Antitrust Law outline by chenmeixiu

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Antitrust Law outline

Chapter 1 Introduction and Overview

        The law and Economics of Antitrust
              o The sale of water in Cournotia
              o Exhibit 1. Mineral water market results
              o Exhibit 2. Effect of Chiselers on Price-Fixing Conspiracy

                o Some Analytic Extensions and Formalizations
                          Translation into Graphical Models—Cournotia Model
                          The Dilemma of Rivalistic Behavior
                          Market Spoilage and Expansion

                o Assumptions and Premises: Economic Modeling and Legal Reasoning
                           Assumptions in Social Science
                           ECONOMIC EFFICIENCY The core premise of Antitrust?

        An Overview of Antitrust in the Courts
             o Monopolization

        o Aspen Skiing Co. v. Aspen Highlands Skiing 1985
VIOLATION OF § 2
All-Aspen tickets entitled the bearer to ski at either Π or Δ's
                       (who had monopoly power) ski area; the tickets had been offered for many
                       years with revenues being distributed based on user surveys. Aspen owned its
                       own facility (the most popular), acquired another, and opened a third facility -
                       thus owning 3 of the 4 local mountains. It then demanded that Πaccept a fixed
                       share of the A-A ticket revenues significantly below the historical average or
                       else it would abandon the A-A program.
                       a.          Generally, the refusal to deal with competitors is not proscribed by §2.
                       b.          Monopoly power + purpose of furthering that power.
                       c.          Withdrawl after cooperation (reliance, consumers hurt).
                       d.          NOTE: This case is a bit of an anomaly.
                       f.          Ct imposed duty to cooperate w/ competitors.




                o Marketing Memo for Big Ski

                o Refusals to Deal as Antitrust Violations

                o Vertical Restraints
                o Graphic Products Distrubutors v. ITEK 1983
         Market def: National Machinery Plates
         Mkt pwr: 75% share
         VERTICAL RESTRAINT------- TIED SERVICES TO PRODUCT
         § 1 VIOLATION
         Co. owned duel dist. System
                                                                                                            2

          VERTICAL arrangement in supply chain (not a Price Restraint)
          Horrizontal agreement on same level of distribution.
          Territorial restraint violation.
          Judged by (per se) ROR standard [ Modern Antitrust uses ROR]
          [horizontal price fixing per se illegal P is a big indicator of efficiency]
there are valid competitive reasons for vertical non price restraints; a strong reliance on the principle of
free--riding which there is a possibility of no incentive to participate and make an investment : i. e. point-
of-sale services

Mandatory downstream pricing use ROR for vertical restraints [manufactures may use Suggested Retail
Price]
Rule of Reason
      1) Market Share? 75% nat‘l plate
      2) Mkt pwr.? Ability to raise P over MC
Market Share is only a proxy: If market is concentrated with 2 large strongly competitive firms may have
little market power.

Tying shows mkt Pwr. In primary market

Product differentiation---Kellog Spurious differentiation
Use to fill shelf space does not really create market differentiation unless a firm has market power
Actual product differentiation on legitimate product superiority.

Spurious product differentiation is irrational
Does not create--Superiority


Market Power=ability to raise p over cost
Market share= % of market
Monopoly power= legal term level of power to condemn [if we can find exclusionary bad act]
*The ROR is used to balance procompetitive with anticompetitive effects

Interbrand= b/t brands
Intrabrand=within products of the same firm

**INTERbrand competition is the competition among the manufacturers of the same generic product…and
is the primary concern of antitrust law…INTRAbrand competition is the competition between the
distributors—wholesale or retail—of the product of a particular manufacturer.

Strict geographic restrictions on intrabrand competition raise competitiveness in Interbrand markets.
Leverage theory-create market niche by increasing interbrand competition by restricting Intrabrand
competition.

A firm is viewed with in the context of the market[ie few or many participants]
Using least restrictive means on Intrabrand to accomplish Interbrand competition.
Restrictions on intrabrand create a prima facie case.

Burden of proof rests with the Π [proving unreasonable effects] KFC v. diversified packaging corp

The ITEK system of Territorial Restraints prohibited Intrabrand competition and resulted in adverse effects
on price.

BILATERAL MONOPOLY: monopolist supplier & monopolist retailer in same supply chain.
Ex: M manuf. Restricts output to ↑ P & gain M profit. While Retailers ↑ P & restrict sales

Procompetitive rationale for the M manf to restrict downstream
                                                                                                          3

1)Provide services—there was no evidence of this presented—shows poor lawyering/drafting
2) Enhance Market Penetration

Should the form of legal ―agency‖ through which the selling function is accomplished matter to the
antitrust laws? No just a Corporate form.
Could a wholly owned division be the source for antitrust liability under § 1? No.
―Intraenterprise conspiracy―
              Corporate structure does not increase antitrust liability Copperweld
              There must be a joining of two separate enterprises or sources of economic power previously
              pursuing separate interests is the trigger for a § 1 violation. Copperweld.

Copperweld Corp. - Regal was operated as an unincorporated subsidiary of
                     Lear-Sieglar before it became a wholly-owned subsidiary of Copperweld.
                     a.         A conspiracy cannot exist between a corporation and its wholly-owned
                                subsidiary under §1.
                     b.         The parent and wholly-owned subsidiary have a complete Unity of
                                Interest.
                     c.         Merger and decentralized management may lead to efficiencies.
                     d.         Important distinction between concerted and unilateral conduct.
                     e.         §1 may apply to the merger, but §2 does not apply to unilateral action.
                     f.         Dissent:
                     i.         use Rule of Reason approach here to fill the gaps between §1
                                             and §2;
                     ii.        corporations are separate for tax purposes-why not for antitrust?
                     iii.       unilateral action by a firm with market power is no less A-C than
                                             conduct by a plurality with the same power (and policing the
                                             concerted action is easier!).
                     iv.        decision overrules precedent (Yellow Cab and Seagram's )
                     v.         what about a 51%-owned subsidiary (don't the other 49% have
                                             legitimate interests?).

                       Lawyering Errors and Antitrust Liability
                      A lawyer is immune from antitrust liability as long as he dos not
                      function as an active participant in formulating policy decisions with
                      his client to restrain competition. The evidence must show that the
                      defendant exerted his influence so as to shape corporate intentions.

               o Conspiracy to Restrain Trade

                       Rothery Storage and Van Co. v. Atlas Van Lines 1986
                      No VIOLATION OF § 1 SHERMAN---under ROR {modern a/t law}
                      [balance proc. w/anticomp. effects]
                      Found Atlas‘NEW policy is designed to make the van line more
                      efficient rather than to decrease output of services and then raise rates.
                      Atlas Van lines—Had agreements w/ indep. Agents to buy franchise in exchange for
                      trademark , routing, licensing and national advertising. –On the condition that Agent
                      does not set up a separate corp. entity that competes and ―free ride‖ on Atlas‘s name.
                      Valid business reasons for new requirement:
                                Combat free riding and ↑ efficiency: Indep benefited from Atlas
                                want to provide nat‘l advertising and eliminate free riding so that the
                                    business may function efficiently and effectively.
                                Atlas would be potentially liable if there was an accident involving a
                                    supposed agent.
                                                                                                               4

                                    Using Atlas‘s name to get business is almost fraud
                                    Violation of trademark rights.
                      Viewed as a HORIZONTAL restraint on trade case: b/c indep.
                     contractors were stockholders in Atlas.
                      It was not found to be a ―group boycott‖ b/t atlas and several carrier
                     agents. Could not be a conspiracy b/c of the ―interenterprise conspiracy
                     doctrine‖.[ if an individual or entity is on the BOD that is not in and of
                     itself evidence of a single economic unit.] There was a discrepancy b/t
                     the individual agents and the agents were down stream or direct
                     competitors of Atlas. Single or multi-firm distinction is not relevant
                     here.
                     Low market power shown here—low market share and the structure of
                     the market.

