ANTITRUST
I. HISTORY OF ANTITRUST:
A. SHERMAN ACT: 1890 stems growth of combinations and
monopolies that were gaining control over bus. in
America.
1. Enacted against the TRUST: form of orgn in which
indl cos pool stock holdings and is ruled by 1
group of people, not competing rather
collaborating. (see this was middle of industrial
revoln where mkts grow b/c of railroad; and
w/factory can produce more--standardization and
mass production; urbanization; communication.)
2. Cong. enacted laws so vague and broad that statute
not understood.
3. SECTION 1: prohibits Contract, Combination or
Conspiracies (CCC) in restraint of trade or
commerce; REQUIRES 2 ACTORS.
4. SECTION 2: prohibits single firm acts;
MONOPOLIZATION
5. AGAINST business combinations that attempt to
stabilize price; control entry; or create new
mkting sys
to serve unique needs
B. b/c Sherman Act hard to understand, too vague and
watering down by cases; enact CLAYTON ACT of 1914
1. Section 3: prohibits TIE INS and EXCLUSIVE DEALINGS
if it lessens competition
2. Section 7: prohibits merger and acquisition that
will lessen competition.
C. concern for small business and PRICE DISCRIM leads to
enactment of ROBINSON-PATMAN ACT in 1936
1. This is an amendment to Clayton Act
2. no person may sell same goods at differ prices to
differ customers where the effect of the discrim
may be substantially to lessen competition in any
line of commerce or injure or prevent compt. w/one
who grants or receives benefits of discrim or
w/their customers.
D. WWII leads to fears of INDUSTRIAL CONCENTRATION; too much
industrial concentration will undermine democracy, thus
1950
CELLER KEFAUVER AMENDMENT
1. amendment to section 7 of the Clayton Act
2. no person will acquire other where one may
substantially lessen competition.
E. 1976 passage of HART SCOTT RODINO ACT
1. amendment to Clayton Act
2. requries pre-merger reporting thus notification is
in a sense a clearing system, gives
govt time to
look
F. With rise of FOREIGN COMPETITION: probems for Amn
business; thus pass:
1
1. EXPORT TRADING ACT: ventures can be approved and if
later found to violate AT law, only pay
compensatory damanges
2. FOREIGN TRADE AT IMPROVEMENTS ACT OF 1982: when
effects not on US consumers; limit US co's
liability but does not apply to acts that only
hurt foreign mkts.
a. This is an amendment to the Sherman Act.
Sherman Act applied to foreign actors afcting
abroad when actors intended to and did affect
US
commerce and the effects were something
more than insubstl.
b. Today, most US cts requrier that foreign
defs. conduct have a direct, substl and
reasonably forseeable effect on US
commerce
and the cts take into
acct the actors'
nationality and
intent to affect US firms.
II. BASIC TERMS:
A. VERTICAL INTEGRATION: raw material-consumer getting raw
mat.-manuf-sale
B. HORIZONTAL INTEGRATION: competitor w/competitor
C. PRIMARY LINE COMP: b/w 2 suppliers
D. SECONDARY LINE COMP: supplier favors 1 buyer
E. NATURAL MONOPOLY: generally utility; occurs when 1 can
better service at lower cost than 2 suppliers.
F. FAIR PRICE: price closely related to cost. Wider
distrib. of eco opportunity and eco powr is yet another
goal.
AT
III. ENFORCEMENT:
A. JUSTICE DEPT -- ANTITRUST DIVISION enforces Sherman and
Clayton both civilly and criminally (only price fixing)
B. FEDERAL TRADE COMMISSION: commisioner approves and issues
complaint then admin law judge; appeal to fed. appel
ct; enforces
FTC Acts and Clayton (only civil)
C. STATE: each w/own AT laws. Since 1980, use a lot; ST ATTY
GENERAL can sue and prove damage amt thru statistics;
can only sue for injunction saying threatening economy
not
damage is that economy worsened.
D. PRIVATE ACTIONS: priv parties can sue and get Treble
damages; also get injunctions; recently STANDING
LIMITED a lot need to have an "ANTITRUST INJURY"-- must
have
been injured by competition itself. Pltfs must
prove
antitrust injury, which is to say injury of the
type
AT laws intended to prevent and flows from that
which
makes defs' acts unlawful--A decrease in compn in the field of commerce in
which the pltf is engaged. (suits limited the case law of what' recoverable)
1. STANDING: in merger only if raise ? of material
fact; in takeover, some cts say absolutely no;
2
others say yes b/c ability to compete is indept.
2. SETTLEMENTS: defs are jt and severally liable and
have no rt to contribution.
IV. GOALS OF ANTITRUST:
A. AT is a subset of COMPETITION POLICY--it is an attempt to
prevent mkt failure.
B. desire free enterprise to flourish -- thus limit the
growth and power by private firms and set rules
protecting integrity of competition system.
C. Today, focus on EFFICIENCY and CONSUMER PROTECTION/choice
D. FAIRNESS: (p145-6)
1. if the def. using POSITION rather than merit to
block competition, then NOT Fair
2. if def. is using POWER to exploit seller or buyer,
t
h
e
n
n
o
t
f
a
i
r
3. if def has CONTROL over access to compet. process,
then not fair.
E. CHICAGO school ask: is it enhancing EFFICIENT? Is it
Pri
ce
rai
sin
g
or
out
put
lim
iti
ng?
INTERVENTIONIST school ask: is it fair? Does it restrain
trade? Is it controlling ECONOMIC CONCENTRATION?
F. TO ANALYZE ILLEGAL PER SE:
1. CORE: is act that seen in one of these cases?
Precedent, then illegal per se. (note: need mkt
3
power, b/c w/o it an agmt to fix prices will lead
consumers to buy elsewhere.)is act so highly
suspect?
G. RULE OF REASON: If not highly suspect, do rule of reason
1. balancing test weighing pro v. anti-competitive
effects.
2. use when competitive effect can only be evaluated by
analyzing the facts peculiar to the business, the
history of the restraint, and the reasons why it
was imposed.
3. No case has ever really wked this rule out.
If act is highly suspect, then peform a RULE OF REASON TEST:
2. CHARACTERIZATION analysis
a. purpose
b. power--greater the power, greater the effect
c. effect--is it price raising, does it go to the
core of price mechanism and interfere w/it?
3. Does this seriously infringe on the market?
a. if it is anti-comp., are there PRO COMPETITIVE
JUSTIFICATIONS? (increase rivalry, pro-effcy,
save cost)
b. Chicago bd of trade arguably had pro-comp
justification of increasing mkt size etc.
(yet this same argumt was not
allowed in
catalano)
1. Ct has interest in PROMOTING COMPETITVE
EQUALITY.
4. Ct may consider OTHER JUSTIFICATIONS
a. this did not happen in profl engineers but did
occur in mit
5. This was the LEAST (or less) RESTRICTIVE
ALTERNATIVE.
6. note: BURDEN on def is a question of degree relating
to the seriousness of the anti-competitive effect.
V. ECONOMICS:
A. FREE MKTS: for mkt econ to wk; must have LG # OF B AND S;
adequate INFO abt alternatives; only goal of bus. is to
MAXIMIZE PROFITS; consumers goal is to maximize
satisfaction AND FREEDOM TO K. VALUED B/C:
1. mkts wk well economically to allocate resources to
where they are wanted and needed.
2. freedom w/ responsibility and choice is important
B. 1970s AT laws focus on microeconomics; very broad and
some argue inefft.
C. 1980s too much law was handicapping bus; AT enforcmt
limited:
1. ASSUMED: competition exists for efficency; AT law is
to protect/facilitate competition; thus, AT should
used only to promote effcy.
2. EFFICENCY IS GOAL OF AT
3. Chicago School of eco: business is efft, thus do
4
be
what business wants:
a. competiton law is for effcy
b. mkts wk well
c. bus acts efficently
d. govt acts very inefftly (thus little enforcmt)
D. IF PERFECT COMP: competitive price = COST (cost +
reasonable return on Investment)= Comp. Quantity and
thus is
profit maximizing. see mkt responds to
consumers; to indl supplier
demand appears horizontal.
1. MONOPOLY: opposite of perfect compn--one seller of a
good that doesn't have an acceptable substitute.
Price is profit maximizing level of output (MC=MR).
2. OLIGOPOLY: mkt w/few producers; incentive to price
c
o
m
p
e
t
e
i
s
r
e
d
u
c
e
d
;
p
r
o
b
l
m
b
/
c
m
a
y
b
e
b
a
s
5
e
d
o
n
c
o
o
r
d
i
n
a
t
e
d
(
a
g
r
e
e
d
u
p
o
n
)
a
c
t
s
a
n
d
n
o
t
c
o
m
p
e
t
i
t
i
v
e
6
f
a
c
t
o
r
s
.
E. if not perfect, then have:
1. WEALTH TRANSFER: $ from consumers to producers,
amount is monopoly price - competitive price.
2. WEALFARE TRIANGLE: TOTAL DEAD LOSS amt of people who
would have bought above comp. price but below
monopoly price; demand not met. This is
allocative ineffcy (economists look to welfare
triangle for alloc. effcy)
F. EFFCY:
1. ALLOCATIVE: not ach'd b/c imperfection in mkt, ideal
is if resources allocated to best uses in view of
what
people demand and are willing to pay for.
a. everything is sold at cost or higher (subsidy
is inefft b/c increases demand)
b. Assumes given distrib of wealth
2. PRODUCTIVE: given what firm chooses to provide are
assets used in efft way ( in 1960s
see firms
w/alot of power
and very inefft production)
When firm is using its resources in most efft
manner.
3. DYNAMIC: tech progress; combo that can produce
synergy
4. MARKET: mkts wk efftly b/c firms are competitive;
mkt wks efftly to alloc resources to best and
highest use when mkts are competitive. (if
failure in mkt may want reguln)
G. ELASTICITY: if price increases, demand decreases
(downward sloping demand curve)
INELASTICITY: very steep demand curve (could be
vertical),
price increases and demand stays about
constant; this only occurs
with necessity items.
H. AT POLICY:
1. economists say focus on welfare triangle
2. fox thinks most laws focus on wealth transfer b/c
it's the transfer that's the price gauge of trust
(amt overcharge)
3. CHICAGO is concerned with EFFCY and with the EFFECT
ON CONSUMERS NOT COMPRS.
I. PROCOMPETITIVE JUSTIFICATIONS INCLUDE:
7
1. increase info to all
2. decrease in transaction and production costs
3. decrease in free riders
VI. SHERMAN ACT:
SEC. 1: "Every k, combination, or conspir in restr of
is declared to be illegal." (2 or more actors)
SEC. 2: "every person who shall monop or attempt to
monopolize or combine or conspire w/any other person.."
actor)
A. CARTELS are always per se illegal:
1. DEFN: a cartel is a group of ferms who SHOULD be
trade
(1
com
pet
ito
rs,
but
who
hav
e
agr
eed
w/e
ach
oth
er
to
"fi
x"
the
ir
pri
ces
in
ord
er
to
ear
n
mon
opo
ly
pro
fit
8
s.
2. CARTELS WORK BEST IN A MKT THAT IS:
a. concentrated (sm. # of firms, ease of P fixing
and easier to keep secret in small group)
b. barriers to entry (large cost to enter mkt;
lic
ens
e
fro
m
gov
t;
mob
ili
ty
bar
rie
rslon
g
tim
e
fro
m
dec
isi
on
til
act
ual
sal
e)
and
c. markets w/fungible products (prod homogenity)
3. To be an effective cartel:
a. need to understand what maximizing P is
b. must publicize P (info) among themselves
c. must prevent and punish cheating
4. NAKED Price fixing is illegal under Sec. 1 Trans
Missouri (see also price fixing, socony vaccum
a. FACTS: rr price fixing, all enter into agmt set
reasonable rates; rr argued that not all
restraints are illegal b/c all
k restrain
9
trade; thus the rr argued that it can only
mean UNREASONABLE; and here,
rr was
reasonable b/c otherwise would go out of bus.
b. Ct says: difficult (maybe inappropriate) to
decide WHAT'S
REASONABLE; and its difficult
to regulate and ensure rate is always
reasonable saying all
restraints are illegal.
1. Function of ct not to be rate-setter
2. No way for surveillance
c. prob is that no test exists to determine what's
reasonable. Decision never really
explained what's reasonable b/c evidently
didn't
include every business k.
d. Court rejects "CRISIS CARTEL" argumt--must be
done to keep business afloat.
e. DISSENT: Justice White says law is to protect
FREEDOM TO TRADE AND K, here k destroyed.
5. NAKED RESTRAINTS are illegal; ANCILLARY are not
illegal (Taft in Addyston pipe (1899))--no longer
held.
a. FACTS: Pipe cartel in 1 section of country;
suppliers say reasonable b/c not powerful
(NOTE: cartels only exist if they
have power,
otherwise why bother entering one?)
b. TEST: Taft says if main purpose of k is to
restrain trade excessively, then it is void.
1. so rr says I wont compete w/you, if you
don't compete w/me--main pt is
anticomp
2. compare w/
bakehouse where sell and then
wont open another bakery in the area,
mainpt is transferring prop which is
neutral or pro comp.
Mitchell
a. Ancillary rest are judged under Rule
o
f
R
e
a
s
o
n
10
,
b
u
t
d
i
r
e
c
t
r
e
s
t
i
s
p
e
r
s
e
u
n
l
a
w
f
u
l
w
/
n
o
i
n
q
u
i
r
11
y
i
n
t
o
r
e
a
s
o
n
a
b
l
e
n
e
s
s
o
f
r
e
s
t
r
a
i
n
t
.
6. northern sec stock are subject to Sherman Act.
7. CARTELS are often seen in: price fixing; RPM or
vert
ical
inte
grat
ion
(whe
re
memb
ers
12
enfo
rce
cart
el
by
ensu
ring
that
all
sale
s
are
publ
ic
and
non-
nego
tiab
le);
hori
zont
al
mkt
divi
sion
s.
NOTE
: a
Sec.
1
viol
n by
a
firm
w/
mono
poly
powe
r is
also
a
viol
n of
13
SECT
ION
2.
8. SEC 1 violation only if EXPRESS AGRMT is found--note
circumstantial evidence can establish agmt.
B. MONOPOLY RULE OF REASON:
1. If monopoly need:
a. MKT POWER in the RELEVANT MKT--the power to
rai
se
pri
ces
,
and
exc
lud
e
com
pn
for
a
sig
nif
ica
nt
amt
of
tim
e.
b. INTENT -- can be inferred
c. CONDUCT -- anticompetitive, willful acquisition
that demonstrates monop power; acts not on
the competitive merits
2. RULE OF REASON b/c in itself monop is not bad, cna
signal new sellers into mkt.
3. All k which are unreasonably restrictive are
illegal. standard oil (justice white)
a. FACTS: created a trust which vastly accumulated
all oil industry. US argues trust
restrains trade, treated as illegal all ks which were
unreasonably restrictive.
b. ct says: INTENT of combination is to unlawfully
14
acquire wealth, thus violates Sec. 2 of
Sherman;
1. Ct looked at CONDUCT not structure-"monopoly conduct" is never defined in
ct's at least not consistently. Grinell
calls
it "willful acquisition or
maintenance of...power
as distinguished
from growth or developmt as a
consequence of superior product, bus.
acumen or historic accident."
2. The ct found that the trust FORCED
combination on smller cos, thus
smaller
cos w/o freedom to k (big pt for White)
3. Softened the adyston pipe ancillary restr.
doctirne by ruling that even
direct restraints of trade may be lawful if
reasonable. Thus, can use RULE OF REASON to
both direct and ancillary restraints.
4. If CONDUCT WAS BRUTAL, then monop. sec. 2 violn US
S
T
E
E
L
:
"
m
o
n
o
p
o
l
y
i
n
t
h
e
c
o
n
c
r
e
t
e
i
15
s
n
o
t
i
l
l
e
g
a
l
,
l
o
o
k
t
o
m
e
a
n
s
i
t
a
c
h
i
e
v
e
d
.
"
a. facts:
US steel has monop. power, argued it
ha
d
po
we
r
b/
16
c
it
is
on
ly
co
.
th
at
kn
ow
s
ho
w
to
pr
od
uc
e,
th
us
no
t
wi
ll
fu
l.
de
f.
ar
gu
es
fo
r
EF
FI
EC
EN
CY
al
l
co
s
17
jo
in
to
ge
th
er
;
ar
gu
ed
co
rp
n
di
dn
t
ac
hi
ev
e
mo
no
po
ly
.
b. ct says NO INTENT to monopolize; look for
BRUTALITIES; structure not enuf.
TEST: if "brutalities" then monop.
c. SIZE AND POWER ARE NOT ENUF to be illegal; ct
s
a
i
d
L
A
C
K
O
F
18
C
O
M
P
E
T
I
T
I
O
N
I
S
N
O
T
D
E
T
E
R
M
I
N
A
T
I
V
E
O
F
V
I
O
L
A
T
I
O
N
O
F
S
H
E
R
M
19
A
N
A
C
T
.
C. MONOPOLY: STRUCTURE: no longer determinative; now look at
size in relation to mkt.
1. If there is MKT POWER FROM MKT SIZE (STRUCTURE)
whic
h
was
WILL
FULL
Y
ACHD
,
then
mono
p
sec.
2 is
ille
gal.
alco
a
had
90%
of
sale
s of
virg
in
AL,
ct
incl
ude
inte
rnal
proc
edur
es
20
(amt
it
sell
s
itse
lf
to
fabr
icat
e)
and
excl
udes
seco
ndar
y
mkt
for
stee
l.
Also
,
alco
a
made
agrm
ts
with
wate
r
cos.
2. alcoa has MONOPOLY POWER-- power to raise price
significantly above competitive price for a long
period of time.
a. Fox says that on facts, skeptical if alcoa had
power since there's a threat of foreign
competition and then profit was reasonable.
Hand said can't use profit b/c lazy and
inefft, Hand says co. has potential to
exploit and foreign cos with tariff, thus a
barrier to entry..
b. Policy in 1940s, limit big business; don't
trust any one co. to be fair.
D. MONOP.: DEFN OF A MARKET: consider what is mkt now (does
co already have power); what would mkt be if price increase
5%? This is needed for section 1 or sec 2.
1. merger guidelines we try to determine relevant mkt
21
power b/c merger is likely to create or enhance
mkt power or to facilitate its exercise.
