G604 IO II
Eric Rasmusen, erasmuse@indiana.edu
27 April 2006
ANTITRUST
1
Readings


Antitrust Law.
"Statutory Provisions and Guidelines of the Antitrust Division,"
3rd edition (April 2001)
Microsoft case: "Conclusions of Law," United States District Court
for the District of Columbia, Civil action 98-1232
Lawrence White (1999) "Present at the Beginning of a New Era
for Antitrust: Reflections on 1982-1983,"March 16, 1999.
http://papers.ssrn.com/paper.taf?abstract_id=167208
Powerpoint lecture slides

2
The common law
Sherman Act (1890)
Clayton Act (1914)
§ 1 Sherman Act, 15 U.S.C. § 1
Trusts, etc., in restraint of trade illegal; penalty
Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations, is declared to be
illegal. Every person who shall make any contract or engage
in any combination or conspiracy hereby declared to be
illegal shall be deemed guilty of a felony, and, on conviction
thereof, shall be punished by fine not exceeding $10,000,000
if a corporation, or, if any other person, $350,000, or by
imprisonment not exceeding three years, or by both said
punishments, in the discretion of the court.
3
§ 2 Sherman Act, 15 U.S.C. § 2
Monopolizing trade a felony; penalty
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 several
States, or with foreign nations,
shall be deemed guilty of a felony, and, on conviction
thereof, shall be punished by fine not exceeding
$10,000,000 if a corporation, or, if any other person,
$350,000, or by imprisonment not exceeding three years, or
by both said punishments, in the discretion of the court.
4
Having a Monopooly Is not Illegal

It all depends on how you get the
monopoly.
5
§ 2 Clayton Act, 15 U.S.C. §§ 132
Discrimination in price, services, or facilities
(a) Price; selection of customers
It shall be unlawful for any person engaged in commerce, in the course of such
commerce, either directly or indirectly,
to discriminate in price between different purchasers of commodities of like grade and
quality,
where either or any of the purchases involved in such discrimination are in commerce,
where such commodities are sold for use, consumption, or resale within the United
States or any Territory thereof or the District of Columbia or any insular possession or
other place under the jurisdiction of the United States,
and where the effect of such discrimination may be substantially to lessen competition or
tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent
competition with any person who either grants or knowingly receives the benefit of such
discrimination, or with customers of either of them: Provided, That nothing
herein contained shall prevent differentials which make only due allowance for
differences in the cost of manufacture, sale, or delivery resulting from the differing
methods or quantities in which such commodities are to such purchasers sold or
delivered:
6
§ 2 Clayton Act,
(b) Burden of rebutting prima-facie case of discrimination
Upon proof being made, at any hearing on a complaint under this section, that
there has been discrimination in price or services or facilities furnished, the
burden of rebutting the prima-facie case thus made by showing justification
shall be upon the person charged with a
violation of this section, and unless justification shall be affirmatively shown,
the Commission is authorized to issue an order terminating the discrimination:
Provided, however, That nothing herein contained shall prevent a seller
rebutting the prima-facie case thus made by showing that his lower price or the
furnishing of services or facilities to any purchaser or purchasers was made in
good faith to meet an equally low price of a competitor, or the services or
facilities furnished by a competitor.
7
§ 3 Clayton Act, 15 U.S.C. § 14
Sale, etc., on agreement not to use goods of competitor
It shall be unlawful for any person engaged in commerce, in the course of such
commerce, to lease or make a sale or contract for sale of goods, wares, merchandise,
machinery, supplies, or other commodities, whether patented or unpatented, for use,
consumption, or resale within the United States or any Territory thereof or the District of
Columbia or any insular possession or other place under the jurisdiction of the United
States,
or fix a price charged therefor, or discount from, or rebate upon, such price,
on the condition, agreement, or understanding that the lessee or purchaser thereof shall
not use or deal in the goods, wares, merchandise, machinery, supplies, or other
commodities of a competitor or competitors
of the lessor or seller,
where the effect of such lease, sale, or contract for sale or such condition, agreement,
or understanding may be to substantially lessen competition or tend to create a
monopoly in any line of commerce.
8
§ 4 Clayton Act, 15 U.S.C. § 15
Suits by persons injured
(a) Amount of recovery; prejudgment interest
Except as provided in subsection (b) of this section, any person who shall be injured in
his business or property by reason of anything forbidden in the antitrust laws may sue
therefor in any district court of the United States in the district in which the defendant
resides or is found or has an agent, without respect to the amount in controversy,
and shall recover threefold the damages by him sustained,
and the cost of suit, including a reasonable attorney's fee.
9
§ 6 Clayton Act, 15 U.S.C. § 17 (not in packet)
Antitrust laws not applicable to labor organizations
… Nothing contained in the antitrust laws shall be construed to forbid the existence
and operation of
labor, agricultural, or horticultural organizations,
instituted for the purposes of mutual help,
and not having capital stock or conducted for profit, or to forbid or restrain individual
members of such organizations from lawfully carrying out the legitimate objects
thereof;
nor shall such organizations, or the members thereof, be held or construed to
be illegal combinations or conspiracies in restraint of trade, under the antitrust
laws.
10
§7 Clayton Act, 15 U.S.C. § 18 (not in the packet)
Acquisition by one corporation of stock of another
No person engaged in commerce or in any activity affecting commerce shall acquire,
directly or indirectly, the whole or any part of the stock or other share capital and no
person subject to the jurisdiction of the Federal Trade Commission
shall acquire the whole or any part of the assets
of another person engaged also in commerce or in any activity affecting commerce,
where in any line of commerce or in any activity affecting commerce in any section of
the country, the effect of such acquisition may be substantially to lessen competition,
or to tend to create a monopoly.
11
Why Have Antitrust Laws?
12
Merger Guidelines