                     *** ANCILLARY RESTRAINT DOCTRINE: if it is an ancillary
                     restraint; an agreement eliminating competition must be subordinate to a
                     legit transaction that creates efficiency---it is Not a violation & exempt
                     from the per se rule ---Must be a primary restraint
                     legal conclusion –Ancillary or Illegal
Topco agreement could be viewed as ancillary to a legit business purpose of creating a brand to compete
                              with national chains w/ own brand of items.




                       SUB-MARKETS; localized market, independent market, smaller
                       geographic reach than actual market. [Church says--not useful for
                       analysis]

                o Market Power/ Monopoly Power & ―Filters‖
                -use econ power test as ―filters‖ for detection of nonmeritorous A/T cases.
                -analogous filters exist Π must establish Δ ‗s market pwr.
                -however of a Π can show actual adverse effects on competition we do not
                require a showing of market power. I.e. reduced output KMB warehouse
                dist 1995

                o Injury to Competition Through Mergers

                o U. S. v. Waste Management Inc 1984
Dallas Garbage Case - where entry is easy, market power may be meaningless.

No violation of § 7
Product Market solid waste disposal –trash collection except residential
Geographic market—Dallas + Fringe Area
Market entry is so easy the firm with a large market share is unable to raise price over competitive.
A market definition artificially restricted to existing firms may yield market share statstistics that are not an
accurate proxy for market power When substantial potential competition is able to respond quickly to price
increases exists.
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               o Balancing Types of Error in Antitrust
                   Types of Legal Error
                   Type 1—FALSE POSITIVE—mistakenly punishing the innocent
                   Type 2—FALSE NEGATIVE—failing to punish the guilty

               o Special Requirements for Private Recovery
               o Mid-Michigan Radiology Assoc v. Central Michigan Community
                 Hospital 1995
Lack of standing
Exclusive provider of radiology services
Alleged—monopolization,conspiracy to monopolize, boycott, refusal to deal, unlawful tying, violation of
Mich a/t law
Π required to show for a § 4 Clayton action
1) antitrust injury ---INJURY TO COMPETITION—Not injury to individuals
2) Standing---best position to vindicate the violation –most proximately harmed

Did H leverage monopoly pwr from services to radiology
Efficiency was created –transaction costs ↓& ↑ quality b/c fewer # of background checks

No injury to market here.




    Chapter 2                      Conspiracies in Restraint of Trade              § 1 SHERMAN

       The Mechanics of Price Fixing Arrangements
       How Price Fixing Works the Uranium Cartel
                          Business Background and Politico – Legal History

                                       o General Atomic Co. v. Exxon Nuclear Corp 1981

                 Generally Agreement well concealed & never known in detail
                 --Cartel framework est by national governments to establish minimum
                 price and quantity restrictions
                  General Atomic sued to enforce a contract requiring seller Exxon to
                 deliver large quantities of uranium at prices much lower than the current
                 market. Exxon interposed an Antitrust defense: the contract was
                 invalidated by the participation of Gulf (general atomic‘s parent co.)

                              
                            Official Rules of the Uranium Cartel
                                o Mc Ginty‘s Gasoline Cartel
                                o Price Behavior During the Alleged Conspiracy
       Normative Pros and Cons of Cartels (and Antitrust Enforcement)

                                  ―Ruinous Competition‖—
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         collusion to fix price solves the ruinous competition problem—which results from
         an Industry w/↑ fixed costs and ↓ MC, where by a series of price cuts & counter
         cuts cause P↓ Therefore the firm is not able to replace Fixed Assets overtime.
         Because short-term costs are covered and long term costs are not then, fixed
         assets cannot be replaced [Co. could borrow funds & ↑ P at future date to meet
         debt payment whereby long term costs become short-term costs.]

                           Self-Help Remedies in Contract –
Sometimes collective action is an effective, extra judicial way of helping firms enforce
their contracts.
Cement Manufactures Protective Association v. US
The S. CT. reversed a grant of injunction on The info exchange between cement
suppliers. The Contractors fraudulently obtained requirements in rising market. The info
exchange enabled mfr. to prevent the perpetration of fraud upon them.

                             Lower Prices thru Collusion
--If firms agreed to fix price at a supercompetitive level & Market entry is easy –after a
while prices would eventually fall b/c Profit varience would be reduced and earnings
being a function of the level of earnings and the associated risks—so that as risk falls the
value of the earnings stream rises. With easy entry & the new low risk then, new firms
will either induce new firms to enter, charging lower prices, or cause existing firms to
lower their own prices as the profit risk declines.

                            Property Rights and Establishment of Efficient Prices
--A problem arises when property rights are not well defined. Ownership of natural
resources like fishing in particular is often ill defined.
When no one owns the resource, such as fish in a fishery, no price can be charged for
them. The inevitable result is over-fishing, perhaps to the point of species extinction,
since fishermen are in effect paying a price of zero.

                           Enforcement of Rules against Price-fixing
―nirvana Fallacy‖: just because something is undesireable is going on does not mean that
passing a law against it will obviate the problem. Law enforcers have trouble
distinguishing the problematic from the non problematic behavior.
Having NO law would endanger Type II errors the bad behavior going unpunished. But
having a law may well create type I errors.
Empirical issue: Does the law find and punish the anti-competitive behavior, while
leaving the unobjectionable behavior alone.

        Classic Early Cases
        U. S. v. Trans-Missouri Freight Assoc. 1897

Violation
Price-fixing is per se illegal: §1 condemns all contracts, combinations and conspiracies in restraint of trade.
    Ct rejected defense of ruinous competition, Compliance with another statute b/c agreement had been
    filed with the Interstate commerce commission pursuant to the IC Act, and the agreement was only ―to
    establish reasonable rates.‖
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        U. S. v. Addyston Pipe and Steel Co. 1898 per se
- Violation
 Δ had 65% of cast-iron pipe market and fixed the price.
                      a.         To be legal, a restraint of trade must be more than ancillary to the
                                 contract & necessary to the legitimate transaction.
                           b.         rejected defenses: reasonableness of price; lack of effect on market
                           agreement had little territorial reach and to avoid ruinous competition

        U. S. V. Trenton Potteries Co. 1927
Δ had 82% of the vitreous pottery (for toilets) market and fixed prices and limited sales.
Unreasonable restraint of trade
                       a.         Rule of Reason N.A. because there is an agreement between competitors
                                  in an open market -> per se rule for price-fixing.
                       b.         Obvious adverse effect on competition.



        Appalachian Coals V. U. S. 1933

Coal producers (74% in region) formed a company to act as an exclusive sales agent which would sell all
the coal of its principals at the best prices obtainable.
                         a.          Δis securing a fair share of the market through more orderly operation.
                         b.          Market is distressed (supply greatly exceeds demand).
                         c.          Δ will sell initially at a higher price b/c of greater control over supply
                                     and then spread the wealth.
                         d.          Restraint is reasonable.
                         e.          Large buyers of coal have power to combat the cartel of small buyers.
                         f.          NOTE:         real purpose was probably anti-competitive (limit
production or raise prices) - this case is an aberration.