Ultimately, want to know if there are constraints
on def's firms that would keep them from raising
prices (can either be supply or demand)
TO DETERMINE: CONSIDER DEMAND-- on BUYER side:
a. start with the smllest mkt capable of being a
monopoly (ie cellophane). Will buyers
substitute?
b. if increase price of product, would buyers turn
to other ALTERNATIVES? If buyers shift to
other prod. then other prod to which they
turn are in mkt. What will they
substitute?
impose a SSNIP?
do.)
c. if SSNIP-small but significant an nontransitory increase in price then monop. Can they
(Use a 5% increase in price to determine what buyers will
CONSIDER SUPPLY-- on SELLERS side-can producers
wi
th
si
mi
la
r
pr
od
uc
ts
ea
si
ly
sh
if
t
in
to
mk
t,
if
th
22
ey
ca
n
th
en
th
ey
ar
e
pa
rt
of
th
e
mk
t
2. dupont FOR MONOPOLY TO EXIST, NEED MKT POWER
a. defining mkt power by looking at current price,
if had monop already know what monop price is
and at some pt even in monop. if raise 5%
then Buyers would buy substitutes.
1. CELLOPHANE FALLACY: Problem with Dupont is
that not asking if mkt already has power
only if it will be able to attain power
future. Thus, pricing in elastic
portion of demand curve.
2. To determine if firm has monopoly power
in
an
d
is
us
in
g
it
co
mp
ar
e
%a
ge
23
pr
of
it
s
wi
th
%a
ge
pr
of
it
s
of
be
nc
hm
ar
ks
fi
rm
s.
Yo
u
ne
ed
ac
ct
an
ts
an
d
ec
on
om
is
ts
24
to
se
e
if
th
e
pr
of
it
s
ar
e
su
pe
rc
om
pe
ti
ti
ve
.
(i
f
th
ey
ar
e
th
en
th
e
co
.
ha
s
mo
no
p
pw
r)
25
3. MKT POWER: the power to control prices or
exclude compn--measure of a
firm's ability to raise prices above competitive
levels w/o incurring a loss in sales that more
than outweighs the benefits of the higher price.
(mkt power varies directly w/mkt share; mkt
power varies inversely w/elasticity of industry
demand.)
b. FACTS: govt argue's cellophane is relev. mkt;
d
u
p
o
n
t
s
a
y
s
f
l
e
x
i
b
l
e
p
k
g
i
n
g
i
s
m
k
t
.
c. Mkts are ARTIFICIAL-how you define depends on
w
h
a
t
26
q
u
e
s
t
i
o
n
s
y
o
u
a
s
k
.
S
h
o
u
l
d
s
t
a
r
t
b
y
c
o
n
s
i
d
e
r
i
n
g
w
h
a
t
p
o
w
r
c
o
27
.
a
l
r
e
a
d
y
h
a
s
.
3. Chicago school likes this approach b/c to them it
IN
CR
EA
SE
S
EF
FC
Y
an
d
en
su
re
s
NO
CH
IL
LI
NG
EF
FE
CT
.
No
t
lo
ok
in
g
at
co
mp
et
28
it
or
s
on
ly
at
co
ns
um
er
s.
4. In kodak v. Image tech service S Ct concluded that
t
h
e
r
e
c
o
u
l
d
b
e
a
r
e
l
e
v
a
n
t
m
k
t
f
o
r
r
e
p
l
a
c
e
m
29
e
n
t
p
a
r
t
s
a
n
d
s
e
r
v
i
c
e
f
o
r
K
o
d
a
k
'
s
p
h
o
t
o
c
o
p
i
e
r
s
s
i
n
c
e
30
p
u
r
c
h
a
s
e
r
s
o
f
t
h
e
s
e
m
a
c
h
i
n
e
s
w
e
r
e
"
l
o
c
k
e
d
i
n
"
t
o
s
u
c
h
p
a
r
31
t
s
a
n
d
s
e
r
v
i
c
e
,
A
N
D
t
h
e
r
e
w
a
s
i
n
d
p
t
e
v
i
d
e
n
c
e
o
f
K
o
d
a
k
'
s
p
o
32
w
e
r
t
o
i
n
c
r
e
a
s
e
t
h
e
p
r
i
c
e
o
f
s
e
r
v
i
c
e
a
n
d
p
a
r
t
s
a
b
o
v
e
t
h
e
c
o
33
m
p
e
t
i
t
i
v
e
l
e
v
e
l
.
E. ATTEMPT TO MONOPOLIZE SEC.2:
1. grinell offense of monop under sec 2 includes:
a. possession of monop power in relevant mkt "by
competition not on the merits"
AND
b. willful acquisition of that power as
distinguished from growth & developmt of
superior product.
2. Thus, to PROVE ATTEMPT VIOLN:
a. find relevant mkt spectrum sports (b/c unfair
c
o
m
p
n
i
s
n
o
t
i
n
i
t
s
e
l
f
a
v
i
34
o
l
n
.
N
o
t
e
:
s
h
i
f
t
i
n
p
o
l
i
c
y
a
g
t
c
h
i
l
l
i
n
g
f
i
r
m
s
a
c
t
i
v
i
t
i
35
e
s
.
b. show specific intent Swift--if monopoly of
good
s,
see
if
comp
n
NOT
ON
THE
MERI
TS
incr
ease
s
mono
p
powe
r.-inte
nt
to
dest
roy
comp
n or
bld
mono
poly
-effo
rts
to
achi
eve
mkt
36
powe
r by
ille
giti
mate
mean
s.
PROO
F:
subj
ecti
ve
and
obje
ctiv
e
cons
ider
atio
ns
ingl
is-gene
rall
y
INFE
R
inte
nt
from
firm
's
acti
ons;
woul
d a
reas
onab
le
pers
37
on
infe
r
that
a
firm
enga
ging
in
thes
e
acti
viti
es
inte
nded
to
elim
inat
e
comp
etit
ors
thru
unfa
ir
mean
s.
c. predatory or anticomp conduct directed at
accomplishing this unlawful purpose. (conduct
must be capable of giving def. monop power, but recognize that sometimes efft,
socially beneficial conduct can create substl mkt power.)
AND
d. offending acts created a dangerous prob. of
success swift--if acts of low pricing and no
prospect of recoupment than not a violn AND
prod change that makes
product better makes
it hard to prove that it's anticompetitive.
(structural analysis)
F. REFUSAL TO DEAL: Coerce customer, esstl facility; block
competitor--UNILATERAL REFUSALS TO DEAL ARE VIOLNS OF
SEC. 2
IF FIRM ENGAGING IN THESE EXCLUSIONARY PRACTICES
IS A MONOPOLY
OR AN ATTEMPT TO MONOP. Thus, pltf must
prove:
a. monopoly exists and refusal to deal is
anticompetitive exclusionary practice
38
or
b. specific intent to acquire monop exists; the
re
fu
sa
l
to
de
al
is
an
ti
co
mp
et
it
iv
e
ac
t
to
ca
rr
y
ou
t
sc
he
me
;
an
d,
da
ng
er
ou
s
pr
ob
.
th
at
39
th
e
sc
he
me
wo
ul
d
ha
ve
cr
ea
te
d
a
mo
no
p
new
1.If COERCE CUSTOMER not to deal w/compr, then refusal
to deal is a violn of Sherman Act sec. 2. Lorain
Journal
a. FACTS: daily paper only 1 in area refuses to
allow ads from indls who also put ads on
radio station, therefore radio station w/o
advertisements and can't stay in business.
1. FOX said it cost lorrain in goodwill
(always pay for PREDATION)
b. LJ refused to deal not b/c didn't want to deal
w/customers, but only to make customers
boycott radio. LJ had no interest in not
dealing with customers except to undercut
compn.
c. Note: the only way that this could succeed is
if LJ already had dominant pos'n in mkt.
2. if BLOCKS COMPETITOR from getting into mkt, then
ref
usa
l
to
whe
el
vio
ln
of
40
sec
.
2.
Ott
ert
ail
a. FACTS: elec generation co. sold at wholesale
an
d
re
ta
il
;
to
wn
th
ou
gh
t
it
co
ul
d
di
st
ri
b.
el
ec
be
tt
er
;
to
wn
re
qu
es
te
d
wh
41
ol
es
al
e
pr
ic
e
wh
ic
h
we
re
re
fu
se
d
by
OT
.
So
to
wn
sa
ys
it
wi
ll
ge
t
po
we
r
fr
om
go
vt
bu
t
st
il
l
ne
ed
42
s
to
us
e
OT
's
li
ne
s
an
d
OT
re
fu
se
s
to
"w
he
el
".
b. This is a VERTICAL INTEGRATION case as well
wh
er
e
mo
no
po
li
st
at
te
mp
te
d
to
le
ve
ra
ge
it
43
s
po
we
r
in
on
e
mk
t
(p
ro
du
ce
r
of
el
ec
)
to
ga
in
po
we
r
in
2n
d
mk
t
(s
el
li
ng
el
ec
).
He
re
OT
44
ac
te
d
as
bo
th
mo
no
po
li
st
mf
r
an
d
re
ta
il
op
er
at
or
th
us
co
mp
et
es
w/
an
d
se
ll
s
to
re
ta
il
co
mp
et
it
or
45
violn.
violn
s.
c. NOTE: room for compn even in REGULATED
INDUSTRIES. fed. reg doesn't oust AT
3. If refusal to share ESSENTIAL FACILITY, then
of sec. 2. offl airlines guide v ftc
a. ESSENTIAL FACILITY DOCTRINE: 1 firm controls
something that is an essential facility;
1. essential for competition.
2. Can be recd w/o impairing bus.
3. Cannot be duplicated
AND
4. Refusal to share facility must give the
de
fe
nd
an
t
a
mo
no
po
ly
,
wh
ic
h
me
an
s
th
at
th
e
fa
ci
li
ty
mu
st
46
ac
ct
fo
r
a
do
mi
na
nt
sh
ar
e
of
a
pr
op
er
ly
de
fi
ne
d
re
le
va
nt
mk
t.
Ex. Single rr holds bridge others cant use
b/
c
th
en
47
th
ey
ca
n
cr
os
s
Mi
ss
is
si
pp
i,
bu
t
pl
en
ty
of
ti
me
to
us
e
an
d
br
id
ge
ca
nt
be
du
pl
ic
at
ed
,
th
us
it
48
is
an
es
se
nt
ia
l
fa
ci
li
ty
.
te
rm
in
al
ra
il
wa
y
b. FACTS: reservation services used for flight
schedules were made by Donneley. He placed
commuter airlines in the back of the
book and
it wasn't easy to determine the connecting
flights. Commuter airlines say they
were
forced out of bus. FTC won
showing
Donneley's method of
positioning the commuter
airlines in the back of the
book pushed them
out of bus. Then, 2nd cir said Donnely
does
not violate AT b/c he is NOT in mkt, thus he
had NO INCENTIVE to hurt competition.
c. Donneley made a BUSINESS DECISION to put them
i
n
b
a
c
k
o
f
b
49
o
o
k
.
T
h
u
s
,
r
e
f
u
s
a
l
t
o
d
e
a
l
v
i
o
l
n
c
a
n
o
n
l
y
b
e
b
r
o
u
g
h
t
a
g
a
i
50
n
s
t
c
o
m
p
e
t
i
t
o
r
,
o
n
e
w
h
o
i
s
i
n
m
k
t
.
4. NOTE: even monopolist can refuse to deal if not
anti
comp
etit
ive
(ie
the
refu
sal
does
not
unre
ason
ably
51
enla
rge
its
powe
r or
exte
nd
its
dura
tion
w/o
ach'
g
comp
ensa
ting
effc
ys)
G. MONOPOLY: HIGH TECH INNOVATION
1. Use of tech and improvement of prod is not a violn
of sec. 2. Berkey v. Kodak:
a. Facts: kodak moved from sm camera system to
even smaller, and changed film, process and
camera. Berkey claims AT violations
b/c all
processes changed so it can't compete
rigorously.
b. Berkey claims:
1. that its camera is now obsolete, so Kodak
had a duty to PREDISCLOSE operation, so
that it could "be at the starting line
when the gun went off". Ct rejected b/c doesn't want
to CHILL INNOVATION.
2. TIE IN b/w packaging of camera and
film
together. Ct rejects b/c can buy
both
products separately,
thus package
is
just
an option for consumer.
a. DEFN: use of monopoly to gain a monop
3. LEVERAGING: that kodak was using its monop
in film and camera to gain a monop in
photofinishing, this conduct would hurt
consumers. Ct said leveraging can be a
violn and remanded. (kodak ct believes
that the USE OF ECONOMIC POWER (rather
than
monop powr) creates a violation
a. DEFN: use of power in one mkt to gain
a competitive
advantage in another.
b. 9th Circuit: said LEVERAGING IS NOT A
52
VIOLATION -- CRS-- airline reservation
system DISTORTED COMPETETION by using
the crs to STEER people
to use the
airline that
first appeared on the
screen (which was always American's b/c
American created the system). 9th cir
held STEERING IS NOT THE SAME AS
MONOPOLY.
c. If big co is responding to mkt, developing
tech
,
then
that
comp
any
is
help
ing
cons
umer
s
and
its
oper
atio
ns
are
lega
l.
1. end to alcoa where structure is enuf.--the
law on sec 2 went from a
concern with structure to a focus on effcy.
2. the court does not want to CHILL
INNOVATION. (even a big co can
hard and can
compete
take advantage of its
integration.)
2. Cross subsidizing is a Sec. 2 violn b/c it is
inefft; AT&T:
a. AT&T provides long dist and local tele service
and provides hardware and research. AT&T
blocked out competition, refused to connect
53
one mkt
cost of local mkt
other services, etc. Also, AT&T CROSSSUBSIDIZED making monop profits in
(long dist) to lower
b. AT&T argues need one firm b/c EFFICIENT, but
b/c PROTECTING ENTRY and regulating prices
already there's a DISTORTION
of the normal
flow of
competition. Chicago School is
against such a distortion.
c. Baxter (reagan's crony/Chicago school) says
AT&
T
mus
t
sep
ara
te
reg
ula
ted
mon
op.
Lon
g
dis
t
ope
ns
up
to
NEW
MKT
S
b/c
of
mic
row
ave
54
tec
h.
d. NOTE: baxter is concerned with a lazy co. which
will stop producing and advancing once it
reaches a monopoly. He wants to end govt
barriers and increase competiton. He
moves
away from structure.
1. Counter: reserach declines b/c of fear of
free rider.
H. PRICE PREDATION: actions taken by a dominant firm to
drive out or hurt compn
1. pltf must prove for sec. 2 violation:
a. price is below marginal cost (or AVC). cts
fear
CHILLING legitimate price cutting or
competiton on the merits.
and
b. competitor has DANGEROUS PROBABILITY of
recouping losses (w/o recouping losses pred
pricing is good b/c prices are low
and thus
public is advantaged)
Danger. Prob when:
1. high barriers to entry
and
c. need to be on way to monopoly--lg mkt power b/c
pred pricing is so expensive
d. INTENT can be assumed from proving a-c.
e. POLICY: AT only helps consumers NOT competitors
2. now, to PROVE A RP ACT VIOLATION:
a. price is below marginal cost (or AVC) (an
approp
riate
level
of
comprs
cost.)
and
c.
way to oligopoly
b. competitor has REASONABLE POSSIBILITY of
recouping losses (little easier than 2)
need not be on way to monopoly, can be on
d. Fox thinks this stnd went too far, almost
impossible to prove. (RP only when
"substantially lessens comp.
or leads to
monop")
3. Robinson Patman act prohibits PRICE DISCRIMINATION:
charging differ people, different prices for the same
55
product when the effect of the P discrim may be to substlly
lessen compn or tend to create a monopoly:
a. must be intent
b. must be commodity not service
c. must be sale not lease
d. must be like grade or quality
4. GEOGRAPHIC PRICE DISCRIM: in one area charging
substly lower price than other, see in utah pie.
where pie cos selling pies in utah at
SUBSTANTIALLY LOWER PRICE than even where they are
based.
utah pie: (1967)cos charged lower prices in utah
where
utah pie co. sold cheaper pies than in other mkts. Cos were
not alleged to be selling below their marginal cost. Ct
found def. was
intending to weaken utah pie and thus held
to be
in violation of RP Act.
a. protects competitor not competition
b. nec. elemt is price discrim (pred intent and
effect)
5. THEORY of price predation is: competitor will lower
price to such an extent that it will take a short term
loss in expectation that other company will leave market and
it can then raise prices so high to RECOUP losses. PROBLEMS:
a. time value of $ makes it difficult to recoup.
b. Chicago school does NOT think this is COMMON
b/c as soon as competitor raises prices
other
firms will enter mkt. NOT rational profit
maximimizing activity (says only
when p<mc)
6. If co. can recoup losses, then price predation.
broo
ke
grou
p v.
brow
n
and
will
iams
on:
Ligg
et
cig
co
chal
leng
ed
56
olig
opol
y by
sell
ing
gene
rics
.
When
shar
e of
B&W
erod
ed
by
low
pric
e
gene
rics
, it
stru
ck
back
with
enor
mous
disc
t to
whol
esal
ers
and
its
own
bran
d of
gene
rics
.
Jury
gave
verd
57
ict
to
Ligg
et
b/c
pric
e
disc
rim
and
belo
w MC
yet
no
show
ing
of
inju
ry
to
comp
etit
ion
(no
reco
upme
nt
poss
ible
).
Ct
says
pric
e
disc
rim
is
not
enuf
,
and
58
reve
rses
jury
.
