BAR/BRI's potential competition

The blawgosphere is abuzz with comments on the recent New York Times article (first brought to my attention by Bill -- Thanks, Bill) about BAR/BRI's antitrust troubles.  See Kaimi Wenger (who handily wins the award for best blog post title), Dan Solove (commenting on Kaimi's post and linking to a collection of relevant articles at lawschool.com), Ethan Lieb, and my colleague Joe Miller (riffing off of Ethan's post).  The actual complaint is here.

In the first instance, I agree with Dan:  We should ban the bar.  I don't actually agree with all of his reasoning, but . . . close enough.             

But let's assume, for the sake of propping up legal fees -- er, for the sake of argument -- that we keep the bar.  What about the merits of the antitrust suit?

There's actually a lot more to this case than meets the eye, and the plaintiffs' attorneys have made some creative points.  Let me highlight one or two here (and maybe I'll point out others in subsequent posts).

The plaintiffs claim that the nature of exam prep course marketing impedes entry by potential competitors.  The claim is that, because many students sign up for bar classes as first years, before they know in which jurisdiction they will take the exam, any potential competitors would have to offer courses in every jurisdiction to compete with BAR/BRI.  At the same time, because West advertises for BAR/BRI through its Westlaw service (to which all law students are freely and repeatedly exposed), a potential competitor would have a hard time promoting its exam prep.

These are nice arguments, suggesting the pool of potential competitors that could effectively correct the complained-of effects is small.  It is important for the plaintiffs to make these arguments because, in the absence of claims like these, it's hard to see how potential competition in this market is structurally limited in any way.  But at the end of the day I think the arguments are weak. 

Every state's bar exam (except two) includes the MBE, and I would guess that the majority of students do know which bar exam they intend to take, even in their first year.  In most law schools, a single- or couple-jurisdiction competitor would be quite viable, as long as it offered MBE prep and one or two jurisdictions' worth of essay prep.  In fact, competitors of this sort already exist (see, for example, Celebration Bar Review, Supreme Bar Review, Gallagher Bar Exam School and MicroMash (admittedly, also owned by Thomson)).   

Moreover, antitrust law doesn't require that potential competitors adopt precisely a monopolist's business model.  An effective competitor could certainly recruit students from among third year students, offering, in fact, a compelling deal like, "first-year prices for third-year students!"  There are likewise a near-infinite number of other advertising outlets than pop-up screens on Westlaw, and links through Westlaw are hardly necessary for effective bar prep.

At the end of the day, the complaint alleges little more on this score than that BAR/BRI offers something valuable to law students -- valuable things a new competitor might have a hard time matching.  Certainly BAR/BRI offers an excellent product that can (and does) command Ricardian rents.  This is the very definition of competition, not its antithesis.  In the Internet age, for a business like this one, start-up costs are low and high-quality teachers abundant.  It's hard to believe BAR/BRI could maintain real monopoly pricing for long.

Comments

[Larry]

i have very little knowledge about the bar exam business. however, for one of the more important exams of a student's life, is a student really going to take a prep course from some new start-up company or is that student going to take the course from a company with a track record of passing people? the ramifications of failing the exam are rather substantial. bar/bri seems to have - for better or worse - come out on top in this particular service and i think it might have something to do with them being pretty good at what they do.

[Robert Schwartz]

I graduated from law school in 1975 and moved to New York, where I took the bar exam. Before the exam, I took the bar review course from PLI, a non-profit still well known as a sponsor of CLE programs. The course was first rate. The speakers were people like Prof Farnsworth from Columbia, the reporter of the Restatement of Contracts 2nd. As I recall, the bar review cost about $150. (Compared to $2,600; There has been a lot of inflation since then; my starting salary was $19,000 and I paid $350/mo. for an apartment that would now be $2,000/mo.).

I went to work for a law firm that represented Harcourt Brace Jovanovich which had acquired Bar Review Institute (B.R.I.) an Illinois operation, and a California bar review course, Bay Area Review, and merged the two to create BAR/BRI.

I worked on HBJ matters and I was very surprised when they told me that they were bringing BAR/BRI to New York. I asked them how they were going to compete with PLI. They told me that they were planing to charge $450 for the course, 3 times as much as PLI. I was very skeptical but they insisted that law students were so spooked by the bar exam, and so ignorant of the real world that they would invariably choose the higher priced course.

And they were right. PLI abandoned the field in a few years.

I don't see a successful anti-trust case. The cost of entry is close to zero. All you would have to do is hire a couple of law professors and have the gumption to charge more than BAR/BRI.

[geoff manne]

One of the many elements seriously clouding antitrust analysis is the presence of Ricardian rents -- high profits afforded to high quality. Is this "bad" or "anticompetitive?" (of course not!). If higher prices signal higher quality, how hard do we really want to try to reduce price? Most important -- how can antitrust plaintiffs, courts and agencies tell whether high profits are the product of anticompetitive or competitive behavior? Now, in this case, plaintiffs allege some seemingly unsavory conduct by BarBri. But I'm willing to be bet that BarBri's answer provides some compelling justifications for that conduct (or else denies it occurred). And in the end, I think the brief analysis of entry I provided above (and bolstered by Robert's comments) should suggest, absent some additional information I haven't considered, that an unjustified competitive superiority would be pretty hard to maintain here. There's no doubting that scared students will pay more for a better, reputable product (as Larry points out). But there's also no doubt they will quickly flee from a sub-par, over-priced one.