ANTITRUST LAW NOTES
I. Antitrust Origins, Objectives, and Statutes
A. Major antitrust statutes
1. The Sherman Act 1890 § 1–2
The Sherman Act 1890 § 1–2, as amended 15 U.S.C. §§ 1–2 [887]
 Section 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or
engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction
thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by
imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.
 Section 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or
persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed
guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if
any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of
the court.
o The Sentencing Reform Act of 1984, 18 U.S.C. § 3571, specifies an alternative fine of not more than the greater of
twice the gain or loss from the violation.
2. The Clayton Act 1914 § 7
The Clayton Act 1914 § 7, as amended 15 U.S.C. § 18 [891–93]
 No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any
part of the stock or other share capital and no person subject to the jurisdiction of the FTC shall acquire the whole or any part
of the assets of another person engaged also in commerce or in any activity affecting commerce in any section of the country,
the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
 No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject
to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more persons
engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting
commerce in any section of the country, the effect of such acquisition, of such stocks or assets, or of the use of such stock by
the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.
 This section shall not apply to persons purchasing such stock solely for investment and not using the same by voting or
otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall anything
contained in this section prevent a corporation engaged in commerce or in any activity affecting commerce from causing the
formation of subsidiary corporations for the actual carrying on of their immediate lawful business, or the natural and
legitimate branches or extensions thereof, or from owning and holding all or a part of the stock of such subsidiary
corporations, when the effect of such formation is not to substantially lessen competition.
 Nor shall anything herein contained be construed to prohibit any common carrier subject to the laws to regulate commerce
from aiding in the construction of branches or short lines so located as to become feeders to the main line of the company so
aiding in such construction or from acquiring or owning all or any part of the stock of such branch lines, nor to prevent any
such common carrier from acquiring and owning all or any part of the stock of a branch or short line constructed by an
independent company where there is no substantial competition between the company owning the branch line so constructed
and the company owning the main line acquiring the property or an interest therein, nor to prevent such common carrier from
extending any of its lines through the medium of the acquisition of stock or otherwise of any other common carrier where
there is no substantial competition between the company extending its lines and the company whose stock, property, or an
interest therein is so acquired.
 Nothing contained in this section shall be held to affect or impair any right heretofore legally acquired: Provided, That
nothing in this section shall be held or construed to authorize or make lawful anything heretofore prohibited or made illegal
by the antitrust laws, nor to exempt any person from the penal provisions thereof or the civil remedies therein provided.
 Nothing contained in this section shall apply to transactions duly consummated pursuant to authority given by the Secretary
of Transportation, Federal Power Commission, Surface Transportation Board, the Securities and Exchange Commission in
the exercise of its jurisdiction under section 79(j) of this title, the United States Maritime Commission, or the Secretary of
Agriculture under any statutory provision vesting such power in such Commission, Board, or Secretary.
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3. The Federal Trade Commission Act 1914 § 5(a)
The Federal Trade Commission Act 1914 § 5(a), as amended 15 U.S.C. § 45(a) [901]
 (a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign trade.
o (1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting
commerce, are hereby declared unlawful.
o (2) The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except
banks, savings and loan institutions described in section 57a(f)(3) of this title, Federal credit unions described in
section 57a(f)(4) of this title, common carriers subject to the Acts to regulate commerce, air carriers and foreign air
carriers subject to part A of subtitle VII of title 49, and persons, partnerships, or corporations insofar as they are
subject to the Packers and Stockyards Act, 1921, as amended [7 U.S.C. 181 et seq.], except as provided in section
406(b) of said Act [7 U.S.C. 227(b)], from using unfair methods of competition in or affecting commerce and unfair
or deceptive acts or practices in or affecting commerce.
o (3) This subsection shall not apply to unfair methods of competition involving commerce with foreign nations (other
than import commerce) unless—
 (A) such methods of competition have a direct, substantial, and reasonably foreseeable effect—
 (i) on commerce which is not commerce with foreign nations, or on import commerce with foreign
nations; or
 (ii) on export commerce with foreign nations, of a person engaged in such commerce in the United
States; and
 (B) such effect gives rise to a claim under the provisions of this subsection, other than this paragraph.
 If this subsection applies to such methods of competition only because of the operation of
subparagraph (A)(ii), this subsection shall apply to such conduct only for injury to export business
in the United States.
o (4)
 (A) For purposes of subsection (a), the term “unfair or deceptive acts or practices” includes such acts or
practices involving foreign commerce that—
 (i) cause or are likely to cause reasonably foreseeable injury within the United States; or
 (ii) involve material conduct occurring within the United States.
 (B) All remedies available to the Commission with respect to unfair and deceptive acts or practices shall be
available for acts and practices described in this paragraph, including restitution to domestic or foreign
victims.
B. Policy debates at the dawn of antitrust
1. What restraints of trade are illegal under the antitrust laws? [1–20]
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Every antitrust statute was created at a time of populous unrest with businesses and how they operated—partially resulting
from lack of trust and partially resulting from the Industrial Revolution causing businesses to expand.
Vertical vs. horizontal integration
o Vertical integration – competitors moving up and down the different levels of the supply chain
 Antitrust law still developing
o Horizontal integration – competitors on the same level of commerce
 Most antitrust law is in this area
o Price is not shared equally between entities in a supply chain.
o Different people in the supply chain have different relationships to price:
 Financial consumer cares a lot about price.
 Distributor may or may not care about price depending on what they are buying.