B/c
B&W
is
not
the
only
firm
, it
is
NOT
reas
onab
ly
POSS
IBLE
FOR
IT
TO
BE
ABLE
TO
RECO
UP
LOSS
ES.
a. What B&W says re: price predation is followed
by Sec.2 violation.
b. Price discrim is irrelevant for sec 2 violn
7. Price must be BELOW COST PRICING to be price
predation. IBM v. telex: sec. 2 price predation: IBM has
big mainframe and attachments, attachments can be sold separately. Thus, PCMs
enter mkt, and IBM's mkt share erodes. IBM begins a SMASH program to smash
the PCMs. It changed interfaces frequently and strategically priced. Telex
was selling equip
that was better and less costly than IBMs. In smash
program, IBM dropped prices below Telex (although was still above its full
costs) Telex won on sec 2 price predation grounds in dist ct.IBM WON on
appeal b/c PRICE MUST BE BELOW COST PRICING. (PCM=peripheral compatible
mnfrs)
a. Ct can reason that it is protecting
competition b/c IBM is more EFFT and can sell
at lower cost even if that means that PCMs
will go out of business! DONT CHILL IBM FROM
59
PRICE COMPETING
b. if pricing below MC, INTENT is supposedly
relevant, but Fox says not really b/c even
though cts will use it, intent
doesnt prove
much. (she says one can have intent to
kill
competitor or just to serve mkt and can do
the same thing) (Posner in Olympia)
8. what PRICE IS TOO LOW:
a. Areeda Turner article says low pricing is legal
i
f
P
>
A
v
g
T
o
t
a
l
c
o
s
t
(
f
u
l
l
c
o
s
t
)
.
b
u
t
,
b
e
l
o
w
60
M
a
r
g
i
n
a
l
c
o
s
t
i
s
i
l
l
e
g
a
l
.
b
/
w
M
C
a
n
d
A
T
C
i
s
R
U
L
E
O
F
R
61
E
A
S
O
N
t
o
d
e
t
e
r
m
i
n
e
w
h
e
t
h
e
r
l
o
w
p
r
i
c
i
n
g
w
a
s
o
n
w
a
y
t
o
m
o
n
o
62
p
.
b. BURDEN OF PROOF: in ingliss (p229) ct said pltf
had burden of showing def pricing is
predatory and enhanced the firm's ability to increase
or get monopoly power.
1. when below MC, def has the burden of
proving no increase in monop power.
If
above ATC, pltf has super-strong burden
to show increase in monp power. (But
implication of brooke v. b&W seems to
have
ruled this out by saying p>atc is
legal even if
recoupment.)
I. PRODUCT CHANGE PREDATION:
1. IBM changed interfaces a lot, if telex claimed that
IBM changed interface knowing it would cause all
PCMs great loss of time and changes in tech and
that such losses will keep the PCMs out of mkt,
then it has alleged PURPOSE, POWER AND EFFECT.
2. IBM defense could be that it is a SUPERIOR PRODUCT.
But, is this enuf, still could end competition.
Cts are saying DONT CHILL good products from being
created. So for Chicago School -- this would be
legal.
3. Case found that IBM did not have monopoly power, and
thus no problm. But if had power and if it was
not a superior product, still IBM could argue that
b/c it's not a better product, COMPETITORS CAN
MANUVER AROUND IT, thus too insignificant to
stop.
a. if comp. can manuver around, then not violn.
J. DUTY TO CONTINUE TO DEAL: Cannot stop dealing if stopping
creates inefficency/loss.
1. aspen ski co: Held violn of Sec. 2 b/c did not act
on comp. merits--impose higher cost on compr and
thus decreased its own profits.
a. What is the relevant mkt: is it Aspen or is it
all cos.; people go to other resorts if price
increases (but lawyer didnt argue this pt.)
b. REFUSE TO CONTINUE ARGUMT: history of Aspen
wking with higland to sell combined lift tix,
new managers believe theyd get a higher price
profit if they didn't sell a tix.
1. jury found monop--Aspen's refusal to
accept vouchers to Higlands after
ended
tix showed purpose of driving Highland
out of mkt, only wanted
to impose higher
cost on Higland. aspen refused to
increase its own profit
b/c this would
have
helped Highland. This HURTS Compn.
Ski co.
forewent short run benefits for
long run harm of
compr.
63
2. Ski co. NOT motivated by effcy concerns
2. olympia:
a. facts: w.Union refused to continue to aid
Olympia b/c it was trying to sell its own
products. Western Union had MONOP
POWER (ct
said ok to have power,
only look if abused
it.)
b. Posner says INTENT is a MEANINGLESS char. b/c
every good co. should intend to beat
competition.
c. If a monopolist does help and later withdraws
help, there is NO AT violn. this is not
refusal to deal b/c in refusal to
deal need a
monop supplier to discrim agt a customer
b/c
the customer has decided to compete w/it. If
a firm w/monop power CANNOT give GOOD BUS.
JUSTIFICATIONS for not cooperating w/compr
then its refusal to
cooperate is a
violn AT
law. Here WU's desire
to
liquidate its telex
terminals is good bus
justification.
VII. PRICE FIXING: CARTELIZATION BY PRICE:
A. PRICE AFFECTING CONDUCT IS ILLEGAL PER SE.
1. purpose and effect (price raising or output
limiting) are clearly anticompetitive. PER SE IF:
a. Agrmt involves competitord
b. Arrangement explicitly affects price or output
c. If mkt power then more likely will be per se.
(
b
u
t
i
f
e
v
i
d
e
n
t
a
r
r
a
n
g
e
64
m
e
n
t
i
s
a
c
a
r
t
e
l
t
h
e
n
m
k
t
p
o
w
e
r
i
s
n
o
t
n
e
e
d
e
d
a
p
p
a
l
a
c
h
i
a
n
c
o
a
l
65
s
)
2. IF the challenged restraint ENHANCES COMP'N, then
it's not price fixing per se--thus any EXCEPTION
to the per se rule must show that the conduct at
issue
actually reduced prices or increased output
in mkt. bmi
ANALYZE PROCOMPETITIVE:
a. challenged conduct (mkt integration) is
reasonably necessary to achieve the cost
reducing effcys
b. restraint that follows is actually necessary
AND
c. effcy achd by integration outweighs the adverse
effect of the restraint.
3. Ignores if its motives or actions are necessary or
if
Price is reasonable.
4. PER SE is a PROPHYLACTIC RULE -- cts use it because
they consider the effects of price fixing to be so
harmful that there's NO fear of being too broad. POWER TO
FIX PRICES IS THE ELIMINATION OF ONE FORM OF COMPETITION-INVOLVES THE POWER TO CONTROL THE MKT AND TO FIX ARBITRARY
AND UNREASONABLE PRICES
5. PER SE rule is good b/c promotes certainty and judl
effcy.
6. PRICE FIXING WORKS BEST IN A MKT THAT IS:
a. concentrated (sm. # of firms, ease of P fixing
and secrecy in small group)
b. barriers to entry (large cost of entering mkt;
licensing by govt; or mobility barriers--long
time from time to decide to enter til actual
sales)
and
c. markets w/fungible products (prod homogenity)
B. when co has MKT POWER and sets price illegal per se.
Tren
ton
Pott
erie
s
1. FACTS: makers of toilet bowls got together and fixed
prices to limit sales. Defs argue its prices are
reasonable and they got together to limit sales only to
"legitimate jobbers". 82% of mkt thus control is
"substantial."
2. Ct held that the corps were price fixing. The ct
said that the cos had CONTROL of mkt, and thus
said ILLEGAL PER SE. Thus, unlike Chicago Board
corps in Trenton were overriding mkt.
3. NOTE: the ct refused to look at P to determine if it
was reasonable, b/c "reasonableness of price" can
vary,
and the ct cannot monitor that.
C. Appalachian Coals:
1. FACTS: Coal industry is bad (many producers and many
66
substitutes). Producers in Appalachian had a concern
about destructive practices whereby compete w/itself and
depresses the price for all coal in the mkt. Thus co
establishes std classification to sell all coal at best
prices obtainable and that may mean not seling at all. Govt
argues this eliminates compn, and thus is violn of Sherman
Act. Def. appeals to govt to look at NATURE OF BUSINESS.
2. NOT ILLEGAL The ct looked at POWER (only 12% natl
co
al
mk
t)
,
PU
RP
OS
E
(w
an
te
d
to
st
ay
in
bu
si
ne
ss
)
AN
D
EF
FE
CT
(c
ou
ld
n'
t
se
t
pr
ic
e
b/
67
c
di
dn
t
ha
ve
po
we
r)
Th
is
wa
s
de
ci
de
d
in
ti
me
of
De
pr
es
si
on
.
Ct
ha
d
SO
CI
AL
IN
TE
RE
ST
in
ke
ep
in
g
pe
op
68
le
em
pl
oy
ed
.
a. NOTE: selling agency agmt is good for low
mkting
costs
and
more
effice
nt
sales,
but
questi
on why
exclus
ivity
is
needed
(exclu
sivity
makes
one
suspic
ious
that
it's a
cartel
.)
3. Fox questions if this would still be good law
today, b/c the effect of the deal is to raise
price. Although little Mkt powr, power could be
69
regional and also not needed b/c strong belief
that this is a cartel--co had a joint selling
agency agmt.
D. When co has purpose and effect to raise, depress, fix or
stabilize price, then illegal per se. ANY TAMPERING WITH
PRICE IS ILLEGAL PER SE. Socony-Vaccuum
1. FACTS: Govt alleged that def combined for purpose of
ARTIFICIALLY RAISING PRICE by raising price of spot
mkt and then setting their price at spot mkt. Each def oil
co. owns or leases service stations, and supplies those
stations w/gas from bulk storage plant. Price co buys gas
and is dependent upon spot mkt price, thus retail price at
station is dept on spot mkt. Thus, these cos artificially
raise spot mkt price, by seeming shortage, thus retail price
raised.
2. competitors agreed to REDUCE OUTPUT--major oil cos
b
u
y
u
p
t
h
e
p
r
o
d
c
t
i
o
n
o
f
o
n
e
o
r
m
o
r
e
i
n
d
p
70
t
o
i
l
p
r
o
d
u
c
e
r
s
.
I
n
t
h
e
p
r
o
c
e
s
s
,
t
h
e
m
a
j
o
r
p
r
o
d
u
c
e
r
s
71
c
o
u
l
d
r
e
d
u
c
e
t
h
e
i
r
o
w
n
p
r
o
d
u
c
t
i
o
n
p
r
o
p
o
r
t
i
o
n
a
t
e
l
y
,
a
n
d
72
t
o
t
a
l
p
r
o
d
u
c
t
i
o
n
i
n
m
k
t
d
e
c
l
i
n
e
s
.
3. Note: ct here ignored social conditions, and what
wa
s
ne
ce
ss
ar
y
fo
r
th
e
bu
si
ne
ss
to
st
73
ay
op
en
(m
ov
in
g
aw
ay
fr
om
Ap
pa
la
ch
ia
n
Co
al
st
d)
.
E. EFFECTING 1 ITEM OF PRICE IS ENUF TO BE ILLEGAL. Catalano
1. FACTS: beer wholesalers selling to retailers on
credit. Wholesalers all get together and decide
not to sell on credit anymore. Retailers say
price fixing. Wholesalers say it's only one part
of price and more firms have the ability to
enter
the mkt if they don't have to sell on credit.
2. ILLEGAL PER SE: Ct held that credit EFFECTS price;
price rises. Price raising effect is illegal per
se like NAKED RESTRAINT to remove competition.
Ct
says this action does not help consumers.
3. Note: wholesalers argumt of greater entry into mkt
actually harms them b/c in general, firms enter
the mkt when the price rises. Wholesalers need
to
prove NO effect on price, that they are treating
COMPETITORS LIKE RIVALS NOT COLLABORATORS.
4. NOTE: this case is not just P fixing violn, but also
cartel--agmt among beer wholesalers to eliminate short
term credit and require pymt upon delivery
F. SOCIAL POLICY JUSTIFICATION DOES NOT NORMALLY JUSTIFY
RES
TR.
ONT
74
RAD
E.
Pro
fes
sio
nal
Eng
ine
ers
1. FACTS: Code of Ethics of Engineering Socy says
engineers will not bid on prices. Thus, price is
not discussed when attempting to get job. When
co. gives job, then engineer will tell them how
much it will cost. Engineers argue that this is
necessary for safety, public good and profl
reasons (dignity).
2. Ct held this is a restraint on price. (Ct discusses
Rule
of
Reason
analys
is.)
Safety
or
QUALIT
Y
PRODUC
T
defens
e was
exclud
ed
from
the
balanc
ing
proces
s b/c
defs
did
not
argue
that
75
it
would
increa
se
effcy
or
promot
e
compn.
Necess
ary
for
consum
ers to
have
INFORM
ATION
(price
s) and
FREE
OPPORT
UNITY
to
select
among
altern
ative
offers
.
3. Note: Def. can only JUSTIFY his actions using PROCOMPETITIVE argumts, NOT for social welfare.
4. Note: public policy recognizes other ways to tailor
safety besides decreasing comp'n, ie set stds and
regulatory bds and licensing. ALTERNATIVES
EXISTED.
G. PROCOMPETITIVE or necessary restraints on trade ARE
have
LEGAL.
BMI v.
CBS
1. FACTS: 1000s of composers got together to make safe
mkt (need ability to detect unauthorized users).
Thus,
create two orgns BMI and ASCAP. These groups
require the
76
networks to buy an entire library and
not just indl songs.
CBS claims this is
exploitative, it only
wants to pay for songs it
wants. CBS says
need to go to orgns restricts
competition
and is price fixing.
2. Ct held NOT ILLEGAL PER SE, and remanded for lower
ct to apply a rule of reason. This is b/c ct
noted that pooling was necessary to get product to mkt
AND that ALTERNATIVE existed (can go to indl songwriter). If can get out of
the restraint, then not a "naked restaint".
a. ANALYZED EFFCY: (1) whether the challenged
cond
uct
(the
mkt
inte
grat
ion)
is
reas
onab
ly
nece
ssar
y to
achi
eve
the
cost
redu
cing
effc
ys;
(2)
whet
her
the
rest
77
rain
t
that
foll
ows
is
actu
ally
nece
ssar
y;
and
(3)
whet
her
the
effc
y
achd
by
inte
grat
ion
outw
eigh
s
the
adve
rse
effe
ct
of
the
rest
r.
3. Ct says PER SE IF:
a. threatens the central nervous sys of the econ
b. agmt and practice are so plainly anticomp and
lacking in any redeeming virtue.
H. MAXIMUM PRICE SETTING is illegal per se Maricopa:
1. FACTS: drs get together to set maximum price they
78
will charge to patients on a health plan. Drs say
this is not price fixing b/c it's setting
maximums. Pltfs say it affects price, thus price
fixing
illegal per se.
2. Note: this arrangement was non-exclusive, any
participating dr cold make sales outside the
arrangement,
yet ct still found per se illegal.
I. Superior Ct trial lawyers:
1. FACTS: lawyers independently went on strike
demanding higher pay. FTC brought case saying AT
violn, price collaboration like trenton potteries.
lawyers argue, not price fixing, b/c NO MARKET
exists. Low pymt was a deterrent to entry; no mkt was setting price, b/c
price regulated--set by govt; and, collaboration would increase output.
2. Ct holds ILLEGAL PER SE. There are problems w/this
case, unknown why FTC brought it, but once it did,
ct cannot decide what price is reasonable.
J. While all price fixing is per se illegal, some cases
appe
ar
to
set
pric
e or
limi
t
outp
ut
yet
use
rule
of
reas
on.
1. To determine if illegal need to DEFINE MKT NCAA:
(the advertisers or the fans or both)
a. FACTS: ncaa imposes regulns re: televising
game
s.
pltf
s
argu
e
this
79
is
ille
gal
per
se
b/c
it
affe
cts
the
pric
e
adve
rtis
ers
pay-
scar
city
lead
s to
supe
rcom
peti
tive
pric
es.
NCAA
says
need
to
be
regu
late
d
and
the
mkt
is
80
not
just
adve
rtis
ers,
but
fans
,
etc.
b. Ct applied RULE OF REASON recognizing that NCAA
needed to exist and regulate some matters.
But said the tv rts didn't have to be regulated
by ncaa, and was in fact less efft. Thus, illegal.
Fox said really was PER SE analysis b/c as soon
as determined mkt to be advertisers and not fans,etc.
b/c it is recognized as OUTPUT LIMITING.
c. NOTE: ct never determined if restr in one mkt
c
a
n
b
e
j
u
s
t
i
f
i
e
d
b
y
i
n
c
r
e
a
s
i
n
g
e
81
f
f
c
y
i
n
o
t
h
e
r
m
k
t
(
I
f
r
e
s
t
r
a
i
n
i
n
g
t
v
i
s
o
k
b
/
c
a
i
d
s
g
a
m
e
82
a
t
t
e
n
d
a
n
c
e
)
d. NOTE: per se rule applies even where horiz.
res
tra
int
s
are
nec
.
to
mak
e a
pro
duc
t
wor
k.
(se
e
in
bmi
hor
iz
res
tra
int
tha
t
did
n't
lim
83
it
out
put
or
rai
se
pri
ce.
)
2. when effect of restraint is PROCOMPETITIVE, it's
leg
al
und
er
a
Rul
e
of
Rea
son
.
Chi
cag
o
Bd
of
Tra
de:
a.
FAC
TS:
Gra
in
tra
der
s
met
in
Chi
cag
o
dai
ly.
84
Whe
n
mkt
clo
sed
,
tra
der
s
had
to
sel
l
at
pri
ce
tha
t
mkt
clo
sed
atcou
ldn
't
cha
nge
pri
ce
whe
n
mkt
was
clo
sed
.
Gov
t
say
s
thi
s
is
pri
ce
fix
ing
.
Def
(tr
85
ade
bd)
sai
d
it'
s
pro
com
pet
iti
ve,
fai
rer
.
b. Ct held NOT per se, b/c every k is a restraint.
So it applied rule of reason and
determined that the effect of the restraint was
PROCOMPETITIVE--it forced every exchange to be open so
lots of info equally available to all participants. It
allowed individual farmers a chance to compete. It
increased the mkt size!
1. no proof that def's rule was designed to or that it
had the effect of limiting the amt of goods shipped or
changing the prices.
2. ct could have held per se illegal b/c agmt
foreclosed price compn during the nonregular trading
hrs, ct looked to see if restraint PROMOTES COMPN.
3. Social justifications in a non-profit corpn may have
more weight than profit corpns, esp. when consider
procompetitive effect. MIT
a. FACTS: the Ivies and MIT were found to be price
fixing when they got together to determine
students fin. aid. They all used same
forumula and discussed indl students.
Schools
argued this wasn't price fixing b/c
tuitions varied
and it was an increase to
quality--diverse student body
is better for
educ, and allowed fin aid money (a
charity)
to go further, aiding more people. DOJ
argues, that like catalono fixing one term of
price is fixing price and like profl
engineers
cant use social justifications.
For
student, no competitive mkt!
b. Lower cts used rule of reason recognizing that
MIT was a"special" institution (thereby in
some way recognizing social justifications.) Unknown
what will happen, this is a non-profit orgn. Remanded
for full scale rule of reason analysis and if accept
MIT's justifications, then DOJ must prove that a less
restrictive alternative exists. Dist ct found for DOJ
using rule of reason but appel ct remanded b/c felt
the dist ct didn't adequately consider the
86
procompetitive and social welfare justifications of
MIT.