        Doctrinal Foundations of § 1
                o Per Se Violations
     U.S. v. Socony-Vacum Oil Co. [Madison Oil] 1940
    Price fixing is per se Illegal
- To combat distress sale of oil, oil companies purchased extra
                       oil for self-owned service stations directly from refineries at the fair market
                       price (FMP).
                       a.            Per se rule: any combination formed with the intent to tamper with
                       b.            Any such combination is illegal because of actual or potential threat.
                       c.            Price-fixing reduces allocative efficiency.
                       d.            Reasonableness of economic defenses are immaterial; rejected defenses:
                                     i.          reasonableness of prices
                                     ii.         lack of market control
                                     iii.        elimination of competitive evils
                                     iv.         lack of intent to impede competition
                                     v.          actual effect on prices
                       TEST for PER SE:          Is the purpose or effect of the agreement likely to restrain
                       trade? (usually price-fixing, horizontal market division or RPM).
                                                                                                           8



        Fashion Originators’ Guild of America (FOGA) v. FTC 1941
Fashion Originators Guild - Garment industry (fabric & clothing designers)
                     refused to sell to retailers who sold garments made by "style pirates." Guild has
                     a large market share and polices the 12,000 retailers.
                     a.          Clayton Act §3 - "unlawful to contract on the condition....that the
                                 purchaser not use the goods of a competitor....where the effect may
                                 substantially lessen competition."
                     b.          Boycott narrows outlets for sale & sources to buy for retailers.
                     c.          Tendency and purpose is to restrict competition:
                                 i.            guild acts as an extra-governmental agency but there are no
                                                US laws being broken by the "style pirates"-although it
                                              might be tortious conduct.
                                 ii.           realistically, guild was limiting competition.
                     d.          Intent to fix prices is not essential because:
                                 i.            purpose & object of combination
                                 ii.           potential power
                                 iii.          tendency to monopoly
                                 iv.           coercion on retailers
                                 v.            coercion on competitors
                     e.          Justifications N.A., no matter how reasonable = per se violation.
                     f.          NOTES:
                                 i.            Court says per se, but considers evidence and defenses.
                                 ii.           Greater market power seems to = a greater likelihood of a per
                                               se violation.
                                 iii.          Could FOGA argue that the boycotts are pro-competitive
                                               (they eliminate a free rider problem)?




        U. S. v. Topco Assoc. Inc. 1972

- 25 small regional supermarkets formed a co-op to market Topco brand of products; each had a territorial
monopoly on the Topco brand.
                       a.         Clear horizontal restraint of trade.
                       b.         Congress has not chosen to regulate competition in this industry and in
                                  this manner.
                       c.         Any agreement (explicit or tacit) among businesses performing similar
                                  services or dealing in similar products, whereby the market is divided
                                  up and each is given a share, is per se illegal.
                       d.         No economic justifications (immaterial that purpose was to allow small
                                  grocers to compete.
                       e.         NOTE: Court failed to balance the loss of intrabrand competition against
                                  the gains of increased interbrand competition (it's a joint venture with
                                  integrative efficiencies).
                       f. This agreement could be viewed as ancillary to a legit business purpose of
                           creating a brand to compete with national chains w/ own brand of items.
                       g. Today –under ROR not illegal
                       h. Market definition too narrow-- monopolization of brand w/ many substitutes




               o Rule of Reason
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        Board of Trade of City of Chicago V. U. S. 1918
CBT instituted a call rule which limited the hours in which grain "to arrive" could be sold (prices were
static until morning).
                        a.         Factors used to measure a restraint's impact on competition:
                                   i.         industry structure
                                   ii.        firm's power and position
                                   iii.       history and duration of restraint
                                   iv.        reasons for adoption
                        b.         CBT's action was more a reasonable administrative rule than a restraint
                                   of trade.

        The Rule of Reason and Definition of Relevant Markets
        Nat’l Soc’y of Prof’l Engineers v. U. S. 1978
NSPE Ethical Canons prohibited competitive bidding to
                    minimize the risk that competition will produce inferior work, endangering
                    public safety. Client must select engineer w/o any price negotiation
                    beforehand.
                    a.          Rule of reason to determine impact on competitive conditions—not
                                whether the competition is good or bad.
                    b.          Plainly anti-competitive agreement:
                    i.          ban on bidding prevents client from making price comparisons.
                    ii.         imposition of NSPE's views on costs of competition on the entire
                                             market - this is Congress' job.
                                iii.         although professional services differ from other businesses,
                                             justifications are too broad and w/o sufficient evidence.
                                iv.          rule wrongly equates fear of deception with competition.
                    c.          Footnote 22 - marketing restraints OK if:
                                i.           related to public safety
                                ii.          no anti-competitive effect
                                iii.         reasonably ancillary to main purpose of protecting the public
                    d.          Once the agreement is deemed to have substantial anti-competitive
                                effects it cannot be defended.



        Doctrinal ReFormulations
              o Loosening of Per Se Rules
     Price-fixing                                                                                               .
                o B.M. I. v. Columbia Broadcasting System (1979)
                No violation & ct should use ROR
Π contends that "blanket licenses (must buy a license for all the music even if just one composition is
desired) sold by BMI and ASCAP for music competitions violate §1. CBS wanted to negotiate direct
licenses. Thought the way BMI operates restrains trade by restricting availability
                      a.           This type of marketing system is unique and may create efficiencies
                                   through integration -> rule of reason.
                      b.           Rule of Reason if:
                                   i.          the purpose or effect is unclear, or
                                   ii.         the Π makes a plausible argument that the agreement or
                                   conduct
                                               a.enhances the market by making it more competitive, or
                                               b.         increases efficiency through integration.
                      c.           Rule of Reason: balance the harms and the pro-competitive benefits.
                      d.           Integration made it possible for composition rights to be efficiently sold,
                                   monitored and controlled (cost would be prohibitive for artists
                                                                                                           10

                                   otherwise).
                       f.          Efficienct business practice: --eliminated some transaction cost &
                                   facilitated a market for blanket liscenses.
                       g.          NOT PER SE illegal




                o NCAA v. Bd. Of Regents of the University of Okla. (1984)
                Violation of § 1 Sherman Act (ROR analysis)
Networks were to pay NCAA members $131M to telecast 14 games each; networks negotiate with schools
for rights. Network 1 chooses its game, then network 2, etc. Only one buyer per game is allowed and
there are school appearance requirements. CFA tried to contract with NBC but NCAA threatened
sanctions.
                       a.         The television plan is anti-competitive under the rule of reason because:
                                  i.          no price competition between member schools=horizontal
                                              restraint.
                       ii.        ceiling on # of games a member can televise= output restriction.
                       d.         In a normal industry this would be a per se restraint, but college football
                                  is such that its product (football matches) would not exist at all absent
                                  the horizontal restraints -> rule of reason (college football broadcasts
                                  are a separate market because of its unique nature).
                       e.         Rule of Reason analysis:
                                  i.          contract causes less games to be shown more expensively.
                                  ii.         fixed price is unresponsive to consumer demand.
                                  iii.        plan is not pro-competitive.
                       iv.        no need for collective action where the NCAA has no competition
                                  v.          doesn't affect live attendance.
                       f.         Like a monopolist, revenues are increased by reducing output.
                       h.         Dissent: smaller schools cannot compete in a free market; limiting
                                  broadcast maximizes # of viewers and advertisers (integrative
                                  efficiency); perhaps market is TV sports or TV in general.
                       i.         NOTE: Defense Arguments:
                                  i.          individual schools have no market power
                                  ii.         co-op joint venture à la BMI
                                  iii.        protect live attendance and amateurism
                                  iv.         college football is not a product
                       j.         NOTE: Plaintiff Arguments:
                                  i.          football is a product and the public wants more
                                  ii.         NCAA is a monopoly limiting output
                       iii.       TV time is scarce and of great expense - networks want to show
                                              teams with a strong fan base.
            k.         NOTE:        Joint Ventures - less often held to be violations b/c they attempt
                                  to achieve efficiency rather than price-fixing.

