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This week's issue of the Economist highlighted a frustration of mine that has bothered me ever since I started doing prison ministry two years ago. Namely, the monopolies inside prisons are able to exploit what is literally a captive market.

Prisoners’ families tend to be poor. Talking to a brother, son or father behind bars can incur an upfront fee as high as $4.99; per-minute charges may reach $0.89. Americans at liberty, even if they don’t have Skype, can easily get unlimited domestic calls for $9.99 a month. That would buy one six-minute call from a state prison in Georgia to a neighbouring state.

Outside prison, phone companies compete fiercely for customers. Inside, they don’t have to. Each state typically grants a single company a monopoly over telephones in any given prison. The result is high prices and a booming trade among inmates in contraband mobile phones.

As the above example shows, the monopoly on phone calls is a classic example of an abuse of monopolistic behavior - AT&T was broken up for less back in the 1980s.

I should also note, this is true of most merchandise (printed books being one of the few exceptions.)

What I don't understand is how legally such a scheme does not run afoul of the Sherman Anti-Trust Act and other legislation that specifically bars the abuse of monopolistic power. How is it that a state can legally grant monopoly - especially in a situation where the barriers to entry are no longer intrinsically hard to overcome - in situations like these?

Knowing prisoners as I do, I guarantee you that these "resident lawyers" will literally make a Supreme Court case if they can. What legal argument would be used to say that anti-monopolistic laws do not apply in this situation?

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    I would imagine that the service is a contract between Prison Bureau and a company. The contract would presumably be open for bidding, which means there's no monopoly. This is 100% identical to a single company providing phone services to me as an employee of a corporation (via contact with that corporation); or a single unnamed company providing operating systems to Bureau of Prisons PCs. – user4012 May 29 '13 at 16:59
  • From another angle, phone service in prison is a privilege, not a right of the inmate. If they don't want to use it, they are very free to not pay for it. It's not food. People were writing pen and paper letters from prison from time immemorial, with no phones required. – user4012 May 29 '13 at 17:00
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    "AT&T was broken up for less back in the 1980s" = sums up the current state of monopolistic behavior in general (be it inside or outside of prison...) – user1530 May 29 '13 at 19:35
  • "AT&T was broken up for less" is simply not true. You have to look at scale when you are considering monopolies. AT&T had a much wider-scale monopoly at the time it was broken up. – DJClayworth May 30 '13 at 14:31
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    "The result is high prices and a booming trade among inmates in contraband mobile phones." - I suspect there would be a booming trade of the mobile phones even if the phone calls were free since the mobile phones are not actively monitored. – SoylentGray May 30 '13 at 19:08
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The Sherman Anti-Trust Act Does Not Prohibit Monopolies

At it's core, the Sherman Anti-Trust Act does not prohibit the existence of monopolies. What it does is prohibit the acquisition of a monopoly by certain means.

The Department of Justice has an educational website where they explain some of the nuances of this law. In particular, violating anti-trust law requires that a monopoly be established by anti-competitive means (for example, collusion with other firms). These three reasons are explicitly lawful reasons for a monopoly to exist:

  • Having a superior product
  • Having superior business acumen
  • Historical accident

If the department in charge of prisons offers a single contract for its phone services, and awards a contract to a single vendor, that is a lawful acquisition of a monopoly.

The Supreme Court affirmed this idea in United States v Aluminum Corporation of America. In that case, the court ruled not to break up an aluminum monopoly. One part of this ruling was offered by Justice Hand:

The successful competitor, having been urged to compete, must not be turned upon when he wins.

Find the entire ruling here.

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  • Apparently rates are now capped to 14 cents/minute by the FCC. The current administration seems to be in a hurry to overturn everything Tom Wheeler did for pretty stupid reasons, so I'm not sure if that still applies. – user11249 Apr 15 '17 at 23:37
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As the above example shows, the monopoly on phone calls is a classic example of an abuse of monopolistic behavior

I don't think it established what you said it did. you are comparing two uncomparable economic structures.

What I don't understand is how legally such a scheme does not run afoul of the Sherman Anti-Trust Act and other legislation that specifically bars the abuse of monopolistic power.

monopoly itself is not illegal - even in a free market, monopoly is sometimes allowed or even encouraged.

what is illegal, in most jurisdictions, is maintenance of monopoly.

What legal argument would be used to say that anti-monopolistic laws do not apply in this situation?

fundamentally, it is not a monopoly: the prison operators have to buy specialized equipment to provide a niche service, often not frequently used, to a group of high (credit) risk individuals / customers. so a comparison, to establish market inefficiency, of prices paid by a regular citizen vs. that by an incarcerated individuals is invalid.

the actual connections are typically outsourced to companies specializing on this, often through a bidding process.

it would be very difficult for your "prison lawyers" to build a case here.

just as my hero would often say, committing a crime has its consequences.

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