VIII. HORIZONTAL MARKET DIVISION: Cartels to divide up the market
geographically; similar to price fixing b/c can increase
price
artificially.
Easier to detect than price-fixing b/c
of grter
visibility of sales in mkts or customers allocated
to others. Thus, it is
more easily monitored by the conspirators. Thus, mkt division can be more
anticomp. than
price-fixing agmts. (need mkt power for violn)
A. Topco: Topco is a cooperative assn of 25 small supermkts
who get together to create and sell generic brand. They
divide the mkt geographically; each supermkt is in a differ area
so they are NOT competitors, only POTENTIAL competitors.
1. Ct held horizontal agmt to divide territory is
ILLEGAL PER SE. THIS IS NO LONGER GOOD LAW--NOW
USE RULE OF REASON. (NOTE: Topco only had 6% mkt
share, thus too small to make it a cartel.)
2. Topco argued that each supermkt paid for
advertisements in the area, thus don't want FREE
RIDERS, but ct found this to be too harsh a
solution.
(now only care abt the consumer not abt
the "free mkt".)
a. Topco was competing w/lg chains and had to do
jtly to compete.
B. When horizontal territorial division is used ONLY TO
ELIMINATE COMPN AMONG RIVALS, IT IS ILLEGAL PER SE.
Palmer
horizontal mkt agmt b/w GA bar review course and
Barbri. Pltf
proved price increased over 400% after
agmt dividing the market.
1. Defs argued that it was licensing agmt and not
dividi
ng the
mkt;
also
argued
it was
a
joint
ventur
e.
2. Ct held it was illegal b/c really just dividing the
mkt
3. NOTE: often when cartel the defs call it a joint
venture.
IX. DATA EXCHANGES: CONSIDER: did this limit the incentive to
create a cartel?
87
compete; to
A. ISSUE: when can a data exchange be considered a cartel,
and thus illegal? Consider tasks of a Cartel:
(1) Compr's need SUFFICEINT INFO to understand what
max
imi
zin
g
pri
ce
is,
suc
h
as
com
p'r
cos
t
and
pro
duc
tio
n
cap
abi
lit
ies
.
(2) the Comprs must PUBLICIZE PRICE among themselves
(3) PREVENT CHEATING from the cartel by detecting them
(4) PUNISH CHEATERS
If have 1-4, suspect cartel.
Overall, DONT LET CLIENT DISCUSS PRICE WITH COMPRS.
Wi
th
ou
t
in
te
rs
el
le
r
in
ce
88
nt
iv
es
,
ca
n
ra
is
e
pr
ic
e,
th
us
il
le
ga
l
us
in
g
ru
le
of
re
as
on
b/
c
of
an
ti
co
mp
et
it
iv
e
ef
fe
ct
s.
B. Mkts generally work best when participants have good,
reliable info abt price. When info is not available,
people can
take advantage of others ignorance. Also,
absence of info can
raise costs of using mkt b/c people
negotiate longer when mkt
price is uncertain.
89
C. Certain exchange of price info can facilitate collusion.
This is most likely to be true in concentrated mkts.
1. To ANALYZE DATA EXCHGS use RULE OF REASON:
a. if there is mkt power, may find illegal
b. if the exchg involves future plans and price,
likely to be found illegal.
c. if exchg affects mkt price, will be illegal.
D. If intent to override the mkt, then data exchg is a
cartel. Amn Column and Lumber: hardware assn got
together in an "Open Competition Plan" they owned 5% of the mills and
produced 1/3 of the hard goods. INTENDING TO PRICE FIX IS A CARTEL-ILLEGAL
1. PURPOSE OF PLAN: to disseminate among members
knowledge of produc and mkt conditions so that
each member
may gauge the mkt intelligently
instead of guessing. Also,
each firm speculated
on FUTURE not just held to what occured in
past.
2. PERFECT INFO: NOT always good, b/c here only seller
has all the info, buyer info not increased. (perfect
info may not be beneficial in circumstances where there are
high barriers to entry; few comprs; a highly concentrated
mkt; and inelastic demand.)
3. PRICE FIXED: NO incentive to lower price; firms
rec'd knowledge of price and argued this was to
maintain a REASONABLE PRICE, but what's
reasonable?
4. BARRIER TO ENTRY b/c stores acting cooperatively
ins
tea
d
of
com
pet
iti
vel
y.
Fir
ms
wer
e
aga
ins
t
com
p'n
5. Ct held this looked like cartel; good decision b/c
90
firms were trying to tell mkt what to do. NOTE:
now after soconoy DON'T LOOK AT INTENT to fix
price,
but rather EFFECT.
6. BRANDEIS DISSENT: need sys that helps sm business
7. HOLMES DISSENT: don't hurt sys that provides
knowledge of bus.
C. Past data and aggregated data exchgs are not illegal.
Map
le
flo
ori
ng:
com
prs
wit
h
22
fir
ms
and
70%
of
the
mkt
.
1. PURPOSE: to exchg PAST info re: mkt conditions, NOT
PRICE.
2. b/c only seen as info exchg ct says its okay.
Furthe
r, see
public
intere
st
improv
ed by
info
gather
ed and
dissem
inated
.
3. NOTE: there was no FURTURE OR PRESENT info; no
91
COERCI
VE
mechan
sims
pressu
ring
member
ship;
data
was
availa
ble to
NONMEM
BERS
for
reason
able
fees.
Mkt
struct
ure of
the
indust
ry
sugges
ts
that
it is
not
highly
concen
trated
or
tendin
g
toward
collus
ion.
92
(THE
LESS
CONCEN
TRATED
THE
MKT,
THE
MORE
EXCHG
OF
INFO
CAN BE
PROCOM
PETITI
VE.)
D. container corp of America: cardboard box ind. with very
inelastic demand. (defs were 90% of carbd in SE) NOT A
CARTEL, BUT INFO EXCHG AGMT, SO USE RULE OF REASON.
1. PURPOSE: cos agree to call each other to confirm
LAST PRICE OFFERED, to verify buyers quoting price
is rt.
2. Ct held setting price is illegal per se, and PRICE
i
s
t
o
o
c
r
i
t
i
c
a
l
t
o
a
l
l
o
w
i
t
t
93
o
b
e
u
s
e
d
e
v
e
n
i
n
a
n
i
n
f
o
r
m
a
l
m
a
n
n
e
r
t
o
r
e
s
t
r
a
i
n
c
o
m
p
'
n
.
T
94
h
e
c
t
a
l
s
o
s
a
i
d
t
h
a
t
t
h
e
y
e
x
c
h
g
d
i
n
f
o
t
o
s
t
a
b
i
l
i
z
e
d
o
w
n
w
a
r
95
d
s
p
i
r
a
l
i
n
g
p
r
i
c
e
t
h
i
s
i
s
i
l
l
e
g
a
l
b
/
c
i
t
s
h
o
w
s
a
n
i
n
f
96
l
u
e
n
c
e
o
n
p
r
i
c
e
.
C
o
n
c
u
r
r
i
n
g
,
J
U
D
G
E
F
O
R
T
A
S
:
N
O
T
P
E
R
S
E
I
L
97
L
E
G
A
L
,
B
U
T
R
U
L
E
O
F
R
E
A
S
O
N
,
l
o
o
k
a
t
e
f
f
e
c
t
a
n
d
s
e
e
i
l
l
e
g
a
l
.
98
D
i
s
s
e
n
t
,
J
U
D
G
E
M
A
R
S
H
A
L
L
:
m
k
t
i
s
n
o
t
o
l
i
g
o
p
o
l
i
s
t
i
c
e
n
u
f
99
i
n
l
i
g
h
t
o
f
e
a
s
e
o
f
e
n
t
r
y
t
o
j
u
s
t
i
f
y
i
n
f
e
r
e
n
c
e
t
h
a
t
p
r
i
c
e
i
100
n
f
o
w
i
l
l
s
t
a
b
i
l
i
z
e
p
r
i
c
e
s
.
3. MKT POWER: Container
Ct concluded that the mere
exc
hg
of
cur
ren
t
pri
ce
inf
o
amo
ng
com
prs
in
an
oli
gop
oly
for
a
fun
gib
101
le
pro
duc
t
is
unl
awf
ul.
Ct
inf
err
ed
an
agm
t
to
exc
hg
pri
ces
fro
m
the
fac
t
tah
t
pri
ce
exc
hgs
occ
urr
ed
reg
ula
rly
and
str
uct
ure
lly
had
90%
of
cor
rug
ate
d
con
tai
102
ner
mkt
(wh
ich
was
ine
las
tic
).
E. gypsum: Issue is if the def can be found CRIMINALLY
neglig
ent,
see
need
mens
re.
Convic
ted of
price
fixing
after
found
effect
, but
NO
INTENT
. Ct
found
HIGHLY
CONCEN
TRATED
MKT
(94%
of all
sales
nation
wide)
and
INELAS
TIC
demand
.
(rejec
ted
contai
103
ners
per se
approa
ch)
F. If you're talking to a compr about price, then its
illega
l. B/c
(a)
price
and
(b) if
you're
talkin
g to
compr
its
probab
ly not
aiding
compet
ition.
G. LEGAL WAYS INDUSTRIES CAN EXCHANGE DATA:
1. past info thru trade assn, headed by indpt person
that puts it into aggregated form.
2. no conversation abt price, production or events to
come in future, it can be abt mkt.
3. in a highly concentrated mkt it is dangerous to
shar
e
info
b/c
it
can
be
easi
ly
disa
ggre
gate
d,
ther
e's
a
grte
104
r
tran
spar
ency
of
the
data
,
and
may
have
the
coll
abor
ativ
e
effe
ct
of
rais
ing
pric
e.
X. STANDARDIZATION AND BOYCOTT:
A. DEFN OF BOYCOTT: A CONCERTED REFUSAL TO DEAL with others
or to deal only on unfavorable terms in order to directly or
indirectly discipline or exclude a target.
1. Horizontal agmt b/w comp'rs aimed at a comp'r or a
potential comp'r.
2. PURPOSE is to insulate bus from targets of comp'n.
3. To determine if per se:
a. OBJECTIVES & EFFECTS of the agmt (as if cartel)
and
b. the MKT POWR of the firms engaged in the
concerted conduct
c. Fox says is "naked boycott" (where clearly
excl
udin
g
othe
rs)
then
per
se,
105
rega
rdle
ss
of
mkt
powe
r.
4. ILLEGAL PER SE: if more than just concerted see
Superior Ct Trial Lawyers. NEED TO GANG UP TO HURT
OTHERS TO PRICE FIX OR GANG UP SO COMPRS CHANGE
THEIR TERMS. (per se b/c price fixing agmt)
5. STANDARD SETTING may be neutral or procompetitive
(s
ta
nd
ar
d
tr
ac
k
of
ra
il
ro
ad
s)
or
an
ti
co
mp
et
it
iv
e
(s
ee
B
be
lo
w)
B. Ex. TRADE ASSN: comprs set safety rules re: gas burner
106
sa
yi
ng
to
pr
ev
en
t
ga
s
le
ak
in
g,
or
tr
ad
e
as
sn
no
t
ju
st
fo
r
ga
s
bu
rn
er
ma
ke
rs
bu
t
fo
r
ga
s
su
pp
li
er
sif
yo
107
u
do
n'
t
fo
ll
ow
sa
fe
ty
ru
le
s
we
ag
re
e
we
wo
n'
t
se
ll
ga
s
to
yo
u
CO
ER
CI
VE
BO
YC
OT
T.
It
ma
y
BL
OC
K
EN
TR
Y
in
to
108
mk
t.
C. If there are PROCOMPETITIVE JUSTIFICATIONS for a boycott,
us
e
ru
le
of
re
as
on
.
No
rt
hw
es
t
St
at
io
ne
rs
v.
Pa
ci
fi
c:
10
0
re
ta
il
er
s
of
st
at
io
na
ry
pr
od
uc
ts
ge
t
to
ge
109
th
er
so
th
ey
ca
n
se
ll
bo
th
re
ta
il
an
d
"m
em
be
r
pr
ic
e"
wh
ic
h
we
re
di
sc
te
d.
Ru
le
s
of
as
sn
sa
y
NO
du
al
di
st
ri
bu
to
rs
hi
110
p,
bu
t
al
lo
we
d
Pa
ci
fi
c
in
As
sn
th
en
ex
pe
ls
Pa
ci
fi
c
w/
o
an
y
OT
BH
.
Pa
ci
fi
c
sa
ys
th
e
as
sn
is
IL
LE
GA
L
PE
R
SE
,
co
111
er
ci
ve
bo
yc
ot
t.
1. CT held: not illegal per se b/c like bmi with pro
competitive justifications such as effcy and no
price increase or output limits ON CONSUMERS.
2. Pacific had to show mkt power, which it didn't have.
It is per se illegal only if increase power--only
require mkt power when not naked boycott (where
procompetitive justifications exist.)
3. Also, note stationary involved an ancillary
restraint--involved discipline and expulsion of
member
of buying cooperative. (violn itself not
analyzed under per se)
D. When boycott deals with price, illegal per se, b/c price
fixing is illegal per se. ftc v. IN fed of dentists:
insurance cos (who represent CONSUMERS) require xrays to be sent
to ensure filling really needed, thus keep cost down. Dentists
get together and agree not to fulfill insurers request.
1. dentists argue: quality of care defense, see from
profl engineers that this will fail.
2. B/c this goes to CORE OF PRICE SETTING, easy to find
illegal. Ct doesnt care as much abt MKT POWER as
in NW
Stationers b/c here naked boycott.
3. NOTE: Ct used Rule of reason, PER SE ILLEGAL VERY
NARROW-- only for severe overriding of mkt.
Superior Ct Trial Lawyers; or ganging up to get
rid of
compr.
E. POLITICAL BOYCOTT: is NOT PER SE--not nec. political
acti
on.
Peop
le
boyc
otti
ng
not
in
stre
am
of
comm
erce
(thu
112
s
not
supe
rior
ct
tria
l
lawy
ers)
.
Clei
burn
e
1. a noncommercial boycott established in furtherance
o
f
s
o
m
e
p
o
l
i
t
i
c
a
l
g
o
a
l
i
s
g
e
n
e
r
a
l
l
y
e
x
e
113
m
p
t
f
r
o
m
A
T
l
i
a
b
i
l
i
t
y
,
w
h
e
t
h
e
r
o
r
n
o
t
t
h
e
b
o
y
c
o
t
t
i
s
a
n
114
t
i
c
o
m
p
e
t
i
t
i
v
e
b
/
c
:
a. constl--1st amdt (but not dispositive-trial
lawyers
b. Sherman act is not for noncommercial acts
F. Concerted refusals to deal facilitate cartels and price
fixing.
XI. POLITICAL ACTION: Not an AT violn if it's a political action
(if
state clearly articulated and expressed the policy and superivised the
activity; applies to legislative and executive action. Groups can
associate together in order to convince the legislature or exec to take
some action, whether or not the action sought would be anticompetitive.
A. eastern rr v. noerr motor freight: rr trade assn banded
together to discourage passg of st law that would
increase amt of weight trucks can drive. RRs called
trucks bad names to get legislation agt truckers,
truckers sue claiming AT CONSPIRACY.
1. RR CONSPIRED AGT COMPRS; NAKED RESTRAINT, thus
suspicious. RR says social reasons, preserve
safety but as in profl engineers this isnt enuf.
2. FIRST AMDT: rt to petition govt, freedom to assoc.
3. ct says Sherman Act doesnt cover lobbying govt.
SHERMAN ACT DOESNT APPLY TO ST ACTION. (footnote
17 citing parker v brown)
4. to get state action protection:
a. state must have clearly articulated and
expresssed policy to limit mkt
and
b. STATE MUST SUPERVISE ACTIVELY!
c. in ticor state said cos must file tariff, but
115
b
/
c
s
t
a
t
e
o
n
l
y
r
u
b
b
e
r
s
t
a
m
p
s
t
a
r
i
f
f
,
h
e
l
d
n
o
t
e
n
u
f
s
u
p
e
r
116
v
i
s
i
o
n
s
o
N
O
S
T
A
T
E
A
c
t
i
o
n
,
b
u
t
r
a
t
h
e
r
c
a
r
t
e
l
!
B. Executive branch can be influenced under state action:
pe
nn
in
gt
on
:
lg
117
co
al
mi
ne
O
an
d
un
io
ns
we
re
su
ed
by
sm
al
l
co
al
pr
od
uc
er
s
to
co
mb
in
e
an
d
pe
rs
ua
de
se
c
of
st
at
e
to
ra
is
e
mi
118
ni
mu
m
wa
ge
fo
r
mi
ne
rs
to
hu
rt
sm
.
co
al
pr
od
uc
er
s.
Ct
he
ld
ca
n
in
fl
ue
nc
e
ex
ec
br
an
ch
of
go
vt
,
no
sh
er
ma
n
ac
119
t
vi
ol
n.
C. No protection when petitioning is not meant to achieve
ac
t
pe
ti
ti
on
ed
fo
r.
SH
AM
EX
CE
PT
IO
N:
ca
li
f
mo
to
r
tr
an
sp
or
t
v.
tr
uc
ki
ng
un
li
mi
te
d:
co
mp
rs
SE
EM
to
120
PE
TI
TI
ON
bu
t
re
al
ly
on
ly
to
HU
RT
CO
MP
'R
s,
cl
oa
ki
ng
th
ei
r
ha
rm
fu
l
in
te
nt
in
go
vt
ac
ti
on
hu
rt
co
mp
rs
by
ab
us
121
in
g
pr
oc
es
s.
Ct
he
ld
th
is
CH
IL
LS
CO
MP
N,
de
ni
ed
im
mu
ni
ty
.
profl real estate: CONSTL RTS:
1. FACTS: resort hotel operators attempting to mkt
disc
s
that
Colu
mbia
hold
s
opyr
ts
on.
Colu
mbia
sues
hote
122
ls
for
copy
rt
infr
ingm
t
and
hote
ls
coun
terc
laim
alle
ging
copy
rt
was
SHAM
cloa
king
cons
pira
cy
to
mono
p.
Dist
ct
gran
ted
summ
judg
mt
to
colu
mbia
.