             o Jury Instructions: Price-Fixing
        Concerted Refusals to Deal

                o Northwest Wholesale Stationers v. Pacific Stationary (1985)
                Boycotts--Not a per se violation of § 1 must use ROR
NWS is a co-op wholesaler of 100 retailers.
                    Members and non-members can buy at the same price, but profits are divided
                                                                                                          11

                       annually among the members in the form of a % rebate on purchases ( -> lower
                       price). Π was a member, and both a wholesaler & retailer with bigger sales than the
                       rest of the NWS members combined). When Π changed ownership
                       w/o notifying NWS, NWS voted to expel Π w/o notice or hearing.
                       a.          Price discrimination is OK via Robinson-Patman Act §4.
                       b.          Procedural protections do not save a per se violation (and vice versa).
                       c.          But group boycotts not always per se - not always a likelihood of
                       d.          NWS was designed to foster competition & increase efficiency à la BMI
                                   i.          allows for economies of scale in purchasing and warehousing
                                   ii.         ensures a ready access to goods that would not otherwise be
                                               available on short-term notice.
                       iii.        enables small retailers to compete (lower prices, greater stock)
                       e.          Expulsion is not likely to have predom. A-C tendencies, but remanded.
                       f.          However, if on remand malicious or anti-competitive motivation is
                                   found, Π might win under the Rule of Reason.

                o FTC v. Indiana Fed’n of Dentists (1986)
Dentists in 3 Indiana towns pursued a
                        concerted policy of resisting insurers requests for X-rays ( used to review
                        claims). Dentists view review of their diagnoses as a threat to professional
                        independence and economic well-being. FTC sues under Clayton Act §5.

                       a.          Not per se - usually where firms w/market power boycott suppliers or
                                   customers to prevent them from dealing with a competitor (Klor's).
                       b.          Rule of Reason applies because Δ is a professional assoc. and the
                                   economic impact of the combination is not immediately apparent.
                       i.          the policy is a horizontal agreement to withhold a desired service
                       ii.         market inefficiency is the assumed result absent a countervailing
                                   pro-competitive virtue
                       c.          Absence of market power does not justify a naked restriction - proof of
                                   actual detrimental effects obviates the need for an inquiry as to market
                                   power.
                       d.          Dentists cannot pre-empt the market by deciding for itself that
                                   customers don't need what they demand.
                       e.          Sherman Act protects unrestrained access to inf. to customers -
                                   regardless of whether it is in reality dangerous or irrelevant.
                       f.          No evidence to make a quality of care argument.
                       g.          Policy makes it more costly for insurers and patients to obtain the
                                   desired inf. -> market inefficiency.
                       h.          NOTE: similar to Professional Engineers - quality of professional
                                   services argument does not outweigh resulting market inefficiencies.
                       If the group appears to be attempting to do a good thing -> rule of reason.


                o Horizontal versus Vertical Boycotts

                o Jury instructions Horizontal Boycotts


                o Re affirmation of Per Se Rules
                    Arizona v. Maricopa County Medical Soc. 1982
competing doctors set maximum fees when claiming payment for services provided to the insured. Doctors
comprise 70% of those in Maricopa County.
                      a.        Per se violation: agreement that has the purpose and effect of raising,
                                                                                                            12

                                   depressing, fixing, pegging or stabilizing prices.
                       b.          Contract may provide rewards regardless of skill, experience, etc.
                       c.               "        may discourage entry into the market.
                       d.               "        may deter experimentation and new developments.
                       e.               "        may be a masquerade for price-fixing.
                       f.          Anti-competitive potential is enough.
                       g.          Reasons for per se:
                                   i.         economic prediction
                                   ii.        judicial convenience
                                   iii.       business certainty
                                   iv.        role of Congress to regulate
                       h.          Pro-competitive justifications unlikely to be significant - no Learned
                                   Professions Exception.
                       i.          In BMI the artists were not in competition (unique product).
                       j.          Maximum price translates into a price fixed at that level.



                           FTC v. Suprior Ct. Trial Lawyers Ass’n. 1990
Lawyers refused to defend indigent criminal clients in D.C. until their compensation was increased and
began a   publicity campaign. in crisis, the District met their demands.
                      a.         The strike was a constriction of supply -> price-fixing.
                      b.         Social justifications are N.A. (Prof. Engineers).
                      c.         Noerr N.A. because the boycott was A-C, not the intended consequence
                                 of the political action (Indian Head).
                      d.         Boycott in Claiborne sought no competitive or economic advantage for
                                 the boycotters - unlike this case.
                      e.         Economic boycotts generally do not have an expressive component.

                           Klor’s
Local appliance retailer alleges that Δ (large chain retailer) and other
appliance mfrs. and retailers engaged in a concerted effort not to deal fairly with Klor's (higher prices and
unfavorable terms).
                       a.           A combination vs. a single retailer IS a §1 violation because the nature of
                                    the restraint cripples the freedom:
                                    i.          of Klor's to buy in an open, competitive market
                                    ii.         of the mfrs. to sell in an open competitive market
                       b.           Interferes with the natural flow of interstate commerce and has a
                                    monopolistic tendency.
                       c.           No justifications are acceptable - per se violation.
                       d.           Slippery slope - knock off Klor's, who's next?
                       e.           NOTE: Perhaps this should've been a Rule of Reason case - maybe there
                                    was a reason for boycotting Klor's (plus, no effect on competition b/c
                                    Klor's was a small retailer).

                    Palmer v. BRG of Georgia Inc. 1990
                    Horizontal Restraints and the ―Quick Look‖
                o Lower Court (Re?) Interpretations
                    Polk Bros. v. Forest City Enterprises 1985
                                                                                                           13


    Chapter 3                                    Collusion Issues
     Applicability of the Sherman Act
            o Commercial Vs. Non-Commercial Activities
                  United States v. Brown University 1993
                  DELTA Rescue v. the Humane Society 1995
     Proving the Existence of Conspiracies
            o The Limits of Circumstantial Evidence
                  Matsushita Electric Industr. Co. V. Zenith Radio Corp 1986
Japanese TV mfrs. were not conspiring to sell at overly low prices b/c such a conspiracy would make no
economic sense & there is no addtl. evidence of conspiracy.
                     a.          Conspiracy charges must make economic sense; and
                     b.          The evidence must establish non-independent action.

                     Reynolds Chevrolet Discussion Problem
              o The Extent of Conspiracies
                     Single v. Multiple Conspiracy Characterizations
                           U. S. v. Beacher Construction 1984
                           Sargent v. U. S. 1986
                     Why the number of Conspirators Matters in a Civil Case
                           Weak strength Case
                           Moderate strength Case
        Conspiracy to Monopolize
              o Virginia Vermiculite Ltd. V. W.R. Grace & Co. 2000
        Legally and Economically Ambiguous Practices
              o Agreements to Exchange Information
                     Classic Cases on Info Exchange
                           American Column & Lumber v. U.S. 1921
365 lumber companies (33%) formed a trade
                    assoc. with an Open Competition Plan. It was a clearinghouse for inf. on
                    prices, stats and practices. Monthly meetings involved discussions of past and
                    future production and current and future prices.
                    a.           No express agreement, but implied (tacit) concerted action.
                    b.           Purpose and effect was the suppression of competition through lower
                                 output which led to huge price increases.
                    c.           NOT competitive conduct and clearly an agreement in restraint of trade.
                    d.           "Gentleman's agreement" to evade the law.
                    e.           Only sellers were given the reports; stats released to keep everyone in-
                    f.           Dissent: The ideal of commerce is intelligent and informed interchange.
                                 Other industries have inf. clearinghouses.
                    g.           NOTE: Full-knowledge is efficient if everyone has access to the inf.