1968 Guidelines– no two companies with
5% market share allowed to merge
1982 Guidelines—much more lenient and
rational. They are still in place.
Justice Dept. Antitrust Division; Federal
Trade Commission
“Prosecutorial Discretion”
13
White: 1982 Merger Guidelines
“the appropriate or relevant market for merger analysis should
generally be the smallest group of sellers that, if they coordinated
their actions, could successfully (profitably) exercise market power - e.g., by raising prices by a small but significant amount and
sustaining that higher level for a significant period of time. To be
successful, this effort at collective exercise of market power would
not be thwarted by a sufficient number of buyers switching away to
sellers of substitute products or to sellers of the same product
located elsewhere. In essence, a relevant market is one that can be
successfully monopolized.”
Problem for applying to monopoly or cartel, as opposed to premerger: “the cellophane fallacy”.
Dupont said it had only a small share of flexible wrapping materials
in 1956, with cellophane. But that was because its price was high.
Optimal monopoly pricing: till demand gets elastic enough.
14
More on the Guidelines ...
1. Were the merger partners selling in the same market(s)?
2. What would be the post-merger level of overall seller
concentration in each relevant market, measured in terms of the HerfindahlHirschman Index (HHI)?
. What changes in seller concentration would occur as a consequence of the
merger?
4. How easy is entry?
5. Are there other characteristics of the market -- the nature of the product, the
numbers and types of buyers, the histories and characteristics of the sellers -that would make the post-merger exercise of market power more or less likely?
6. And, in the spirit of Williamson (1968), are there readily identifiable efficiencies
that would arise from the merger that would provide a sufficient offset to any
perceived likelihoods of the exercise of market power.
15
Vertical Restraints
1. Resale Price Maintenance per se illegal in 1980 and now, except
for 1997 exception for max. RPM.
(Maximum, minimum)
Why? Telser (1960) explanation– prevent free riding. Other
explanations? --cartel leader, various.
The Reagan Division stopped bringing RPM cases. Entered amicus
brief for defendant in a civil case. Congress passed a law specially
to stop Justice from arguing in favor of RPM in oral argument in
Monsanto case.
2. Vertical integration, foreclosure
3. Exclusive dealing, foreclosure
4. Tying, foreclosure
16
Frequently Asked Questions
http://www.ftc.gov/bc/compg
uide/question.htm
Q: The gasoline stations in my area have increased their prices the same
amount and at the same time. Is that price-fixing?
Q: Shopping for a stereo loudspeaker made by Sound Corporation, I couldn’t
find a dealer who would sell it for less than the manufacturer’s suggested
retail price. Isn’t that price-fixing?
A: The key is evidence of an agreement. If the manufacturer and a dealer entered into
an agreement on a resale price or minimum price, that would be a price-fixing
violation. The agreement could be formal, through a contract, or informal, when the
dealer’s compliance is coerced.
However, if the manufacturer has established a policy that its dealers should not sell
below a minimum price level, and the dealers have independently decided to follow
that policy, there is no violation.
17
Q: The medication my doctor prescribed for my heart condition
is available from only one manufacturer, and the price is
very high. Is that a monopoly?
Q: My town has given an exclusive franchise to one firm to
provide all trash-collection services. I think I could get a
better price from another hauler. Isn’t the franchise
restraining competition?
A: Although the town’s decision to grant an exclusive franchise
prevents competition in trash collection, it probably is within the
municipal powers granted by the state. If so, the town is immune
from the antitrust laws under the state action doctrine, which says
that the antitrust laws are not meant to apply to the actions of a
state.
18
Q: I own a small jewelry store and the manufacturer of TimeCo brand
watches recently dropped me as a dealer. I’m sure it’s because my
competitors complained that I sell below the suggested retail
price. The explanation was the manufacturer’s policy: its products
should not be sold below the suggested retail price, and dealers
who do not comply are subject to termination. Is it legal for the
manufacturer to dictate my prices?
Q: I own a retail clothing store and the Brand Company refuses to sell
me any of its line of clothes. These clothes are very popular in my
area, so this policy is hurting my business. Isn’t it illegal for Brand
to refuse to sell to me?
A: It could be illegal if the refusal to sell is based on an agreement between
Brand and your competitors.
19
Q: I operate two stores that sell recorded music. My business
is being ruined by giant discount store chains that sell their
products for less than my wholesale cost. I thought there
were laws against price discrimination, but I can’t afford
the legal fees to fight the big corporations. Can you help?
A: Although it appears that the discount chains are receiving their
recorded music products at a lower wholesale price, it may be
because it costs a manufacturer less, on a per-unit basis, to deal
with large volume customers.
Q: I bought a Total Motors car a few years ago, and now, when I need
parts replaced, I have to get them from the TM dealer. They’re
very expensive. Isn’t this illegal monopolization?
20
21
A link to the course website
http://www.rasmusen.org/g604/0.g604.htm
22