2. HOLDING: Sct affirmed holding AT immunity required
t
123
h
a
t
u
n
p
r
o
t
e
c
t
e
d
a
c
t
i
v
i
t
y
l
a
c
k
s
o
b
j
e
c
t
i
v
e
r
e
a
s
o
n
a
b
l
e
n
e
124
s
s
.
N
o
e
r
r
r
e
j
e
c
t
e
d
t
h
e
c
o
n
t
e
n
t
i
o
n
t
h
a
t
a
n
a
t
t
e
m
p
t
t
o
i
n
f
125
l
u
e
n
c
e
t
h
e
p
a
s
s
g
a
n
d
e
n
f
o
r
m
t
o
f
l
a
w
s
m
i
g
h
t
l
o
s
e
i
m
m
u
n
i
t
y
m
126
e
r
e
l
y
b
/
c
l
o
b
b
y
i
s
t
s
s
o
l
e
p
u
r
p
o
s
e
w
a
s
t
o
d
e
s
t
r
o
y
t
h
e
i
r
c
o
m
127
p
r
s
.
3. TWO PRONG TEST OF SHAM:
a. if claim is not credible (if "objectively
basele
ss")-if you
have
some
chance
of
winnin
g then
its
consid
ered
credib
le
b. and baseless suit is "an attempt to interfere
d
i
r
e
c
t
l
y
w
i
t
h
t
h
e
b
128
u
s
i
n
e
s
s
r
e
l
a
t
i
o
n
s
h
i
p
o
f
a
c
o
m
p
r
t
h
r
u
t
h
e
u
s
e
o
f
t
h
e
g
o
v
t
p
129
r
o
c
e
s
s
a
s
o
p
p
o
s
e
d
t
o
t
h
e
o
u
t
c
o
m
e
o
f
t
h
e
p
r
o
c
e
s
s
.
(
s
e
e
130
n
e
e
d
f
o
r
p
r
o
b
a
b
l
e
c
a
u
s
e
)
c. NOTE: ottertail would fall into sham exception,
using govt process of suing to hurt compr
from getting funds.
4. SOUTER concurs: said no need to go beyond Calif
motors. He argues facts!
D. LOCAL govt does not receive immunity town of hallie v.
ci
ty
of
ea
u
cl
ai
re
:
lo
ca
l
go
vt
to
be
pr
ot
ec
te
d
ON
131
LY
if
st
at
e
sa
ys
lo
ca
l
go
vt
ca
n
di
sp
os
e
co
mp
'n
an
d
ha
s
AC
TI
VE
SU
PE
RV
IS
IO
N.
1. in local govt at act of 1984: limit liab to
injunction (NO damages)
E. If boycott is purely expressive (1st Amdt) then political
aciton. Cleiborne: Civ rt act in midst of discrim in
MIssissippi. Boycott by bl agt white merchants organized by NAACP.
white merchants sue as violn of AT law; naacp says FIRST AMDT
rts, sct agreed and said BOYCOTT WAS SYMBOLIC SPEECH. (note: no
violence or personal gain from boycotters--unlike triall
lawyers.); PURELY EXPRESS
F. superior ct trial lawyers: lawyers boycott for publicity
in order to raise fees. Trying to get legislative action.
Lawyers argue they have noer pennington defense, b/c trying to get
govt action. They argued that rr hurt truckers in NOeerr thru bad
132
advertising
1. Ct held NO NOERR exception, b/c OBSTRUCTING process
and OUTPUT LIMITING. their action HURT COMPN. And,
lawyers hoped to benefit directly with more income. (Unlike
noerr where govt action hurt compn) They were in a
buyer/seller relationship w/the govt and anticompetitive
injury resulted not from govt's acquiesence to lawyers
demands, but from the boycott itself.
2. lawyers said use RULE OF REASON b/c dealing with
FIRST AMDT RTS. ct refused b/c PRICE FIXING AND
BOYCOTT. SEE BOYCOTT CAN BE PER SE ILEGAL B/C
DEALING WITH PRICE.
G. hartford insur: boycott and REGULN:
1. FACTS: defs are members of insur industry who
conspired to restrict the terms of coverage of CGL
insurance. (changes include from claims made to
occurence based, etc.)
2. dealing with MCCaren Fergueson Act--exception to AT
law for insurance (allowing for discussion of
rates when REGULATED), but within there's an
exception in sec 3b if cos engaged in COERCIVE
ACTIVITY OR BOYCOTT.
?
3. Thus case turns on whether this is boycott, to
determ
ine if
liable
or
not.
Rule
is
boycot
t
refusa
l to
deal
and
not
protec
ted
b/c
not
relate
d
to
133
covera
ge
expans
ion.
Here,
b/c no
prior
discus
sion
of why
need
to
refuse
to
deal
and
seems
hurts
consum
ers,
say
coerci
ve
effort
to get
all to
do
what
you
want
like
lorrai
n
journa
l.
Fox
says
defs
feel
they
134
win
b/c
Scalia
gave
area
of
what's
a
boycot
t a
bigger
exempt
ion.
GET
FACTS!
!
4. See BOYCOTT CAN BE ILLEGAL PER SE IF COMPRS
WITHOLDING SOMETHING UNTIL THEY CHANGE THE WAYS OF
TARGET.
H. POLICY: is this state action good? yes if believe all
hav
e
fai
r
acc
ess
,
but
no
if
fea
r
spe
cia
l
int
gro
ups
.
Fur
the
r
fea
r
if
sel
135
ler
s
in
Cal
if
but
buy
ers
are
out
of
sta
te,
b/c
out
of
sta
te
int
ere
sts
NOT
rep
res
ent
ed
in
Ca.
(Ye
t,
Con
g
can
pre
emp
t
alo
t
wit
h
int
ers
tat
e
com
mer
ce.
136
)
(Ra
isi
n
cas
e)
XII. HORIZONTAL MERGERS: in analyzing consider: fear
gaining too much MKT POWER so that
maintain prices above competitive levels
of time.
A. what is the RELEVANT MARKET? DEFN: A MKT: a
of merged co
the co can profitably
for a significant period
group of
prod
ucts
and
a
geog
raph
ic
area
in
whic
h it
is
prod
uced
or
sold
such
that
a
hypo
thet
ical
prof
itmaxi
mizi
ng
firm
,
not
subj
ect
to
pric
e
137
regu
ln,
that
was
the
only
pres
ent
and
futu
re
prod
ucer
or
sell
er
of
thos
e
prod
ucts
A RELEVANT MKT: described by a product or group and a
area no bigger than necessary to satisfy this
test.
1. start w/smllest possible mkt
2. test mkt size by considering hypo of 5% inc in
in
that
area
like
ly
woul
d
impo
se
at
leas
t a
SSNI
P.
geo
price,
if
increa
se can
be
138
mainta
ined
(custo
mers
don't
shift)
then
found
a
releva
nt
mkt.
Ex. hospital corp located in Chatanooga, hospital
is the mkt.
3.Demand: hospital in chatanooga can increase price,
b/c demand is inelastic
4. Supply: what other cos come into mkt when P
increases 5%? If firms can enter easily--w/i 1 yr
w/o too high a cost than consider that firm to be
in
mkt.
5. KEY DOCS TO FIND RELEVANT MKT: advertisements and
br
oc
hu
re
s,
yo
ur
s
an
d
co
mp
rs
,
sa
le
s
ma
te
ri
al
s
tr
139
ai
ni
ng
ma
te
ri
al
s,
sp
ec
if
ic
ia
ti
on
s
by
cu
st
om
er
s;
me
mo
s
re
pr
op
os
ed
pr
ic
in
g.
6. to measure CONCENTRATION IN MKT: use HERFENDEIL
INDEX: HHI under 1000 is safe. To determine:
multiply share of merger partners * 2
Ex. in hospitals if pre merger 14% and post merger
26% then one hospital had 14% and other had 12% so
14*12*2=HHI (KEY DOCUMENTS: mkt share are 5 yr
plan or speeches pre-merger vote or other docs re
contemplated merger.)
7. Defense wants largest relevant mkt possible b/c that
decreases the firm's power in the mkt. DEFEND BY:
a. non-competing --2 hospitals serve differ people
b. reasonable interchangeability--price
sensitivity, in pricing cross pen consider
price of bic; paper & plastic shopping
140
bags.
c. production flexibility--lights can be short or
long.
d. ease of entry--doesnt change percenatge but
shows not so much power
B. what are POTENTIAL ADVERSE COMPETITIVE EFFECTS?
the smller the %age of total supply that a firm controls, the more
severely it must restrict its own output in order to produce a
given price increase, and the less likely it is that an output
restriction will be profitable. problematic things include:
1. sharing key info re: mkt
2. transactions and indl competitors
3. extent of firm and product heterogeneity
4. characteristics of b and s
Firms can be different and not raise concerns if
differentiated products, relevant prod are less
similar than other prod in mkt; rival sellers
replace lost
comp'n; firms w/diffier capacities;.
C. what are the BARRIERS TO ENTRY?
1. can entry be achieved w/in a timely period?
2. can entry be profitable? (cause prices to fall
to
pre-merger levels or lower)
D. what are the EFFECIENCIES gained from the action?
1. this is the primary benefit of merger
2. exs. better integration, specialization,
cheaper production
E. HISTORY:
1. merger law fist adopted in 1914 w/CLAYTON ACT;
2.
in
1940
s
w/fe
ar
of
busi
ness
powe
r,
pass
ed
CELL
ER-
Keif
huve
r
Act
whic
141
h
amen
ded
SEC
7 of
the
Clay
ton
Act-"no
firm
or
pers
on
may
acqu
ire
anot
her
wher
e
the
effe
ct
may
be
to
subs
tant
iall
y
less
en
comp
etit
ion.
"
3. HART SCOTT RODINO: requires mergers to file NOTICE
F. Brown Shoe 1962--NO LONGER GOOD LAW. very agressively
anti-merger; prohibited merger b/w Buster Brown and
Kinnny b/c didn't want to concentrate mkt, Ct here very
concerned w/small business.
G. general dynamics: statute alone isn't sufft to make out
g
142
o
v
t
c
a
s
e
.
H
i
g
h
m
k
t
s
h
a
r
e
s
o
f
y
e
s
t
e
r
d
a
y
d
o
e
s
n
o
t
p
r
o
v
e
t
o
m
o
143
r
r
o
w
.
H. merger guidelines: merger is illegal if increase or
create
mkt
powr
in a
signif
icant
way.
Genera
lly
look
if
output
limiti
ng
and/or
price
raisin
g.
I. FAILING FIRM DEFENSE: citizen pub. co:
1 of 2 firms is a failing firm, on brink of bankruptcy
and can be saved only by merging, DOJ may be more generous.
After all, acquisition would probably not increase mkt powr.
J. ftc v. coca-cola: Coke wanted to acquire Dr. Pepper and
used merger guideline analysis. , Coke was motivated by
divergent considerations; acquisiton could be
profitible; good b/c dr peppers debts will be pd; also
coke
gets into resourses in bottling.
1. THE MKT: is carbonated soft drinks; the carbonated
soft drink mkt is guided by concentrate cos like
coke and dr pepper that develop and promote a
variety of concentrate flavorings. Concentrate
cos grant bottlers exclusive franchises.
(dthus
not all beverages as coke alleges
b/c special
things in soda not just thirst
quenching. But, not
just cola
2. THE CONCENTRATION: mkt is highly concentrated
3. BARRIERS TO ENTRY: exclusive bottler contracts;
substl time and expense make it difficult to
enter; ALSO need "new" flavor to enter
4. ANTICOMPETITIVE EFFECT: dominant comprs may choose
144
t
o
r
e
l
a
x
c
o
m
p
n
a
n
d
e
n
j
o
y
l
g
e
r
p
r
o
f
i
t
s
;
o
n
e
l
e
s
s
i
n
d
p
t
f
a
c
145
t
o
r
i
n
m
k
t
t
o
c
h
a
l
l
e
n
g
e
d
o
m
i
n
a
n
c
e
o
f
C
o
k
e
.
"
W
i
t
h
o
u
t
m
o
r
e
146
,
s
u
b
s
t
l
m
e
r
g
e
r
s
i
n
h
e
a
v
i
l
y
c
o
n
c
e
n
t
r
a
t
e
d
i
n
d
u
s
t
r
i
e
s
a
r
e
147
p
r
e
s
u
m
e
d
i
l
l
e
g
a
l
.
"
A
n
d
,
"
t
h
e
s
c
t
h
a
s
m
a
d
e
c
l
e
a
r
t
h
a
t
o
n
c
e
148
t
h
e
g
o
v
t
h
a
s
e
s
t
a
b
a
p
r
i
m
a
f
a
c
i
e
c
a
s
e
o
f
s
e
c
7
v
i
o
l
n
b
a
s
e
d
149
o
n
a
s
i
g
n
i
f
i
c
a
n
t
i
n
c
r
e
a
s
e
i
n
m
k
t
c
o
n
c
e
n
t
r
a
t
i
o
n
a
s
t
h
e
F
T
150
C
h
a
s
d
o
n
e
h
e
r
e
,
i
t
i
s
i
n
c
u
m
b
e
n
t
u
p
o
n
t
h
e
a
c
q
u
i
r
i
n
g
c
o
m
p
a
n
151
y
t
o
s
h
o
w
t
h
a
t
t
h
e
n
m
k
t
s
a
r
e
s
t
a
t
i
s
t
i
c
s
g
i
v
e
a
n
i
n
a
c
c
u
r
a
t
e
152
a
c
c
t
o
f
t
h
e
a
c
q
u
i
s
t
i
o
n
s
p
r
o
b
a
b
l
e
e
f
f
e
c
t
s
o
n
c
o
m
p
n
.
"
Coke says still compn b/c Pepsi exists, but not
enuf. Giselle said no to Coke b/c merger laws
concerned with concentration which was proven here
by FTC.
153
XIII. JOINT VENTURES:
A. DEFN: JV is a creation of a single entity by 2 or more
in
dp
t
fi
rm
s
fo
r
re
se
ar
ch
,
pr
od
uc
ti
on
,
an
d/
or
mk
ti
ng
.
(F
ir
ms
ma
y
be
co
mp
rs
,
po
te
nt
ia
l
co
mp
rs
or
th
154
os
e
in
a
ve
rt
ic
al
re
la
ti
on
sh
ip
.)
B. JV CAN BE ANTICOMPETITIVE OR PROCOMPETITIVE:
1. PROCOMPETITIVE JV: Goal is to allow and even
encourage such ventures if they can aid the
consumers -invention and increase in efficiency
1. JV can be efft b/c economy of scale results
from lower per unit cost of performing a lg #
of similar operations.
2. JV can be orgainzed to distribute more EFFTLY.
3. JV can limit FREE RIDERS--by doing R&D together
one firm doesn't bear all costs of invention.
2. ANTICOMPETITIVE JV: can use JV as a cover for
collusion. Facilitate P fixing, territorial
division
cartels; output restrictions; and greater
monop power.
C. CONDEMN THE VENTURE IF THE THREAT TO COMPN IS SUBSTL.
consider: jv's purpose, effect, restrictions and
access:
1. JV w/comprs lead to possibility of P fixing
2. even if participants are comprs only anticompetitive
if collectively firms have MKT POWER
3. if JV activities involve price or output decisions,
then anticompetitive (r&d ventures are procomp. but
mkting; product stdization are anticomp)
D. rothery v. atlas van lines: agents argue that atlas
the
nati
onwi
de
move
r
impo
sing
on
agen
ts
that
155
it
had
to
char
ge
same
rate
for
Atla
s
movi
ng
as
thei
r
own
acts
was
anti
comp
etit
ive;
pltf
HAD
TO
show
conc
erte
d
refu
sal
to
deal
(boy
cott
) -show
conc
ert
b/w
agen
ts
in
agrm
t
with
156
atla
s
and
atla
s.
BOYC
OTT
is
ille
gal
per
se.
Clai
m
OUTP
UT
LIMI
TING
.
Per
se
ille
gal,
and
if
not
then
rule
of
reas
on.
1. ATLAS DEFENDS: no mkt power (only 6-7%) thus not
illegal b/c cant raise price or limit output.NO
intent. PROCOMPETITIVE EFFECT--EFFCY, END FREE
RIDER. free rider decreases output so good bus
reason to get rid of it.
2. Judge bork says NO MKT POWER is decisive. End case
3. Judge Wald says balance. Prevent agents from
competing; are there less anticompetitve
alternatives.
4. UNDETERMINED if should follow Bork or Wald.
E. GM/TOYOTA: possible anti competitive effects considered:
1. colude on PRICE based on DATA EXCHG. to have jt
ventrue need to share lots of sensitive info.
2. MKT BASKET by deciding price based on all sm cars
3. is this a MKT DIVISION
4. DESIGN/INNOVATION STIFLING
5. DOMINO EFFECT
157
FTC focuses on price and mkt division and design.
Limi
ts
pric
e
and
raw
data
exch
gs
in
cons
ent
decr
ee.
Find
s
this
is
not
a
mkt
divi
sion
but
actu
ally
procomp
b/c
Japa
n
will
open
othe
r
plan
ts
here
afte
r
they
158
lear
n
how
US
cos
work
.
Put
in
cons
ent
decr
ee
limi
t on
numb
er
of
cars
to
be
prod
uced
,
ther
eby
cont
inui
ng
GM's
ince
ntiv
e to
deve
lop
thei
r
own
desi
gns.
Cons
ent
decr
159
ee
last
ed
12
yrs,
then
deci
de
to
with
draw
and
main
tain
jv,
sinc
e
MKT
NOW
IS
VERY
COMP
ETIT
IVE.
F. JV also has problem abt sharing mkt info like Data
Exchanges; could lead to cartel; or monopoly; or price
fixing; or boycott.
XIV. CIRCUMSTANTIAL EVIDENCE
A. Infer agrmt (to find Sec 1 violn) determine probability
o
f
c
o
n
s
p
i
r
a
c
y
(
a
c
t
160
i
n
g
i
n
t
e
r
d
e
p
e
n
d
e
n
t
l
y
)
a
n
d
p
r
o
b
a
b
i
l
i
t
y
o
f
a
c
t
i
n
g
i
n
d
e
p
e
n
161
d
e
n
t
l
y
.
1. if def. actions were a RADICAL departure from prior
practice, then could have agrmt.
2. if def was AWARE that co-def had been solicited,
the
n
cou
ld
hav
e
agr
mt.
3. if def had been INVITED to engage in alleged
consipracy, then could have agmt.