                                   Maple Flooring Mfrs. Assn v. U. S. 1925
- Flooring industry clearinghouse on costs, freight
                       rates and stats (individual buyers & sellers not identified) for the purpose of
                       cooperative advertising and standardization; with frequent meetings.
                       a.          No proof of adverse effects on prices or of price-fixing.
                       b.          Sellers, buyers and the government had the same inf.
                       c.          No price agreement or discussion of future prices.
                       d.          Dissemination, fairly & openly, of industry inf. w/o any attempted at
                                   concerted action is OK under the Sherman Act.
                                                                                                          14




                                   U. S. v. Container Corp of America 1969
Δ's (90% in SE) requested current price inf. from competitors, expecting to do the same for them. Effect
has been downward stabilization with an increase in new market entry. *Market: few sellers, fungible
product, inelastic demand, sole competition is price.
                       a.         Exchange of current price data -> greater price uniformity =
                                  interference with market price-setting (per se unlawful).
                       b.         Inferences irresistible that exchanges had an A-C effect given
                                  oligopolistic market structure.
                       c.         Concur: Not per se unlawful b/c no material interference in restraint of
                                  trade, but inf. exchange did limit price competition.
                       d.         Dissent:
                                  i.           insufficient danger of unreasonable restraint of trade.
                       ii.        price changes only allocate market share - no change in market
                                               power given market structure (see * above).
                                  iii.         industry is insufficiently Oloigopolistic (no one has too much
                                               market power).
                                  iv.          inf. exchange has an uncertain effect.
                       e.         NOTE: Would prices and profits have dropped faster absent the assoc.?

                            U. S. v. Gypsum 1978
                       Recent Information Exchange Cases
                            The Five Smiths Inc. V. NFL Players Assn 1992
                            In Re Petroleum Products AntiTrust Litigation 1998
              o Oligopolistic Interaction and Facilitating Devices
                     Concious Parallelism and Tacit Agreements
                            City of Tuscaloosa v. Harcos Chemicals 1998
                     Facilitating Devices
                            Facilitating Devices to Strengthen Anticompetitive
                                Agreements
                            Facilitating Devices in Oligopolistic Settings
                                   o Catalono Inc v. Target Sales 1980
        Horizontal vs. Vertical Agreements
              o Toys “R” Us v. FTC 2000

Chapter 4                                     Monopolization

SHERMAN ACT §2 - "Every person who shall monopolize, or attempt to monopolize, or
          combine or conspire with any other person or persons, to monopolize any part
of the trade or commerce among the se6eral States, or with foreign nations, shall be
deemed guilty of a felony...."

        Monopoly Power
MARKET POWER AND DEFINITION
       1.     The firm in a perfectly competitive market has no market power.
       2.     Firm that can affect price has market power.
       3.     Firm that can control price or exclude competition has monopoly power.
       4.     Factors:
              a.         Profit levels (difficult to measure + "lazy monopolist" problem).
                                                                                                          15

                      b.        Market share (not enough by itself because it says nothing about the
                                monopolists ability to cut production or other seller's (including new
                                entrants) ability to make up the lost supply.
                      c.        Buyer responsiveness to sellers change in price (elasticity between
                                sellers and cross-elasticity between products).
           5.         Relevant Market includes:
                      a.        Same or related (substitute) products.
                      b.        Same or related geographic area
                      c.        I.e. firms who have an actual or potential effect on Δ 's market power.

                o Defining the offenses
                    Classic Jurisprudence
                            U.S. v. Aluminum Co. of America 1945
                           ALCOA
Alcoa manufactured & sold aluminum, patented production of virgin
                    aluminum ingot and was the sole US producer of virgin ingot (patent expired
                    36 years before the trial).
                    a.         Alcoa had no competition in the production of virgin ingot = monopoly.
                    b.         Monopolies are illegal even if the monopolist doesn't abuse the power -
                               potential for abuse is great.
                               i.           price-fixing is per se illegal and monopolists fix their own
                               prices
                               ii.          social & economic reasons for disfavoring monopolies

                      c.          Usually, an illegal monopoly requires a showing of intent or active
                                  combination (not be natural force or accident).
                      d.          Alcoa's size = monopoly -> potential for abuse + utilization of size for
                                  abuse; Alcoa was not a passive beneficiary of a monopoly given
                                  persistent determination to retain control.
                                  i. nothing compelled Alcoa to redouble its capacity before others could
                                     enter the field.
                                  ii.           i.e. aggressive expansion
                      e.          Intent to bring about forbidden act is enough (power & intent to
                                  monopolize) - Alcoa meant to and did keep its market.
                      f.          NOTE: Monopoly requires: 1) monopoly share; 2) intent/conduct to
                                  monopolize.

                    Economics: The Dominant Firm Model
                o Sources of the Monopoly Power : Relevant Markets
                    U.S. v. Grinnell Corp. 1966
                    Blue Cross & Blue Sheild of Wisc. v. Marshfeild Clinic 1995
                    Price behavior of demand and supply substitutes
                    American Key Corp v. Cole National Corp 1985

       Exclusionary Conduct
             o Exclusionary Contracts
                   U.S. v. United Shoe Machinery Corp. 1953
United States Shoe - USS supplies 75-85% of the show machinery market with a
                      full line of high-quality machinery. USS does not sell the machines, but leases
                      them at terms that limit competition - although the prices were fair and
                      uniform.
                      a.           The leases create a barrier to entry:
                                   i.          10 year term discourages disposal and acquisition of a
                                                                                                   16

                                       competitors machine
                          ii.          more favorable terms are granted if a replacement is a USS
                                       machine
                          iii.         free repair (otherwise difficult to find)
              iv.         discriminatory pricing between machine types (higher cost for
                                       machines on which USS has a monopoly).
              b.          §2 is violated if Δ has acquired or maintained a power to exclude others
                          as a result of using a §1 unreasonable restraint of trade.
              c.          Alcoa defenses (business acumen, economies of scale, research, natural
                          advantage, adaptation to economic laws) are not applicable here.
              d.          Reasons for finding violation:
                          i.           leases assure frequent contact with USS & lead to price
                                       discrimination
                          ii.          barrier erected by USS' business policies
                          iii.         practices are honest and n/t immoral, but further dominance
                          iv.          USS had vast market capacity
              e.          Remedies:
                          i.           eliminate restrictive ,ease terms
                          ii.          offer all leasable machines for sale (create 2nd hand market)
                          iii.         make sales terms more advantageous to customers
              f.          NOTE: Monopolization = clear market control causing a restraint on
                          competition whether or not intended and without any applicable
                          exception (once monopoly power is established, according to the Judge,
                          the burden shifts to the Δ to prove an Alcoa defense).

      o Essential Facilities
          Florida Fuels v. Krueder Oil Co. 1989
          ( Latest word on essential Facilities.)

Π alleges Δ violated §2 Sherman under predatory pricing theory and denied access to an essential
facility. The court found insufficient evidence to suggest that Δ possessed essential facilities. The
Court did not grant competitors use of competitors facility.

Π wanted to use Δ‘s bunker site.                       Market= S. Fl. Port Fueling for ships
Π has the burden of proof in showing that there is in fact an essential facility in question under the
standards:
1) Monopolist controls the essential facility
2) Competitor is unable to duplicate facility economically
3) Denial of access to Facility
4) Feasibility of providing a facility.

Under this analysis
(The court could have ended its analysis if it determined that the Δ was not a monopolist due to Fl.
Fuels entry into the market and substantial market share.)
Belcher controls facility and showed it has the ability to raise price.
No showing that P undercut MC.
FL. Fuels gathered Mkt. share v. easily after entry.
As far as denial of access, No specific proposal denied.
Belcher leased to another firm( if efficiency declines then do not need to limit behavior.
It was shown, Land was available to use and Fl. Fuels could have recovered loss. (the cost
structure of the substitute does not have to mimic the cost structure of the alleged essential
facility.)

