronicle of Higher Education. Students at the University of Wisconsin are suing because bars in Madison have agreed to eliminate "drink specials on Friday nights and Saturday nights." The Badger Herald has a publicly accessible story from March 25 on the suit:

The ban began after the University of Wisconsin's Policy, Alternatives, Community and Education, or PACE Project, recommended the creation of an ordinance to ban drink specials in downtown bars.

Instead of making the ban public policy, a group of bar owners decided to voluntarily ban weekend drink specials. These bar owners are now being sued for their actions.

The lawsuit states four main objectives: to break up the Madison Bar cartel, to return price competition to the business of selling alcoholic beverages in downtown Madison, to uncover the full duration, scope, nature of operation and economic impact of the cartel and to recover and return to the victims of the cartel, primarily UW students, the full measure of damages to which they are lawfully entitled.

This is interesting. Under the State Action Doctrine, a bar cartel of this sort would pass legal muster, like California agricultural cooperatives, which were an early test of the concept. If the state sanctions a cartel, its ok. But without state sanction, an agreement to limit price competition, even if it has some positive public purpose, is generally unlawful under the Sherman Act.

The MIT case re-tested that argument. MIT and Ivy League schools shared information on scholarship offers, and directly limited competition among themselves for students. MIT argued that the policy allowed them to stretch a limited amount of financial support across a greater number of needy students. The program was alleged to be socially beneficial, but the court did not accept the argument. The Madison bar program falls into the same trap. But if a law were passed having the same effect, there is no antitrust issue. This is an interesting conundrum. The bars are likely to lose the case, but would that lead to legislation? That the bars would benefit from pure cartelizing legislation is obvious, but they're unlikely to be sanguine about giving the government a large role in their business.