4. if each def had SUBSTL PROFIT MOTIVE for action,
then could have agmt.
5. if def ACTUALLY PARTICIPATED in scheme and engaged
in substl UNANIMITY OF ACTION or uniform conduct,
then could have agmt.
B. EVIDENCE from which to infer collusion:
1. very stable mkt share (inconsistent w/compn; rigid
s
t
a
b
i
l
i
t
y
s
u
g
g
e
s
t
s
162
f
i
r
m
s
i
n
m
k
t
h
a
v
e
r
e
a
c
h
e
d
a
n
u
n
d
e
r
s
t
a
n
d
i
n
g
a
b
t
t
h
e
i
r
o
u
t
p
163
u
t
)
2. rigid price structure (in competitive mkt, prices
rise and fall w/demand)
3. industry-wide use of facilitating devices (std
production)
C. interstate circuit: RIMLESS WHEEL
1. FACTS: interst cir wanted to raise prices, showing A
film for 40 cents. Sent letter to each of 8
producers/suppliers. All motion picture producers agreed to
raise price. Def. had 75% mkt share of all 1st class
feature films in area. Evid of Sec. 1 violn is letter to
distributors asking them to agree to impose controls on
admission price. Each agreed individually, yet each
distributor knew that the others had rec'd the letter. Thus
GOVT INFERRED AGMT.
a. An affirmative response to the letter by any 1
distributor would have been irrational,
unless the distributor had reason to believe that all
other distributors were going to do the same thing.
b. Note: they violated horiz. P fixing
2. ISSUE: whether a horiz agrmt among motion picture
producers/distrib could be INFERRED.
3. RIMLESS WHEEL: can you draw a rim around the 8
producers to connect them with each other and the
movie theatre.
a. NO K: INFER from "rt was enuf that, knowing
tha
t
con
cer
ted
act
ion
was
con
tem
pla
ted
and
inv
164
ite
d,
the
dis
tri
b.
gav
e
the
ir
adh
ere
nce
to
the
sch
eme
and
par
tic
ipa
ted
in
it.
"
4. ct says b/c of higher price, radical change, can't
b
e
l
i
e
v
e
t
h
a
t
t
h
i
s
w
a
s
165
n
o
t
a
c
o
n
s
p
i
r
a
c
y
.
B
U
T
c
t
n
e
v
e
r
l
o
o
k
e
d
t
o
s
e
e
i
f
I
n
t
e
r
s
t
c
i
r
166
h
a
d
a
l
o
t
o
f
p
o
w
e
r
,
a
n
d
t
h
u
s
w
a
s
a
b
l
e
t
o
r
a
i
s
e
i
t
s
p
r
i
c
e
o
n
i
t
167
s
o
w
n
.
FINDS: OLIGOPOLISTIC INTERDEPENDENCE: the
producers behave in CONSCIOUS PARALLELISM. They
all
knew and all followed consciously to have
uniform price.
(Pltf must add some PLUS factor to
raise jury question of
collusion--any fact that
makes the inference of collusion
stronger than the
inference of indept choice.
D. Theatre Enterprises v Paramount:
1. FACTS: to open new theatre requires license from
pro
duc
ers
to
sup
ply
fil
ms.
In
Bal
tim
ore
, 8
dow
nto
wn
the
ate
res
eac
h
wit
h
exc
lus
ive
rts
.
Did
168
n't
lic
ens
e 2
com
pet
ing
fir
ms
to
sho
w
sam
e
fil
m.
The
n,
blt
sho
ppi
ng
cen
ter
and
ask
ed
for
lic
ens
e.
The
ate
r
cos
ref
use
d.
2. Theater argues must have conspired b/c gave good
169
pri
ce
and
non
e
acc
ept
ed
the
off
er.
3. OLIGOPOLISTIC INTERDEPENDENCE IS NOT ILLEGAL; found
NO conspiracy rather each refused to license
indeptly. Firms can have a good reason not to
license, thus leave BUSINESS DECISIONS up to
firms--here each co will give exclusive film rts
to
those theatres that can draw the largest
audiences, all all such
theatres were downtown.
E. BURDEN ON PLTF to prove agmt was enhanced to "tend to
exc
lud
e
the
pos
sib
ili
ty"
tha
t
the
def
s
wer
e
act
ing
ind
ptl
y.
Oth
erw
ise
no
jur
y
iss
170
ue
wil
l
be
cre
ate
d,
and
def
.
rec
eiv
es
sum
mar
y
jud
gmt
.
Mat
sus
hit
a:
Jap
ane
se
Ele
ctr
oni
cs
1. Japanese defs were sued for Conspiracy b/c they had
cartel in Japan which kept prices artificially high,
and thus had excess production, tried to get rid of it by
selling it in US at lower than Amn prices, thus Amn firms
suffer. Amn firms claim AT VIOLN.
2. Amn firms EVIDENCE: Japanese set minimum prices thru
mtg BUT evidence that they cheated and went below
these floors, thus more like indept actors; 5 co rule --each
Japanese co can only sell to 5 Amn distributors; Price
Exchgs; De Poudin economist report--Japanese went below
their cost. PLTF leaves GAP b/w collusive practices and low
price.
3. Def argues: existence of cartels in Japan doesnt
give incentive for them to cause AT violn.
4. the problem is that def's price is lower than pltfs,
so even if def does all these bad things, if price is
still lower than Amn price than that's good for consumers.
And, ct can't see a reason for them to complain that the
171
Japanese are dividing mkt, thus raising their price, b/c
that only makes Amn firms competitive. ALSO if pltf were
private consumers saying they're hurt, probably go to jury,
but b/c they were comprs ct was not as concerned. CHICAGO
SCHOOL: Concern about the consumer not compr.
5. Cts deny possibility of price predation b/c they
don
't
see
a
way
to
rec
oup
and
thu
s
usi
ng
CHI
CAG
O
SCH
OOL
say
tha
t
if
no
rec
oup
men
t
pos
sib
le,
a
rat
ion
al
fir
m
won
t
172
do
thi
s.
6. Under Matsushita pltf must show that a conspiracy
ex
is
te
d,
an
d
th
at
on
ce
it
ex
is
te
d
th
at
it
hu
rt
co
ns
um
er
s.
a. CONSPIRACY: must present evidence that tends to
exclude the possiblity that the alleged
conspirators acted indptly
NOTE: FN21 says that pltf cannot infer
conspiracy from conduct that is as consistent
with
permissible compn as with illegal
conspiracy.
F. Kodak: LESSENED THE STANDARD OF PROOF RE: INFERENCES:
sho
w
onl
y
rea
son
abl
e
173
inf
ere
nce
s
of
con
spi
rac
y
to
inj
ure
plt
f
in
ord
er
to
get
to
jur
y.
Fox
say
s
thi
s
bac
ks
awa
y
fro
m
Mat
sus
hit
a.
Eas
ier
to
fin
d
con
spi
rac
174
y
now
.
G. Copperweld: there is NO INTERFIRM (parent/sub) violn of
section 1; a parent/sub cannot conspire b/c they don't
separate indept interests, they don't compete
other.
1. OPEN QUESTION: Copperweld only applies to wholy
have
against each
owne
d
subs
,
what
abt
part
iall
y
owne
d or
49%
and
pare
nt
has
effe
ctiv
e
cont
orl
of
co?
Cts
look
to
see
if
they
are
acti
ng
as 1
corp
acto
r
175
with
same
inte
rest
s.
176
VERTICAL RESTRAINTS:
A. CONSIDER: does it increase competition by having
retailers/wholesalers compete based on quality and
service or
does it decrease comp'n by decreasing the #
of producers.
1. RPM ARE ILLEGAL PER SE, WHILE OTHER NONPRICE
VERTICAL RESTRAINTS USE RULE OF REASON.
2. NOTE: classification of restriction as vertical or
h
o
r
i
z
c
a
n
b
e
d
e
t
e
r
m
i
n
a
t
i
v
e
.
(
e
s
p
t
r
o
u
b
l
e
s
o
m
e
177
w
h
e
n
m
f
r
o
p
e
r
a
t
e
s
o
n
s
a
m
e
l
e
v
e
l
a
s
t
h
e
f
i
r
m
s
i
t
s
u
p
p
l
i
e
178
s
,
g
e
n
e
r
a
l
l
y
c
t
u
s
e
s
v
e
r
t
i
c
a
l
r
e
s
t
r
a
i
n
t
i
n
t
h
e
s
e
s
i
t
u
a
t
i
179
o
n
s
.
B
u
t
,
c
o
u
l
d
s
e
e
i
t
a
s
c
o
n
s
p
i
r
a
c
y
a
m
o
n
g
d
e
a
l
e
r
s
b
e
n
e
f
i
180
t
i
n
g
d
e
a
l
e
r
s
,
o
r
b
e
f
i
t
t
h
e
d
e
a
l
e
r
s
a
n
d
m
f
r
(
v
e
r
t
i
c
a
l
r
e
s
t
181
r
a
i
n
t
r
e
s
u
l
t
i
n
g
f
r
o
m
c
a
r
t
e
l
o
f
d
e
a
l
e
r
s
)
.
)
B. VERTICAL INTEGRATION: a firm is vertically integrated
whe
nev
er
it
per
for
ms
for
its
elf
182
som
e
fn
tha
t
cou
ld
oth
erw
ise
be
pur
cah
sed
in
the
mkt
pla
ce.
Can
int
egr
ate
ver
tic
all
y
by:
1.
problem,
integration is
2.
enter a new mkt on its own--this is rarely a
only problem is if firm that existed
before the
a monopolist (like
Ottertail)
Merge w/another firm that carries on vertically
related activity--Scrutinized under Sec. 7 of
Clayton Act and Sec. 1 of Sherman.
3. enter into a long-term K w/another firm--exclusive
d
e
a
l
i
n
g
a
183
n
d
t
y
i
n
g
a
n
a
l
y
z
e
d
u
n
d
e
r
S
e
c
1
o
f
S
h
e
r
m
a
n
a
n
d
S
e
c
3
o
f
C
l
a
y
t
o
184
n
.
V
e
r
t
i
c
a
l
P
r
i
c
e
m
a
i
n
t
e
n
a
n
c
e
a
n
d
n
o
n
p
r
i
c
e
r
e
s
t
.
u
n
d
e
r
185
S
e
c
1
o
f
S
h
e
r
m
a
n
.
C. WHY FIRMS INTEGRATE: generally NOT to become monopoly and
earn monop profit, but rather to reduce their costs, which
in a competitive mkt will be passed on to consumer. (b/c increases
effcy--produc and transaction cost savings often legal)
1. fear (although not often): increased mkt power;
barr
iers
to
entr
y;
pric
e
disc
rim;
vert
ical
inte
grat
ion
by
cart
els
to
stop
cart
el
from
chea
186
ting
.
I. CUSTOMER AND TERRITORY RESTRAINTS:
A. OLD RULE: when a company restrains trade by only allowing
whlser to sell to auth. distributors, thereby ELIMINATING
INTRABRAND COMPETITION, it is illegal per se b/c it restrains the
freedom of trade.Schwinn
1. Schwinn retailers were permitted only to buy from
th
e
di
st
ri
bu
to
r
in
th
ei
r
as
re
a
an
d
pe
rm
it
te
d
to
se
ll
on
ly
to
co
ns
um
er
s.
Ct
he
187
ld
pe
r
se
il
le
ga
l.
IN
CO
NS
IS
TE
NT
W/
PR
OM
OT
IO
N
OF
EC
O
BE
NE
FI
TS
fl
ow
in
g
fr
om
ve
rt
ic
al
re
st
ra
in
ts
.
B. NEW RULE: When terr. restrictions exist, use RULE OF
REAS
188
ON
anal
ysis
b/c
rest
rain
ts
can
prom
ote
INTE
RBRA
ND
COMP
N,
and
elim
inat
e
the
free
ride
r
effe
cts.
gte
Sylv
ania
.
(non
pric
e
vert
ical
rest
rain
ts
are
NOT
ille
gal
per
se.)
1. NOTE: change in law b/c of Chicago School influence.
No longer concerned with freedom to trade
(competitors) but rather interested in consumers, thus as
long as interbrand compn exists, consumer is not hurt.
THERE CAN BE NO DETRIMENTAL INTRABRAND EFFECTS UNLESS THE
189
MFRER HAS MKT POWER.
2. Vertical non-price restraints are not considered
nak
ed
res
tai
nts
.
3. CHICAGO SCHOOL argue that vert. pr. fixing promotes
eff. and compn b/c mfr's goal is to increase output,
not prices. They say mfr is best able to set retail price
that induces dealer services (ads and repair) and that
providing these services increases sales.
a. Prevents FREE RIDER when some dealers provide
s
e
r
v
i
c
e
s
(
t
r
a
i
n
e
d
s
a
l
e
s
p
e
o
p
l
e
,
190
e
t
c
)
a
n
d
o
t
h
e
r
s
d
o
n
'
t
b
u
t
c
h
a
r
g
e
l
o
w
e
r
p
r
i
c
e
.
b. Consumers get INFO from trained sales and buy
a
191
t
l
o
w
e
r
p
r
i
c
e
.
c. price min. necessary to protect brand images.
(
I
n
t
e
r
b
r
a
n
d
c
o
m
p
n
c
a
n
b
e
i
n
c
r
e
a
s
e
d
i
192
f
s
u
p
p
l
i
e
r
c
a
n
d
e
c
r
e
a
s
e
i
n
t
r
a
b
r
a
n
d
f
r
e
e
-
r
i
d
i
n
g
.
)
4. INTERVENTIONISTS: vertical p fixing leads to price
193
u
n
i
f
o
r
m
i
t
y
,
c
o
m
p
n
i
s
m
o
s
t
e
f
f
t
a
n
d
e
f
f
e
c
t
i
v
e
i
f
a
l
l
r
194
e
t
a
i
l
e
r
s
h
a
v
e
t
h
e
f
r
e
e
d
o
m
t
o
p
r
i
c
e
p
r
o
d
u
c
t
s
a
t
t
h
e
l
e
v
e
l
t
195
h
e
y
d
e
t
e
r
m
i
n
e
i
s
b
e
s
t
,
a
n
d
r
e
t
a
i
l
e
r
s
f
o
r
f
a
i
r
n
e
s
s
r
e
a
s
o
n
196
s
s
h
o
u
l
d
h
a
v
e
i
n
d
e
p
e
n
d
e
n
c
e
t
o
d
e
c
i
d
e
p
r
i
c
e
.
r
e
s
t
r
i
c
t
i
o
197
n
a
m
o
n
g
d
e
a
l
e
r
s
;
l
a
c
k
o
f
i
n
t
r
a
b
r
a
n
d
c
o
m
p
n
.
(
f
u
r
t
h
e
r
t
h
e
198
y
p
o
i
n
t
o
u
t
t
h
a
t
c
h
i
c
a
g
o
s
c
h
o
o
l
a
r
g
u
m
t
a
s
s
u
m
e
s
t
h
a
t
d
i
s
c
t
199
e
r
s
d
o
n
o
t
p
r
o
v
i
d
e
n
e
c
e
s
s
a
r
y
s
e
r
v
i
c
e
s
)
profl
5. APPLY RULE OF REASON:
a. focus on whether interbrand compn continues
b. consider procompetitive reasons to adopt
vertical restraint.
1. can play a role in assuring safety and
quality of product (unlike
engineers)
2. can eliminate free rider effect and other
effcys (see above)
c. consider mkt power of firm--only a firm w/mkt
power can earn monopoly profits.
6. VERTICAL NON PRICE RESTRINTS MAY LEAD TO PRICE
200
DISCRI
MINATI
ON. A
mfr
w/mkt
power
in 1
geo
terr.
may
attemp
t to
capita
lize
on its
positi
on by
segrat
ing
the
terr
in
which
it has
mkt
power.
Vertic
al
terr.
restri
citons
which
minimi
ze
buyer/
seller
contac
t that
firms
in
201
differ
terr
have
with
one
anothe
r may
lead
to
price
discri
minati
on.
C. DOJ VERTICAL GUIDELINES: permissive view of nonprice
vert
ical
rest
rain
ts-that
they
rare
ly
have
an
anti
comp
etit
ive
effe
ct.
1. if territorial or customer restraints, then concern
if facilitating collusion among comprs.
2. GOVT ANALYZES BY:
a. MKT STRUCTURE SCREEN identifies mkts in which
t
e
r
202
r
i
t
o
r
i
a
l
a
n
d
c
u
s
t
o
m
e
r
r
e
s
t
r
a
i
n
t
s
a
r
e
t
o
f
a
c
i
l
i
t
a
t
e
c
o
l
203
l
u
s
i
o
n
o
r
f
o
r
e
c
l
o
s
e
c
o
m
p
e
t
i
t
o
r
s
.
U
s
e
V
E
R
T
I
C
A
L
R
E
S
T
R
A
I
204
N
T
I
N
D
E
X
b
y
d
e
t
e
r
m
i
n
i
n
g
t
h
e
m
k
t
s
h
a
r
e
s
o
f
t
h
e
f
i
r
m
s
i
205
n
m
k
t
,
s
q
u
a
r
i
n
g
t
h
e
m
k
t
s
h
a
r
e
s
,
a
n
d
t
h
e
n
s
u
m
m
i
n
g
t
h
e
m
.
b. SCREEN B/C small frims or firms in
unconcentrated mkts are unlikely to be able
206
to
employ vertical restrains as a means of
collusion among comprs.
facilitating
II. RESALE PRICE MAINTENANCE: is vertical price fixing--situation
in
which mfr dictates price at which buyers must resell. IT IS ILLEGAL PER
SE--REGARDLESS OF MKT POWER OR PROCOMPETITIVE JUSTIFICATIONS. monsanto
v. sprayrite
A. if producer sells directly to retailer or thru wholesaler
and fixes prices (you cant sell this at less than $1/jar),
then restraint on trade and alienation (property rights), ILLEGAL
PER SE. Dr Miles (vertical price fixing agmts are per se illegal
Sharp) Dr Miles is an old case relying on notion of FREE TRADER
needing free mkt, and anything that restrains selling his goods or
trade is AT violn.
1. Ct is concerned that such vertical price fixing can
be a horizontal CARTEL of producers setting price and
not competing. Whenever you see price fixing look to see if
comprs are doing the same thing and whether there are
barriers to entry. If so, assume a horizontal cartel.