Where there is a natural monopoly there is a constantly declining average total cost and is most
efficient therefore legal.
                                                                                                         17

        There is no natural monopoly here.
        The Π no studies t show cost of new facility.
        This case similar to Terminal RR, Radiant Burners, Assoc. Press, and MCI

              US v. Terminal RR 1912
        Switching Yard in Kansas City was an Essential Facility B/c only place to efficiently connect RR.
        Natioally important industry. Court required Δ to grant access at a reasonable Price.

        Radiant Burners
        Δ began to restrict access to certification.
        1) Controlled by an oligopoly
        2) Not economically infeasible
        3) used procedure to deny Access

        Associated Press 1945

        Even when a facility is not ―essential‖ a firm‘s blocking access to it can violate the Sherman Act.
        Held as an essential facility.
        Π said membership essential to compete.
         Argument for the Δ which justifies an exclusion a 2nd membership in one town may decrease the
        ability to provide news because of a creation of a ―free rider problem‖ (depending on other paper
        to provide the news) and a decrease in competition.

        Now there is a great deal of competition because reporters are more independent more of a free
        agent system instead of being affiliated with a single paper.

Associated Press - AP (1200 member newspapers) distributes news from itself and its members to its
members. A member:* may block the entry of a competing paper to AP* must and can only supply AP
with the news they generate
                      a.       By-laws constitute restraints of trade even absent a present monopoly.
                      i.       sale of interstate news to non-members is restrained by the by-laws
                               ii.          combination to pool power to acquire, purchase and dispense
                                            news in restraint of competition
                               iii.         works a competitive disadvantage to all non-AP newspapers
                               iv.          creates a strong barrier to entry
                      b.       AP, in effect, regulates interstate commerce in news.
                      c.       Per se violation of §1
                      d.       NOTE: arrangement would be beneficial if it didn't bar access.

               o Predatory Conduct
                    Predatory Pricing
                         Currently: Shift away from finding predatory pricing (juries tend to construe v.
                          competitive behavior as predatory)
                       INTENT IRRELEVANT
                       Elements that must be shown are 1) PRICE BELOW COST 2) PROFIT
                          RECOUPMENT
                      1) Price below cost
                       Not necessarily indicative of predatory behavior
                       May have good reason to price below cost –drop price to meet competition
                          (decrease in demand, excess inventory, attempt to gain market share)
                       Want to use MC/ incremental cost –v. hard to determine may use ATC or AVC
                          both of these are not a true measure of cost because fail to account for the
                          strategic allocation of overhead ( should also include a factor of reasonable
                          return)
                       If Price > Cost, Ct. will never deter the conduct.
                                                                                                 18

              Price < Cost will examine if predatory pricing
             2) Recoupment
             Must show increase in price following strategy
             does not necessarily show predatory conduct.
             Cts. Also look @ Mkt. conditions and the Δ ‗s ability to increase and maintain
             market share.
             Entry barriers, profitably of lost profits now and monopoly overcharge later.
             Can also be accomplished through an oligopoly or cartel
             3) Shift burden under what circumstance take away from jury
             summary judgement if Δ moves for summary judgment Π must show mkt conditions
             exist for Δ to engage in conduct . (difficult burden to meet b/c Court does not want to
             overdeterr competitive conduct.)
                          A. A. Poultry Farms, Inc v. Rose Acre Farms 1989
                      Did Rose Acre engage in predatory pricing under § 2 Sherman Act
                      and § 2 (a) of the Clayton Act through concessionary sales? NO
                      Judgment nws the verdict
                      § 2 Sherman Act: 1) Price<Cost? (Cost estimating v. difficult)
                                           2) Δ‘s intent? (Inferred from price-cost data)
                                           3) ―high price later‖ possible and profitable/
                                           Likelihood of profit recoupment?
                                                    * Most often used
        Intent plays no useful role in this kind of litigation.
        Risk penalizing the motive forces of competition. Price being unrelated to cost
indicates firm is a Price Taker. In perfect competition firms must sell at the going price
no matter what their costs are. Monopolists set P by reference to their costs. (MC=MR)
                           Rose Acre could not have recouped a predatory investment in the egg
business. Concentration is low and the product is fungible and low barriers to entry exist. Due to a
continual decrease in market concentration persistent mkt. entry and other firms expansion. An
expanding rirm in a stagnant market inevitably puts downward pressure on prices. V. aggressively
Competitive market. Π Market share increasing @ same rate. Π may use case as a competitive tool

                  Robinson-Patman Act—makes it unlawful ―to discriminate in price between
                  different purchasers of commodities of like grade and quality‖ unless certain
                  exclusions and defenses apply, ―where the effect of such discrimination may be
                  substantially to lessen competition or tend to create a monopoly.‖
                          Proving predatory pricing
                          Brooke Group Ltd. v. Brown & Williamson Tobacco Corp
                           1993

                      Δ alleged that volume rebates to wholesalers amounted to price
                      discrimination that had a reasonable probability of injuring
                      competition under § 2 (a). and pressure Π to raise its generic prices
                      though a process of tacit collusion w/ the other companies.

                      No inference of recoupment. No relation between B&W‘s output Increase
                      and segment increase.
                      No evidence to support a finding that B&W scheme would result in
                      oligopolistic price coordination and sustain supracompetitive pricing in the
                      generic segment of the national cigarette market.
                      No reasonable prospect or recouping its predatory losses therefore could
                      not inflict the injury to competion that antitrust laws prohibit.

                 Theories of Predatory Behavior
                                                                              19


           Strategic Theories of Price and Non- Price Predation
o Attempted Monopolization

         Abcor v. AM International 1990
     Abcor Alleged that AMI had an illegal scheme to drive Abcor out of
     business, but failed to show evidence to support a finding on each essential
     element of their case.
     The Π must establish attempted Monopolization under § 2 of the Sherman
     Act by showing 3 things.
     1) The Δ formed a specific intent to monopolize the market
              Direct evidence
              Inference by showing anticompetitive practices
     2) The Δ engaged in anticompetitive or Predatory conduct designed to
         further that intent ( + AntiTrust Injury)
     3) A dangerous probability of success

     The practical relevance of specific intent
o Price Squeezes
            1) A firm must operate at 2 levels of industry and competitors
                at level are also its customers
            2) When the integrated firm‘s price at the first level is too
                high or its price at the second level is too low for the
                independent to cover its cost and stay in business.
     Violates Sherman Act § 2 when
    1) The firm has monopoly power at 1st industry level
    2) The price at 1st level is higher than a ―fair price‖
    3) Its price at the 2nd level is so low that its competitors cannot match
        the price and make a ―living Profit‖


        Town of Concord v. Boston Edison Co             1990
     Does a price squeeze violate antitrust laws when it takes place in a fully
     regulated industry? Δ alleged Wholesale price increases in the absence of
     corresponding retail price increases amounted to unlawful monopolization a
     violation of § 2.
     Π must show Δ had (1) Monopoly power and (2) Acquired or maintained that
     power thru exclusionary conduct.

     Exclusionary conduct—other than competition on the merits or restraints
     reasonably necessary to competition on the merits that reasonably appears
     capable of making a significant contribution to creating or maintaining
     monopoly power.

     Effective price regulation at both the 1st and 2nd industry levels makes it
     unlikely that requesting such rates will ordinarily create a serious risk of
     significant anticompetitive harm.

     Δ‘s market share only 12%.
                                                                                                        20

                      Π failed to show unlawful exclusionary practice and that Δ possessed
                      monopoly power.


