In a market economy, collusion is an ever-present temptation. Even Adam Smith, perhaps capitalism’s most illustrious forefather, wrote that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Antitrust law is the government’s answer, equipping federal and state officials to punish competitors who coordinate.

But what happens when the government itself becomes the tool of collusion?

An interesting clause in Meta’s recent landmark settlement raises the question. In August, Meta settled a lawsuit by 47 state attorneys general (and others) alleging certain addictive design features endangered children. The company agreed to enact an age verification system and to place significant restrictions on child and teen users, including two-hour daily time limits and nighttime usage restrictions. It also agreed to pay up $17.1 billion in damages to the state plaintiffs. “Up to” is an important caveat, because $5 billion is contingent on the state attorneys general getting competitors YouTube, TikTok, and Snap to agree to similar financial penalties and product changes.

One can understand why Meta included this contingency clause. Instagram and other Meta properties compete vigorously with the company’s competitors for the lucrative youth segment. In isolation, the settlement’s reforms seem like unilateral disarmament: The teen user experience will be eroded on Meta platforms, leading teens to switch to unrestricted platforms. The restrictions become more palatable if there is a credible belief that this is the first step toward an industry-wide solution to the problems that animated the complaint. Indeed, Meta’s chief legal officer, C. J. Mahoney, framed the settlement as the company “partner[ing] with state attorneys general to set a new industry standard.”

But antitrust law would look askance at an agreement among Meta, YouTube, TikTok, and Snap to adopt industry-wide restrictions on underage accounts. Some voluntary industry standards, such as interoperability or technical safety specifications, can survive antitrust review. But a binding cap on daily use restricts a core dimension of competition and would likely be seen as an agreement to restrict output. At a minimum, the agreement would be subject to a rule of reason analysis. The settlement avoids this inquiry by using state attorneys general as intermediaries.

Of course, government has facilitated coordination among rivals before, often by accident. In 1980, the Staggers Rail Act deregulated the railroad industry, allowing railroads to enter privately negotiated contracts with shippers. Concerned that railroads were price discriminating against small shippers, Congress in 1986 mandated that railroads publicly disclose all “essential terms” in agricultural shipping agreements. An empirical study showed that this public disclosure requirement became a way for railroads to coordinate on price, leading to a 10–14 percent increase in prices after controlling for exogenous factors. The authors concluded that “contract disclosure and the increased reliance on posted tariffs facilitated rate coordination by the oligopolistic railroad industry, thereby leading to an increase in rail rates.” Similarly, the Federal Communications Commission sought to eliminate tariff requirements for nondominant phone companies in the 1980s in part because disclosure of rates and tariff conditions were “a potential vehicle for collusive conduct.”

More specifically, the use of settlements as a coordination vehicle likely immunizes Meta from antitrust liability. The tobacco settlement is instructive. In 1998, 46 states negotiated a massive settlement agreement with America’s four largest tobacco companies, which included provisions that successfully induced many smaller companies to join the agreement. A class of smokers later sued, alleging the settlement agreement constituted a price-fixing scheme that raised the cost of cigarettes in violation of antitrust laws. The Ninth Circuit held that even if that were the case, the companies were immune from suit under the Noerr–Pennington doctrine, which protects the constitutional right to petition the government for redress, even in the form of a settlement.

The Adam Smith quote above is relatively well known. What is less often recognized is the rest of the paragraph: “It is impossible indeed to prevent such meetings. . . . But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.” (Emphasis added.) Smith’s warning was not as much about the tendencies of businessmen as about the tendency of government to reinforce their behavior.

Many have noted that the states leveraged litigation to get Meta to volunteer for limits that the First Amendment may prevent government from imposing directly. It’s worth noting that if the contingency payment successfully entices the states to impose similar restrictions on its competitors, Meta will similarly have leveraged settlement to achieve a level of binding coordination that the industry could not have achieved on its own.