2. Mfr will argue that they need a minimum price for:
a. reputation--"luxury" products are expensive
b. provide incentive for wholesaler/retailer to
buy more b/c need not compete on price.
c. provide incentive for whlsr/retlr to provide
service/educ/training.
3. Supplier (mfr) uses such restrictions (price or non-price)
merely to earn more. Profitiable b/c either they increase his effcy in sys OR
they increase his mkt power, thus monop profits earned.
B. STATE ACTION/RPM: RETAILERS UNHAPPY b/c more flourish
wit
h
rep
eal
of
ret
ail
pri
ce
mai
nte
nan
ce.
Thu
s,
STA
TE
LEG
ISL
207
ATU
RES
pas
s
FAI
R
TRA
DE
LAW
S
all
owi
ng
res
ale
pri
ce
fix
ing
con
tra
cts
.
1. cts have held can FIX PRICE, AS LONG AS INTERBRAND
comp'n.
2. McGuire ACT passed b/c retailers need protection or
out of bus, allowing price fixing even among nonsignors of contracts. (ie wont sell to them unless they sign
k saying price will be $2)
3. 1975 fair trade laws repealed b/c of fact finding
that with laws price increased 20%
4. RPM is ILLEGAL PER SE but is always debated.
a. should be per se b/c retailers can use it to
fa
ci
li
ta
te
th
ei
r
ow
n
ho
208
ri
z.
re
st
rt
s.
or
b. opposed to per se b/c RPM eliminates free rider
problm and doubt cartel b/c either too large for all
the comprs and mfrs to agree. Or, if no compn, then mfr
wont agree b/c he wouldn't want to decrease sales.
C. There is a STANDING problem in RPM cases. Atlantic
Richfield
III. REFUSAL TO DEAL AND RESALE PRICES: infer an agmt-- issue is does an agmt
exist, can we find a conspiracy when retailer asks mfr to cut off
discter or when retailer cuts off discter on his own? Generally, NO b/c
of freedom of trade and effcy reasons. these cases involve SUGGESTING A
PRICE, RATHER THAN FIXING A PRICE.
A. One CANNOT infer an agreement form any combination of the
following:
1. Mfr "suggests" retail prices (fix retail price on
prod or distribute retail price list)
2. mfr announces policy or informs retailer that it
will sell to them only if they sell at the retail
price.
3. mfr terminates retailers that sell below the
suggested price
COLGATE doctrine. If mfr does the above it's legal b/c
it's not a k, combo or consprir.
RATIONALE: MFRS UNILATERAL ACTION: Mfrs have a rt to
ma
ke
in
de
pe
nd
en
t
se
le
ct
io
n
of
re
ta
il
er
s
an
d
209
to
an
no
un
ce
th
e
co
nd
it
io
ns
un
de
r
wh
ic
h
th
ey
wi
ll
re
fu
se
to
se
ll
.
Th
us
,
mf
r
ha
s
FR
EE
DO
M
TO
TR
AD
E,
bu
t
do
210
n'
t
kn
ow
ho
w
to
in
fe
r
ag
mt
.
Co
lg
at
e
(W
/O
AN
AG
MT
,
RP
M
IS
LE
GA
L.
)
B. LIMIT COLGATE DOCTRINE: When a mfr engages in any step
be
yo
nd
a
me
re
re
fu
sa
l
to
de
al
(a
ny
"P
211
LU
S
FA
CT
OR
S"
)
th
en
hi
s
co
nd
uc
t
is
il
le
ga
l.
Mf
r
ma
y
NO
T
TH
RE
AT
EN
or
wa
rn
re
ta
il
er
,
b/
c
ct
wi
ll
co
ns
tr
212
ue
it
as
an
AT
TE
MP
T
TO
IN
DU
CE
AN
AG
MT
fr
om
a
no
nc
om
pl
yi
ng
re
ta
il
er
.
1. facts of parke davis: mfr's announced policy of
refu
sing
to
deal
w/:d
isct
ng
reta
iler
s
and
whol
esal
ers
213
who
deal
t
w/di
scti
ng
reta
iler
s;
term
inat
ion
of
disc
ting
reta
iler
s;
sugg
n of
reta
il
pric
es;
and
rein
stat
ment
of
nonc
ompl
ying
reta
iler
s
upon
prom
ise
of
comp
lian
ce.
(PD
sold
to
214
whol
esal
ers
and
big
reta
iler
s,
big
reta
iler
s
sell
chea
per
then
othe
r
reta
iler
s,
PD
w/o
much
powe
r
over
big
reta
iler
s
who
aren
t
prov
idin
g as
much
serv
ice
as
215
othe
rs;
PD
on
its
own
deci
ded
to
brea
k
ties
w/bi
g
reta
iler
s
who
then
sue
that
a
pric
e
cons
pira
cy
exis
ts)
Ct
held
ille
gal
b/c
PD
went
beyo
nd
Colg
ate
in
that
it
used
216
refu
sal
to
deal
as
a
thre
at
to
gain
whol
esal
e
part
icip
atio
n.
Thus
,
ct
impl
ied
a
comb
o
b/c
of
PD's
coer
cive
ness
.
2. Ct is concerned w/coercive retailer who complains to
mfr, russel stover candies--from retail price
maintainance retailer receives an implict conspiracy to keep
price at certain level (clear price signals) PROBLEM OF
COERCSION. (russel stovers candies held legal b/c all
retailers complied, mfr didn't have to enforce the price
level). with high mkt power, it is easier for RPM system to
survive w/o enforcement, b/c no alternatives for buyers.
C. RESURRECTION OF COLGATE: When you can infer INDEPDT
acti
on
as
easi
ly
217
as
infe
rrin
g
CONS
PIRA
CY,
you
infe
r
indp
t
acti
on.NEED
EVID
ENCE
THAT
:
1. COMPLAINT CONCERNED MFR'S PRICING and not merely
vio
ln
of
som
e
res
tri
cti
on
not
per
tai
nin
g
to
pri
ce.
2. MFR AND COMPLAINING DEALERS ACTED IN AGMT
3. FACTS monsanto: non-dominant retailer complains that
discter is not fulfilling necessary training etc that mfr
requrires and is charging lower price; thus mfr cuts off discter;
disctr files suit saying it was cut off b/ of retail price fixing
conspiracy. B/c retailers ask for it is this a conspiracy?
a. concerted v. indpt action
b. eco effect of pricing and nonpricing restatints
is in many cases similar.
218
c. pricing agmts may be used to implement a more
e
f
f
t
m
k
t
i
n
g
p
l
a
n
.
C
t
n
o
t
e
d
t
h
a
t
n
o
a
g
m
t
a
r
i
s
e
s
f
r
o
m
m
f
r
s
a
219
n
n
o
u
n
c
e
m
e
n
t
o
f
a
p
l
a
n
a
n
d
d
e
a
l
e
r
s
a
c
q
u
i
e
s
e
n
c
e
(
t
h
i
s
d
i
f
f
e
r
s
220
f
r
o
m
t
h
e
d
i
c
t
a
i
n
A
l
b
r
e
c
h
t
)
.
4. In Monsanto evid which established an agmt requries
a showing of "a conscious commitment to a common
scheme designed to achieve an unlawful objective." Thus
must be DIRECT OR CIRCUMSTANTIAL EVID that tends to exclude
the possibility that defs were acting indptly.
D. It is necessary to PROVE AN AGMT REGARDING A PARTICULAR
PRICE OR PRICE LEVEL b/c the mfr and complaining
retailer. Sharp-- a specific price or price level needs
to be
agreed upon.
1. sharp espouses Chicago school: interbrand compn is
t
h
e
p
r
i
n
c
i
p
a
l
c
221
o
n
c
e
r
n
o
f
A
T
l
a
w
a
n
d
t
h
a
t
p
e
r
s
e
s
t
d
s
h
o
u
l
d
p
r
o
t
e
c
t
o
n
l
y
i
n
t
222
e
r
b
r
a
n
d
c
o
m
p
n
,
n
o
t
i
n
t
r
a
b
r
a
n
d
c
o
m
p
n
.
T
h
u
s
,
u
s
e
R
U
L
E
O
F
R
E
223
A
S
O
N
.
E
i
t
h
e
r
t
h
i
s
i
s
n
o
t
a
n
a
g
m
t
b
/
c
n
o
a
g
m
t
t
h
a
t
i
t
w
i
l
l
224
m
a
i
n
t
a
n
i
n
p
r
i
c
e
l
e
v
e
l
o
r
S
h
a
r
p
c
o
u
l
d
a
r
g
u
e
a
g
m
t
t
o
c
u
t
o
f
f
225
p
r
i
c
e
c
u
t
t
e
r
b
/
c
i
t
i
s
p
r
i
c
e
c
u
t
t
e
r
a
n
d
n
o
t
f
u
l
f
i
l
l
i
n
g
s
e
r
226
v
i
c
e
r
e
q
u
i
r
e
m
t
s
.
2. FACTS: like Monsanto, complts by retailer that
anothe
r
retail
er was
discti
ng and
the
mfr's
subseq
uent
termin
ation
of
discte
r.
The
compla
iner
said
it was
concer
ned
with
the
discte
rs
FREE
227
RIDING
. In
sharp,
howeve
r,
complt
s were
made
by a
powerf
ul
retail
er
which
threat
ened
to
discon
tinue
sellin
g the
mfr's
produc
ts if
the
mfr
did
not
termin
ate
the
disctr
. But
this
compla
int/
termin
ation
did
not
228
involv
e a
price
agmt.
3. NO CONCERN ABT CARTEL: b/c interbrand compn exists.
(chicago) Ct said no cartel b/c no agmt on actual
resale price; but Fox says visibility of rpm and cutting off
those that don't comply can be an enforcement mechanism for
a producer level cartel. Horizonatal cartel w/naked
restraint involving coercion of mfr to eliminate price
compn.
E. STANDING: questionable if terminated discter had standing
b/c questionable AT injury--discter wants lost profits it
claims that it would have made if def's vertical price fixing was
successful. Thus, discter's success depended on the def's
anticompetitive conduct, thus NO AT INJURY.
IV. MAXIMUM RESALE PRICES: Is this a way to exploit or to hide
the
minimum price fixing?
A. FIXING MAXIMUMS, just as fixing minimums, is PER SE
ILLEGAL b/c it cripples the FREEDOM OF TRADERS and
could be
used as a minimum. Kiefer-Stewart. (liquor
producers/distrib want
to hold price down, but
wholesalers wanted to inc price)
B. Fixing maximum lowers price, sets ceiling.
C. Albrecht terr for distrib newspaper is assigned and max
p
r
i
c
e
s
e
t
;
A
t
r
i
e
s
t
o
s
e
l
l
a
b
o
v
e
229
m
a
x
p
r
i
c
e
a
n
d
H
e
r
a
l
d
m
a
k
e
s
a
n
a
g
m
t
w
/
a
n
o
t
h
e
r
s
a
l
e
s
r
e
p
a
n
d
c
230
u
s
t
o
m
e
r
s
t
o
t
a
k
e
c
u
s
t
o
m
e
r
s
a
w
a
y
f
r
o
m
A
,
t
h
u
s
A
G
R
E
E
M
E
N
T
i
s
f
231
o
u
n
d
.
S
e
e
p
r
i
c
e
m
a
i
n
t
e
n
a
n
c
e
a
n
d
u
n
i
t
y
o
f
i
n
t
e
n
t
o
n
h
o
r
i
z
o
232
n
t
a
l
l
e
v
e
l
.
C
t
a
f
r
a
i
d
t
h
a
t
i
t
w
i
l
l
u
s
e
m
a
x
s
a
s
s
u
b
t
e
r
f
u
g
e
233
f
o
r
m
i
n
s
,
b
/
c
w
a
y
t
o
c
o
m
p
e
t
e
i
s
t
o
l
o
w
e
r
p
r
i
c
e
s
t
o
c
o
n
s
u
m
e
r
234
s
,
t
h
u
s
b
r
o
a
d
p
r
o
p
h
a
l
y
c
t
i
c
r
u
l
e
l
i
k
e
f
o
r
c
a
r
t
e
l
s
.
??? CAN SETTING TERRITORIES BE LEGAL?
1. NOTE: Albrecht also had exclusive territory
restrictions, so had MONOPOLY POWER.
2. If the motivation is sufftly anticompetitve act may
fashion a conspiracy concept to satisfy the concerted
action requirement of sec. 1.
3. ct found COMBO b/c parties that DONT HAVE DIRECT
235
INT
ERE
ST.
Ct
rea
son
ed
tha
t
if
can
fin
d
agm
t
in
par
ke
dav
is
by
thr
eat
to
who
les
ale
rs,
tha
n
sur
ely
mus
t
hav
e
vio
ln
her
e
whe
re
new
236
spa
per
sol
ici
tat
ed
oth
er
com
pan
y
and
new
car
rie
r
kne
w
the
pur
pos
e
was
to
for
ce
plt
f
to
obs
erv
e
the
max
imu
m
pri
ce.
(Ct
hel
d a
lib
era
237
l
vie
w
of
per
se
vio
lnapp
lyi
ng
it
eas
ily
-and
a
nar
row
vie
w
of
Col
gat
e.)
D. Albrecht upheld in Arco, see even though ct's main
concern in interbrand compn, don't want exploitation.
E. WHY MAXIMUMS CAN BE GOOD:
1. they provide an incentive to keep price down
2. they squeeze distributors to sell more--since
distributors cant increase price, to raise
they must raise their sales.
profits,
V. EXCLUSIVE DEALING: restraint the mfr imposes on itself not to create
intrabrand compn. In analyzing decide, IS THIS
EXCLUSIVE DEALING
ARRANGMT ANTICOMPETITIVE OR NOT? PRIMARY IMPACT OF EXCLUSIVE DEALING IS ON
INTERBRAND COMPN. VIOLN: IF THE ARRANGEMENT MAKES IT MORE DIFFICULT FOR
COMPETING MFRS TO FIND OUTLETS FOR THEIR PRODUCTS. (if entry is more
difficult) Because can be efft, use RULE OF REASON.
A. CLAYTON ACT
3: was passed in response to narrow interp
of Sherman. Can find tying and exclusive purchasing k's
illegal. LIMITED TO GOODS (not services). Maybe use Sherman Act
for goods & services.
B. where the effect is to LESSEN COMPETITION, is lower std
t
h
a
238
n
t
e
n
d
s
t
o
c
r
e
a
t
e
a
m
o
n
o
p
o
l
y
,
w
h
e
n
a
n
a
l
y
z
i
n
g
e
x
c
l
u
s
i
v
e
d
e
a
239
l
i
n
g
l
o
o
k
t
o
E
F
F
E
C
T
O
N
C
O
M
P
'
N
.
C. MKT POWER must be evaluated to determine if deal hurts,
y
o
u
c
a
n
n
o
t
l
o
o
k
a
t
p
r
i
c
e
a
l
o
n
240
e
.
V
a
l
l
e
y
L
i
q
o
u
r
;
t
a
m
p
a
e
l
e
c
t
r
i
c
.
E
x
c
l
u
s
i
v
e
d
e
a
l
i
n
g
w
i
l
241
n
o
t
f
o
r
e
c
l
o
s
e
a
n
y
o
n
e
o
r
c
r
e
a
t
e
a
n
e
n
t
r
y
b
a
r
r
i
e
r
u
n
l
e
s
s
t
h
e
242
f
i
r
m
e
n
g
a
g
i
n
g
i
n
e
x
c
l
.
d
e
a
l
i
n
g
i
s
a
m
o
n
o
p
o
l
i
s
t
o
r
u
n
l
e
s
s
e
x
243
c
l
u
s
i
v
e
d
e
a
l
i
n
g
i
s
w
i
d
e
s
p
r
e
a
d
i
n
i
n
d
u
s
t
r
y
.
D. Posner discusses FREE RIDER effect as well, thus
exclusive
dealing could be ok. Valley Liquor. (here,
free rider would be
retailer riding on the promotional
efforts of a mfr from whom it
purchases.)
E. Consider the FORCLOSURE EFFECT ON CONSUMERS: Foreclosure
occ
urs
whe
n
ver
tic
244
al
int
egr
ati
on
by
one
fir
m
den
ies
ano
the
r
fir
m
acc
ess
to
a
mar
ket
.
(on
ly
occ
urs
whe
n
one
of
the
fir
ms
bei
ng
int
egr
ate
d
is
a
mon
opo
lis
t.)
1. in Tampa ct said one cos great mkt share that leads
to foreclosure of smller shares would be illegal. (b/c
245
k did not tend to substantially foreclose compn in the
relevant mkt, no violn found.)
2. Foreclosure cases are rare and must consider effect
on consumers and mkt power--the theory is that a longterm requrirement or excl dealing ties up one or both levels
of a mkt, so that remaining participants or potential
entrants do not have adequate sources of supply or outlets.
F. ENTRY BARRIER THEORY: exclusive dealing makes it more
dif
fic
ult
for
new
fir
ms
to
ent
er
a
mkt
,
b/c
ll
sui
tab
le
tra
din
g
par
tne
rs
hav
e
alr
ead
y
com
mit
ted
the
ir
cap
aci
ty
to
oth
ers
246
.
one
1. This only occurs when mkt is not competitive (ie
partner is a monopolist)
2. Even if mkt is monopolized at one level, it is not
e
a
s
y
t
o
s
e
e
h
o
w
i
n
c
r
e
a
s
e
i
n
m
o
n
o
p
p
r
i
c
i
n
g
o
r
d
e
c
r
247
e
a
s
e
o
u
t
p
u
t
.
A
m
o
n
o
p
o
l
i
s
t
o
f
a
n
y
s
i
n
g
l
e
d
i
s
t
r
i
b
.
l
e
v
e
l
i
248
s
c
a
p
a
b
l
e
o
f
e
a
r
n
i
n
g
a
l
l
m
o
n
o
p
p
r
o
f
i
s
t
s
a
v
a
i
l
a
b
l
e
f
r
o
m
a
d
249
i
s
t
r
i
b
u
t
i
o
n
c
h
a
i
n
.
T
h
u
s
,
h
a
r
d
t
o
s
e
e
h
o
w
m
o
r
e
p
r
o
f
i
t
s
c
a
n
250
b
e
e
a
r
n
e
d
.
3. Might injure consumers not by increasing monop
price,
but
rather
by
delayi
ng
compet
itive
entry.