       Noncollusive, Nonmonopolizing, Noncompetitive Conduct
             E. I . Du Pont De Nemours & Co. v. FTC 1984
             {Ethyl Case}
       Review Exercises
             o The § 2 Portions of the Virginia Vermiculite Case
             o Sample Jury Instructions on Monopolization
             o The Microsoft Litigation: Monopolization
                     U. S. v. Microsoft
                     Interaction Among Applications, API‘s , OS, and Hardware

Chapter 5                          VERTICAL RESTRAINTS
Intro

Competitive Threats vs. Competitive Opportunities
   Anticompetitive Concerns
  
            o Dr. Miles Medical v. John D Park & Sons 1911
Dr. Miles Medical –Resale Price Maintence
Miles manufactured medicine (secret Rx) & contracted with
                     wholesalers to fix minimum retail prices (for vendees & consumers). Δ is a
                     wholesaler who refused to contract & has procured the medicine at cut prices.
                     a.         Secrecy of process is irrelevant - concern is with the manufactured
                                product as an article of commerce.
                     b.         Monopoly of production = monopoly of trade.
                     c.         General restraints upon the alienation of property are ordinarily invalid,
                                but are okay if:
                                i.           reasonable with respect to the public and the parties
                                ii.         limited to what is fairly necessary, in the circumstances, for
                                            the protection of the covenantee.
                     d.         Π seeks to retain control of article, even after title is passed.
                     e.         Π's contracts would benefit the dealers in the same way that a
                                horizontal combination among the dealers would.
                     f.         Public is entitled to whatever advantage may be derived by post-sale
                                competition and minimum resale price maintenance is per se illegal.
                     g.         Dissent: free riders selling at cut prices may destroy production & sale of
                                the article; there is enough interbrand competition - no reason to worry
                                about intrabrand competition.

Resale Price Maintenance, Generally
                     a.         Normally, it is in the interest of mfrs. to have strong intrabrand
                                competition to keep demand high and prices low.
                     b.         Although mfr. may be able to integrate vertically, restrictions on non-
                                integrated vertical distribution may be illegal.
                     c.         Why would a mfr. want RPM?
                                i.          He is coerced by more powerful dealers
                                ii.         He fears free riders (mfrs. want dealers to provide customer
                                                                                                            21

                                    service so they enforce resale price minimums to ensure that the dealers
                                    make enough to provide the services - some dealers may not provide the
                                    services, but keep the profits).
                               iii. NOTE: perhaps a solution would be exclusive geographic dealers
                   Colgate
Colgate – Δ announced a suggested retail price (SRP), but retailer could
                     disregard. Δ might then choose to refuse to deal further with the retailer.
                     a.          SRP and refusal to deal was OK because there was no agreement
                                 obligating a certain resale price.
                     b.          NOTE: What about the coercive aspect of the situation?


               o Albrecht v. Herald Co. 1968
Albrecht - A was exclusive newspaper distributor in City & insisted on charging
                      > suggested retail price. Court held that maximum price-fixing is, in effect,
                      equal to minimum price-fixing b/c all dealers will sell at the maximum.

               o Pashall v. Kansas City Star 1984
               o State v. Khan 1997 ****Latest Word from S. Ct.




        Accommodating Efficiencies: Relaxed Rule for Non-price restraints
             o Continental T.V. v. GTE Sylvania 1977
GTE Sylvania - Sylvania, due to decreasing market share, began phasing out
                      wholesale distributors and began selling its TV's directly to a small group of
                      retailers. The franchises were permitted to sell only at designated locations. Π
attempted to expand into an area forbidden by Sylvania and was terminated.
                      a.           Rule of Reason should be used to govern all nonprice vertical
                      b.           Some NPVR's may foster interbrand competition and thereby have
                                   redeeming pro-competitive virtues.
                      c.           The burden is on the plaintiff to prove unreasonableness.
                      d.           Factors to be considered:
                                   i.          degree of interbrand competition
                                   ii.         market power of manufacturer
                                   iii.        whether mfr. is a new entrant or a failing company
                                   iv.         power of dealers (cartel)
                      e.           NOTE: RPM & exclusive territories - retailer will sell at higher price
                                   without intrabrand competition, but only where the product has little
                                   interbrand competition.

              o U.S. v. Visa USA 2001
              o St Martin v. KFC 1996
        Applying the rules PER SE vs. Rule of Reason
              o Price Agreements
                                                                                                              22


                           Monsanto v. Spray-Rite 1984 - Retailers of agricultural herbicides
                          complained to the mfr. about another's price-cutting. Mfr. terminated the
                          defector and refused to deal.
                       a.        There was a price-fixing agreement/concerted action -> per se.
                       b.        Conscious commitment to a common scheme designed to achieve an
                                 unlawful objective.
                       c.        Mere retailer complaints followed by termination is insufficient though.

                o Business Electronics v. Sharp Electronics 1988

Business Electronics - Agreement between business calculator mfr. and retai,er
                       to terminate another retailer for price-cutting.
                       a.          Such an agreement is not illegal per se unless it includes a specific
                                   agreement on prices to be charged - Rule of Reason.
                       b.          No violation so long as no effect on interbrand competition.
                       c.          Dissent: retailer coerced mfr. - not an RPM program - per se; agreement
                                  did deal with price & was a naked restraint

                o Sportmart v. No Fear 1996

        Other Restraints
             o O.S.C. Corp. v. Apple Computer 1985
             o Murrow Furniture v. Thomasville Furniture 1989


    Chapter 6                        TYING AND EXCLUSIVE DEALING

  The Clayton Act
o Tie in Sales
  Traditional Cases
     o International Salt v. US 1947
International Salt - Δ sought to tie the sale of salt to the purchase of its patented
                        machine for processing salt. Δ was the largest US producer of salt.
                        a.           It is a per se unreasonable restraint of trade to foreclose competitors
                                     from a substantial market (salt).
                        b.           Ability to buy from others if their price is lower is no concession due to
                                     Δ's market power.
                        c.           It is OK to specify salt purity for machines - that is not barring
                                     competitors form the market.
                        d.           Monopoly power or dominance in the tying product market is evidence
                                     of market power.
                        e.           NOTE: Possible reasons why IS wanted to tie - increase share of salt
                                     market or recoup R&D cost of machines while selling a lot of them.

       o Siegel v. Chicken Delight       1971
       o Sources of Mkt pwr. Under Clayton § 3
    Recent Tying Cases
       o Jefferson Parish Hospital v. Hyde     1984
Noninjurious Ties
a.          Jefferson Parish Hospital - Hospital contracted with Roux & Associates to provide all of the
hospitals anesthesiology services. Π was an anesthesiologist who couldn't get hired at the hospital. JPH had
30% of a hospital market with 20 hospitals.
                                                                                                  23

                           i.         Per se violation when:
                                      a.          substantial potential for impact on competition
                                     b.           anticompetitive forcing is likely (exploitation of
                                     control {market power (>30&) or unique product} over tying
                                     product.
                             ii.      Focus is on the market - there must be 2 distinguishable
                             product markets.
                           iii.       Here, anesthesia and hospital services are distinguishable but
                                      there is no market for anesthesia without the hospital service
                                      market.
                           iv.        Patients and doctors are free to use the services of another
                                      hospital - no forced choice/A-C effect.
                           v.         Concur: Rule of Reason approach is proper; the TEST:
                           a.         power in the tying product market (hospital has some)
                           b.         substantial threat of acquisition of power in the tied
                                                  product market (possibly)
                           c.         coherent economic basis for treating the tying and tied
                                      products as distinct (no sound reason to treat anesthesia
                                                  and surgery separately - patients are benefited)
                                      d.          Then, balance the economic harms and benefits
                  vi.      NOTE: Isn't this really an exclusive dealing case? Couldn't the
                                      hospital just put the doctors on staff (vertical integr



       o Town Sound and Custom Tops v. Chrysler Motors                   1992
       o Eastman Kodakv. Inage Tech Serv.    1992
       o U S. v. Microsoft