G. TEST: determine percentage of the relevant mkt
"foreclosed"
by the exclusive dealing arrangement. In
Tampa, ct defined mkt in
such a way that the percentage
foreclosed by an exclusive deling k
covering coal to be
supplied to an elec utility was less than 1%.
However,
rather than relying exclusively on that low percentage,
ct instructed the GENERAL EFFECT of the arrangement to
be
considered as well.
H. PROCOMPETITIVE JUSTIFIC:
a. Seller: assured outlet for goods
b. Buyer: dependable source of supply.
c. Overall: lower transaction costs, thus may be lower
prices for consumer; prevent free riding. If the
retailer is obligated to purchase only one brand of
merchandise, it will be inclined to promote that brand, thus
enhancing interbrand comp.
I. NOTE: exclusive dealing can be used to facilitate
collusion--cartel.
VI. TYING: PRIMARY IMPACT IS ON INTERBRAND COMPN
VIOLN: IF THE ARRANGEMENT MAKES IT MORE DIFFICULT FOR COMPETING MFRS TO
FIND OUTLETS FOR THEIR PRODUCTS.
A. MODIFIED ILLEGAL PER SE to require the purchase of one
pr
od
uc
t
wh
en
251
pu
rc
ha
si
ng
a
se
pa
ra
te
pr
od
uc
t
(t
yi
ng
pr
od
),
if
th
e
co
ha
s
MK
T
PO
WE
R
in
th
e
ty
in
g
pr
od
.
ib
m
1. Illegal under Sec. 1 of Sherman or Sec. 3 of Clayton
2. When do NOT have mkt power, can use Rule of Reason
under Clayton Act. (Jefferson Parish)
B. If have mkt power can be price discriminating, where able
to find out who heavy users are and charge them more than
light users, b/c as in IBM, heavy users need more cards, thus more
252
expensive for them. This is known as ARBITRAGE. IBM hides what
its doing by putting addl costs in other mkt.
C. BUT THIS PRICE DISCRIM CAN INCREASE (RATHER THAN LIMIT)
OUTPUT b/c both light and heavy users will buy.
D. ELEMENTS OF TYING CLAIM:
1. see tie b/w 2 separate products (not fnally
integrated)
2. must have mkt power in mkt for tying product
3. must use power to force buyer to take tyed prod
(pow
er
used
to
prev
ent
comp
n on
the
meri
ts.)
and
4. not insubstl amt of tied prod must be sold (not
insubstl amt was $50000 in intl salt and 190,000
in Fortner. (thus consumers hurt)
5. POLICY:
a. old: foreclose comprs from selling tied
product, fencing out of mkt; buyer loses
choice; concern abt exploitation; barrier
to entry.
b. new: only if there's a monop in tying prod,
wil
l
con
sum
er
los
e
cho
ice
,
and
no
lon
ger
253
car
e
muc
h
abt
com
prs
.
6. CHICAGO SCHOOL does not agree that tying is a problm
b/c they don't believe that monopoly power can be
transferred from one mkt to another. Rather, they believe
tying can AID INTERBRAND COMPN.
E. "MOST FAVORED NATION CLAUSE" I'll give you the best price
I give anyone; provides the freedom to buy at lowest $.
This provides for cartel so that gives sellers
disincentive
to lower price b/c if dec. for one,
decrease for all. Intl salt
F. "MEET COMPRS PRICE" also provides for cartel b/c if
meetin
g
price,
know
what
others
are
chargi
ng,
thus
way
of
enforc
ing
agreed
price
and
findin
g
cheate
rs.
G. Tying allows charging the "competitive" or "regulated"
price for one product and lessening price or increasing price for
the other, thus either by decreasing price insuring sale will be
made, or by increasing price, ensuring addl profit.
H. Northern Pacific RR govt regulated land sale price
around
rr,
254
thus
by
tying
in
rate
of
shippi
ng,
can be
compet
itive.
Since
regula
ted
land
price
is
fixed,
if
decrea
se
shippi
ng
rate,
offer
is
more
attrac
tive.
Found
illega
l per
se b/c
firm
had
mkt
power.
1. this was era of "FREE TRADER" Philosophy. Thus,
denying competitors free access is enuf to form a
violn.
I. Tying is illegal when seller has mkt power and no procom
pet
itv
e
255
jus
tif
ica
tio
ns.
WHE
N
MKT
POW
ER
IS
NOT
SUB
STA
NTI
AL
(se
ems
sub
jec
tiv
e
amt
),
USE
RUL
E
OF
REA
SON
TO
DET
ERM
INE
IF
TYI
NG
IS
ILL
EGA
L.
Jef
fer
son
Par
ish
256
.
1. FACTS: hospital in New Orleans has exclusive dealing
k with one group of anestesiologists. Ct found
relevant mkt to be entire New Orleans area, thus mkt power
was only 30%.
2. Then, ct found k could benefit customers, and that
t
h
e
r
e
w
a
s
n
o
e
v
i
d
t
h
a
t
t
h
e
p
r
i
c
e
,
q
u
a
l
i
t
y
o
r
s
u
257
p
p
l
y
w
e
r
e
a
d
v
e
r
s
e
l
y
a
f
f
e
c
t
e
d
b
y
t
h
e
a
r
r
a
n
g
e
m
e
n
t
.
I
f
i
t
c
a
258
n
b
e
e
c
o
n
o
m
i
c
a
l
l
y
j
u
s
t
i
f
e
d
f
o
r
p
k
i
n
g
t
o
g
e
t
h
e
r
,
t
h
e
n
u
s
e
r
259
u
l
e
o
f
r
e
a
s
o
n
.
L
o
o
k
w
h
a
t
'
s
b
e
i
n
g
d
o
n
e
h
o
s
p
i
t
a
l
i
s
n
o
t
f
260
o
r
c
i
n
g
a
n
e
s
t
h
e
o
s
i
o
l
o
g
i
s
t
f
o
r
h
o
s
p
i
t
a
l
'
s
g
i
a
n
,
n
o
p
r
o
f
i
261
t
f
o
r
h
o
s
p
i
t
a
l
o
n
l
y
e
n
s
u
r
e
s
w
e
l
l
q
u
a
l
i
f
i
e
d
d
r
a
n
d
e
f
f
t
262
s
e
r
v
i
c
e
.
T
h
i
s
c
a
n
d
e
c
r
e
a
s
e
d
r
'
s
c
o
s
t
.
a. ct also looked to see if 2 products or 1
FUNCTIONALLY INTEGRATED PACKAGE OF SERVICES that
consumers couldn't buy separately. (if fnally
then no tying)
3. O'Connor concurs saying no per se rule in tying
integrated,
shou
ld
exis
t.
Alwa
ys
need
to
anal
yze
263
the
mkt
to
dete
rmin
e if
rest
rain
t
decr
ease
s
outp
ut
or
incr
ease
s
pric
e.
4. POLICY: ct rid of free trader notion, only concerned
with effcy and consumer protection (consumer with
choices)
J. Is mkt power in intra brand or interbrand mkt? kodak v.
I
m
a
g
e
T
e
c
h
n
i
c
a
l
S
e
r
v
i
c
e
s
264
S
e
e
m
s
t
h
a
t
m
o
d
i
f
i
e
d
p
e
r
s
e
r
u
l
e
s
t
i
l
l
e
x
i
s
t
s
i
n
t
y
i
n
g
,
b
u
265
t
h
a
r
d
e
r
a
n
d
h
a
r
d
e
r
t
o
a
p
p
l
y
.
1. FACTS: Kodak makes copiers originally allows service
by Indpt Service Operators, then stops ISOs. Copier
service either from Kodak itself or cos who own the copier
can buy Kodak parts and perform their own service (thus
favoring the big cos)
2. Equipment mkt (tying mkt) is presumed to be
competitive, thus Kodak says no tie. Kodak says
if
they have to be competetive, and b/c now known
that service will
be included than the combination
offer must be competitive with
other service/equip
deals possible. This THEORY is correct,
but
Blackmun says facts here differ with theory, need
to look at facts. (scalia only wants to rely on
theory).
3. Blackmun says (and ct held) information costs and
sw
it
ch
in
g
co
st
s
266
ar
e
hi
gh
fo
r
sm
ll
er
co
s
or
co
s
th
at
bo
ug
ht
w/
o
kn
ow
in
g
th
at
IS
Os
wo
ul
d
be
ph
as
ed
ou
tLO
CK
IN
EF
FE
CT
267
:
in
a
mk
t
in
wh
ic
h
ri
va
ls
co
mp
et
e
w/
ph
ys
ic
al
ly
di
ff
er
en
ti
at
ed
pr
od
uc
ts
,
co
ns
um
er
s
ar
e
ge
ne
ra
ll
y
268
de
pt
up
on
th
e
mf
r
of
eq
ui
p
wh
ic
h
th
ey
ha
ve
pr
ev
io
us
ly
pu
rc
ha
se
d
fo
r
re
pl
ac
em
en
t
pa
rt
s,
b/
c
th
e
de
si
gn
269
of
eq
ui
pt
so
ld
un
de
r
ea
ch
br
an
d
is
di
ff
er
fr
om
th
e
de
si
gn
of
th
e
ri
va
ls
br
an
d,
re
pl
ac
em
en
t
pa
rt
s
wh
ic
h
270
fi
t
on
e
br
an
d
do
n'
t
fi
t
th
e
ot
he
r.
Th
us
,
co
ns
um
er
s
ar
e
lo
ck
ed
in
to
bu
y
or
ig
in
al
br
an
d'
s
re
pl
ac
em
271
en
ts
.
4. If Kodak never made ISOs available, would not think
that Kodak was exploiting its customers.
5. Kodak REFUSED TO LIMIT AT MKT POWER TO INTERBRAND
MK
T
PO
WE
R.
Ex
pa
nd
s
mk
t
po
we
r
to
an
yw
he
re
th
er
e
ar
e
si
gn
if
ic
an
t
mk
t
im
pe
rf
ec
ti
on
s
272
th
at
pe
rm
it
on
e
fi
rm
to
in
cr
ea
se
pr
ic
e
an
d
an
ot
he
r
to
de
cr
ea
se
ou
tp
ut
.
Or
,
mk
t
po
we
r
ca
n
be
fo
un
d
fr
273
om
im
pe
rf
ec
t
in
fo
,
wh
en
ev
er
an
in
dl
ca
n
be
ex
pl
oi
te
d
th
ru
ba
rg
ai
ni
ng
.
6. SCALIA dissents saying that it's not part of AT to
be concerned with info deficency.
VII. POTENTIAL COMPETITOR MERGER
A. In these mergers, parties do not compete in the same mkt
before the merger; no direct anticomp. effects; no change in
mkt structure or mkt share or level of concentration. Rather
SECONDARY EFFECTS on compn and mkt structure are hurt by the
REDUCTION OF FUTURE COMPN.
B. DEFN OF POTENTIAL COMPR: one who would have entered mkt
o
r
a
274
t
l
e
a
s
t
s
e
r
v
e
d
a
s
t
h
r
e
a
t
t
o
s
u
p
p
l
i
e
r
t
o
k
e
e
p
p
r
i
c
e
s
l
o
w
a
n
d
q
275
u
a
l
i
t
y
h
i
g
h
.
B. POTENTIAL COMPETITOR MERGER are bad b/c:
1. eliminates potential entrant/compr--b/c decreases
el
as
ti
ci
ty
(s
ub
st
it
ut
io
n)
of
de
ma
nd
fa
ci
ng
ex
is
ti
ng
se
ll
er
s.
2. may erect entry barriers
3. may engage in predatory conduct.
C. The potential compr BUT FOR THE MERGER, Would have
entered the mkt thru some less anticompetitive means
the challenged merger.
276
than thru
D. Proctor and Gamble merged with Clorox, Ct found a violn
o
f
*
,
t
h
u
s
i
n
v
a
l
i
d
a
t
e
d
t
h
e
m
e
r
g
e
r
.
1. ON THE EDGE (WINGS EFFECT): The ct recognized that
P
&
G
'
s
p
r
e
s
e
n
c
e
o
n
277
t
h
e
s
i
d
e
l
i
n
e
s
w
o
u
l
d
r
e
s
t
r
a
i
n
C
l
o
r
o
x
'
s
p
r
i
c
i
n
g
.
2. POTENTIAL ENTRANT: Entry into the bleach mkt was
pos
sib
le
for
278
p&g
.
3. LACK OF ANY OTHER COMPR that would have as much
affe
ct
as
P&G
on
Clor
ox.
4. CT DID NOT ACCEPT DEF'S ARGUMTS:
a. REJECTED INCREASED EFFCY and economy of scale
b
/
c
o
f
t
h
e
e
x
t
r
e
m
e
l
e
s
s
e
n
i
n
g
o
f
c
o
m
p
n
279
.
5. PERCEIVED POTENTIAL ENTRANT THEORY: suggests that a merger can
be anticompetitive when it eliminates a firm whose perceived
presence on the edge of a concentrated mkt tended to restrain
monop pricing. W/this theory pltfs must prove that merging co:
a. perceived by comprs in the mkt as a potential
entrant
b. that this perception creates a restraining
effect on
the comprs in the mkt (keeping P
down and qual up.)
AND
c. that the mkt under review is concentrated.
(tha
t
ther
e
are
not
a
lot
of
othe
rs
like
P&G,
so
that
no
one
else
is
crea
ting
the
edge
effe
ct.)
d. WOULD HAVE ENTERED and made mkt more
competitive.
e. This theory only wks if: the target mkt is
high
ly
conc
entr
ated
;
cont
280
ains
high
entr
y
barr
iers
,
and
ther
e
are
only
a
smal
l
numb
er
of
perc
eive
d
pote
ntia
l
entr
nts;
and
the
acqu
isit
ion
does
not
itse
lf
incr
ease
comp
n in
281
the
targ
et
mkt.
6. ENTRENCHMENT THEORY: when one big firm merges with
o
t
h
e
r
(
P
&
G
w
/
C
l
o
r
o
x
)
i
t
e
n
t
r
e
n
c
h
e
s
t
h
e
s
m
a
l
l
e
r
282
f
i
r
m
(
c
l
o
r
o
x
)
7. NOTE: PRICE PREDATION could also possibly be proven
by attempting to show how after the merger Price
increases, thus not more efft, rather harmful to comprs.
E. Marine Bancorp. The Sct refused to adopt the ACTUAL
POTENTIAL COMPR THEORY. A seattle bank in a geo mkt
extention
merger acquired a bank in Spokane at the
opposite end of the st. The
merger would have joined
the 2nd and 9th lgest banks in the st.
The banks were
not in direct compn, but US attempted to prohibit
merger b/c LESS ANTICOMPETITIVE METHOD was possible.
Ct HELD: under potential compr theory must show:
1. Company was "ON THE EDGE" and would have entered--
th
at
th
er
e
wa
s
a
re
as
on
ab
le
pr
ob
th
at
th
e
ac
qu
283
ir
in
g
fi
rm
wo
ul
d
ha
ve
en
te
re
d
th
e
mk
t.
a. DOJ Guidelines discuss EASE OF ENTRY for firms
as well as for other firms (if others can
enter, the fact that these 2 merged has little effect
on mkt.)
2. the merger is in a CONCENTRATED MKT (generally HHI
has to be above 1800 as per DOJ guidelines)
3. that there were LESS RESTRICTIVE ALTERNATIVES which
would would produce procompetitive effects.
4. ACTUAL POTENTIAL ENTRANT THEORY: more speculative
th
an
pe
rc
ei
ve
d
th
eo
ry
.
An
d
ma
y
be
in
co
ns
is
284
te
nt
wi
th
Se
c
7
of
Cl
ay
to
n.
Un
de
r
th
e
th
eo
ry
,
a
po
te
nt
ia
l
co
mp
n
me
rg
er
is
an
ti
co
mp
b/
c
th
e
ac
285
qu
ir
in
g
fi
rm
co
ul
d
ha
ve
en
te
re
d
te
h
mk
t
de
no
vo
an
d
ma
de
te
h
mk
t
mo
re
co
mp
et
it
iv
e,
bu
t
en
te
re
d
by
286
me
rg
er
in
st
ea
d.
Th
us
,
un
de
r
th
is
th
eo
ry
,
a
me
rg
er
is
il
le
ga
l
ev
en
th
ou
gh
it
le
av
es
th
e
cu
rr
en
t
st
at
287
us
of
co
mp
et
it
io
n
in
th
e
mk
t
un
af
fe
ct
ed
.
Th
e
me
rg
er
si
mp
ly
re
du
ce
s
th
e
po
ss
ib
il
it
y
th
at
th
e
mk
t
mi
288
gh
t
be
co
me
mo
re
co
mp
et
it
iv
e
at
so
me
fu
tu
re
ti
me
.
a. The hardest thing to show is that the acquiring
firm would have entered the mkt de novo if
no opportunity to merge.
F. NOTE: JOINT VENTURES CAN ALSO BE ANALYZED UNDER THE
POTENT
IAL
ENTRAN
T
THEORY
(WINGS
EFFECT
).
G. Bell Atlantic/TCI proposed merger: phone co with cable
th
es
e
ar
e
tw
o
hu
ge
co
s,
th
us
ca
289
n
as
se
rt
en
tr
en
ch
me
nt
as
we
ll
as
ac
tu
al
po
te
nt
ia
l
co
mp
r
th
eo
ry
,
as
we
ll
as
ES
SE
NT
IA
L
FA
CI
LI
TY
DO
CT
RI
NE
b/
290
c
on
e
hu
ge
in
fo
su
pe
rh
wy
ow
ne
d
by
on
e
co
.
HEALTH CARE:
1. EXEMPTIONS IN:
1. HORIZONTAL MERGERS: safety zone for very sm
hospitals under normal efft size; (note safety
zone is where unlikely anticompetitive effects can
occur)
a. justify on effcy and failing firm grounds.
b. NOTE: effcy is not a reason to allow a merger,
see ct disallowed in proctor and gamble
2. JOINT VENTURES: generally for high tech and
expensive medical equip.
a. if A&B join together but not C--then REFUSAL TO
DEAL.
BUT b. if A&B join and C&D could get their own but
want to join, fear of raising prices. (LOOK
FOR LEAST RESTRICTIVE ALTERNALTIVE.)
3. DATA EXCHGS: at least 5 hosp can exchg info but not
specific price/hosp (cant be disaggregated) and need
impartial person to record all numbers. CANT have info re
SPECIFIC prices; cant cause price to increase.
B. GUIDELINES ONLY FOR GOVT NOT PRIVATE CITIZEN
291