Exclusive Dealing
   o Traditional Approach
          o Standard Oil v. US [“Standard Stations”}1949
   o Recent Approach
          o Tampa Electric v. Nashville Coal 1961
          o Poland Machinery v. Dresser Industries 1985
          o Parikh v. Franklin Medical Center 1996
          o The Elzinga-Hogarty Test




Chapter 7                       MERGERS AND ACQUISITIONS

    o Classic Merger Cases
           o US v. Von’s Grocery 1966
** §7 Violation
Celler Kefarver ---Preserve small Business---Fight elimination of opportunity for small
co.
Efficiency concern—out of place today (Walmart very efficient for consumers)
                                                                                    24


Court uses Merger Guidelines
Def of market LA Grocers (concern w/ demand side
HHI det concentration of market
1800 benchmark for level of concentration
concerns: increase in concentration creates a tendancy (opportunity) toward market
collusion and Oloigopolistic pricing ( which is not in itself illegal)
Mergers evaluated by
Definition of market
Concentration
# of competitors
Social Values
Incipiency Doctrine ---Want to remedy Now
Decline in # of competitiors not necessarily lessened competition
We may condemn under § 1 but not mergers: b/c not same anticomp effect. Mergers are
very costly and firms would not merge unless they gained efficiency.
Agreements and Collusion are not costly.

       Phil Nat Bank
Merger ENJOINED –violation
MKT VERY Concentrated.

          o FTC v. Proctor & Gamble 1967
          Found Violation of § 7 Clayton Act
           Bleach Case—Market Concentrated
          Merger would make the oligopoly more rigid
          P&G was a potential entrant and could have entered the market themselves
          due to low barriers to entry .
          Clorox had a name and recognition.
          HH bleach has no subst. but court did not examine ease of entry of industrial
          suppliers.

          o Williamson Analysis
          o The Potential Competition doctorine
          o US v. General Dynamics 1974
   Coal Mine Acquisition OK------NO Violation of § 7 Clayton
   b/c used failing firm defense---Co. could fail w/o merger.


   o Public Agency Enforcement Policies

          o Modern Enforcement hypothetical :
                Merger of Polymer productions and Atlantis Records
          o The Merger Guidelines
                Flowchart of merger Analysis Under DOJ/ FTC
                The importance of market definition
                Merger Guidelines in the Courts
                                                                                                          25


         o Pre Merger Notification
    o Modern Merger Cases
         o Public Enforcement the FTC and the DOJ
                  Hospital Corp of Am. v. FTC 1986 POSNER
      Violation of § 7 Clayton Act
      Substantial Evidence Standard
                  HCA owned or operated 5/11 hospitals
                  Management control is Significant b/c facilitates collusion through control.
                  The market definition Chattanooga Hospitals
                  It is reasonable to limit here b/c unlikely to commute
                  V. Concentrated market
                  Merger reduced # of Competitors from 11 to 7
                  HCA control ^ from 14 to 26%
                  Ease of entry: CERTIFICATE OF NEED from state to expand creates ^ barrier to entry&
                  serves as a notice to other competitors.Therefore regulation in itself is an Anticompetitive
                  effect.
                  Demand inelastic?
                  Tradition of Cooperation b/t firms existence of mgt Contract—used to serve demand but
                  may as well have facilitated collusion & Hospital under pressure from fed & ins. co. to
                  cut cost.
                  HCA‘s Rejected arguments :             products are heterogeneous
                                                         Not for profit H different
                                                         Political pressure—to cut cost might inhibit
                                                         competion and tech change
                                                         Concentration on buying side of market
                                                         Concentration of purchasers
                                                         Concentration of suppliers
                                                         Complaint came from a competitior
                                                         Ins co . raise prices
In merger cases the concern is with the risk of future collusion, if the market is more concentrated,
collusion is much more likely




                     US v. Thompson Complaint
             o Anti Merger Suits by Private Parties.
                     Santa Cruz Medical v. Dominican Santa Cruz Hospital 1995
         § 7 VIOLATION
         Product Market defined as clusters of services
         Π says general acute care impatient services
         Δ says inpatient outpatient and Long term Care
         The Market definition is factual not legal
         Here there is a lack of imperical evidence on what services to include in the
         market.
         The Geographic market may be defined by Zip Codes
         Elizinga Hogarty test was used here
         [Cellophane Fallacy—defining a market too broadly
         Look to cross elasticity of demand—price elasticity toward substitutes if sub. @
         Competitive market prices.
                                                                                                        26


        If P> MC –elastic portion of demand and substitutes reduce market share
        therefore market definition incomplete & market needs to be defined more
        broadly]
        Merger Analysis is forward looking so must use concentration ratio HHI.
        The Cellophane Fallacy/ Cross Elasticity of demand is not for merger cases[only
        § 2] b/c no P have been fixed.

General Nature of Antitrust cases
--Lawyers not skilled @ econ therefore courts rely on experts whose reasoning may
contain fallacies
--NO small Task--definition of mkt etc. V. costly & V. dependant on experts
documents etc.
--Trends:      ↓in private actions ↑econ efficiency analysis.


CHAPTER 8               SPECIAL RULES OF ANTITRUST
   Who can Sue Standing and Antitrust Injury
      o Illinois Brick v. Illinois 1977
      o Potential ―Incidence‖ of Brick Overcharge
      o Cargill Inc v. Monfort of Colorado 1986
      o -----------ARCO -------------Atlantic Richfeild v. USA Petroleun 1990
Atlantic Richfield - ARCO is an integrated oil company that markets gas
                       through its own stations & through ARCO brand dealers. USA sells discount gas
                       and contends that ARCO has engaged in an RPM agreement that fixes low &
                       uncompetitive price levels via a maximum price-fixing scheme.
                       a.          Vertical maximum price-fixing is per se unlawful b/c of its potential
                                   effects on dealers & consumers - not b/c of its effect on competitors.
                       b.          USA benefited by the scheme:
                                   i.           if the RPM agreement restricted ARCO sales to a few dealers
or
                                                prevented ARCO dealers from offering services
                                   ii.          or even if the scheme set minimum prices, b/c ARCO's higher
                                                prices would've helped USA.
                       c.          Although the agreement is illegal, USA has suffered no antitrust injury
                                   b/c its losses do not flow from RPM and their is no predation.
                                     * competitor only motivated to sue when RPM has pro-competitive
                                   effects.
                    d.    Lower prices (but > predatory) = essence of competition
         o Todorov v. DHC Healthcare 1991
     State Action and Immunity: Parker and its progeny
         o Parker v. Brown 1943
         o Todorov v. DHC Healthcare 1991
         o Hertz v. City of New York 1993
     Petitioning Immunity and its Implications
         o Eastern RR Presidents Conference v. Noerr Motor Freight 1961
         o City of Columbia v. Omni Outdoor Advertising 1991
         o Professional Real Estate Investors v. Columbia Pictures 1993
     Jurisdiction
         o Domestic Jurisdiction----INTERSTATE COMMERCE
                                                                27


      Summit Health Ltd v. Pinhas 1991
o Foreign Jurisdiction
      The development of Extraterritorial Antitrust Doctrine
             Subject Matter Jurisdiction
                    o Filetech SARL v. France Telecom 2001

               The Doctrine of International Comity
                   o Filetech SARL v. France Telecom 1997

								
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