Trusts
o Definitions of trust has evolved over time through rich history
o A trust gave control to a single decision-maker while the companies remained separate
o Trust – a trust is a merger where the companies didn’t combine their assets but gave control of their assets to a
single entity but stayed separate companies.
o [Figure 2]
o Fixed cost – one-time cost
o Variable/Marginal Costs – costs that scale with what you are doing
 At high fixed cost and low variable cost industries, price competition becomes ruinous.
 Ruinous competition is bad for sellers and good for buyers.
o Seller surplus – profit from when sellers are able to sell something for more that it costs
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Buyer surplus – also referred to as buyer welfare, consumer welfare, or consumer surplus; benefit of the trade that
goes to the buying side of the market
United States v. Trans-Missouri Freight Assoc’n, 166 U.S. 290 (1897) [13–18]
o Railroad’s first argument is that the statute should not be read in plain language.
o The Court acknowledges that the statute, if read literally, makes every contract in restraint illegal. The Court only
says that the statute should be read literally except for in some cases but does not discern which cases.
o Trans-Missouri’s two rules:
 1. Per Se Rule (Majority Rule) – Every restraint of trade is illegal means every restraint of trade is illegal,
and we don’t do it.
 2. Per Se Rule of Illegality (Modern Rule) – the court can look at something and categorize it. Based on the
category, say it’s illegal without further inquiry.
o Trans-Missouri Dissent says only the orientation of the illegal is illegal.
o
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2. What restraints of trade are illegal under the antitrust laws? (cont.) [20–49]
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Any time a seller decreases price to make one more sale, they net a sale (benefit) and put competitive pressure on everyone
else, making it harder for any other seller to cut a high price.
Even a single-price monopolist does not price infinitely high; the monopolist prices at a profit maximizing level.
The monopolist, relative to a competitive market, typically has the incentive to do two things: (1) price a little higher than the
competitive level, and (2) sell fewer units than what would be sold in a competitive market.
o These two things go together, and one can implicate the other.
The monopolist is big enough that it internalizes those costs of competition that the distributed sellers wouldn’t, so the
monopolist is able to control the price in a way that seller sellers wouldn’t.
Monosomy – opposite of monopoly
U.S. v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), modified and aff’d, 175 U.S. 211 (1899) [20–24]
o * Not a Supreme Court case but still given same level of authority.
o Addison Pipe provides black letter law that
o In the production of iron pipes, junky cars go into a furnace (whale tail) and come out in pipe form (through the
mouth).
 Vertical costs include cars, fires, workers
 Fixed costs include furnaces
o RFP basis – “request for proposals” basis; every pipe manufacturer in the country will receive proposals or requests
for pipes and return prices and best offer gets to provide the pipes.
o Cartel – companies within a field of production; acting like a monopolist and wanting to charge the monopoly price
o Bid rigging – one of the oldest forms of collusion; companies in a cartel take turns winning RFPs by rigging prices
and taking turns being the monopolist.
o Companies that work together in bid rigging don’t have unlimited capacity to control price, but within the window
they are allowed to by the insulation of spatial like distance from other competitors they have a certain amount of
space to raise prices if they want to.
o Addison Pipe is important for citing reasonableness on a sea of doubt and for the ancillary restraint rule.
 Ancillary restraint rule – if the restraint to trade is merely an ancillary part of a legal contract, then it is
legal per se.
 No further analysis necessary
Northern Securities Co. v. U.S., 193 U.S. 197 (1904) [26–30]
o What we care about is not a monopoly in the sense of meaning elimination of all competition, rather it’s elimination
of competition that matters where certain customers lost all realistic competition.
The Taft Presidency; the Rule of Reason [32–33]
o Taft outlined a functional distinction between combinations established specifically to eliminate competition, and
those that happened to restrict trade en route to efficient production.
The Robber Barrons, excerpt [33–38]
Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911) [39–44]
o Standard Oil changes the language of the Sherman Act § 1 to say undue or unreasonable restraint in trade are illegal.
 Unreasonably restrictive of competition condition can be met by
 (1) the nature or character of the contract, or
 (2) where surrounding circumstances indicated an intent to do wrong to the general public and
limit the rights of individuals.
o Intent is completely unhelpful in antitrust.
Intent Barometer [46–47]
o Where is the intuition coming from?
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II. Collusion, Cartels, & Price Fixing — Sherman Act § 1
A. Introduction
1. Overview of market form, antitrust law, and major issues [65–69]
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Cartels are the worse kind of antitrust violation
Cartel means an agreement among competitors to stop competition or some form of competition among them; not to serve
the market and consumers.
o Hard core cartel arose to emphasize the negative qualities
 This term is synonymous for purposes of this casebook and class
Cartels are targeted at the most vulnerable people in society and are instruments to rob the poor
Price-fixing – competitors decide on their joint profit maximizing price and enforce their agreement
Certain conditions are necessary to make the cartel work:
o (1) Cartel must include all significant actors, whether producers or consumers
o (2) Barriers must keep non-cartel members out of the market or assure that they don’t expand
o (3) Cartel must have good means to administer the cartel
 Determine the right price or quotas
 Often done through an intensive information exchange
 Publish the price or other scheme to one another
 Police all members to detect cheating on the cartel
 E.g., charging below the cartel price
 Punish cheaters
o Cartels are facilitated by the existence of no more than a few competitors.
Roughly two routes to antitrust violations:
o (1) Competitor coordination through oligopoly, cartels, and conduct or transactions creating or entrenching
coordinated behavior)
o (2) Monopoly or other single-firm power
If the agreement is not clearly a cartel, defendants are entitled to a rule of reason analysis sometimes quickly applied to
determine whether on balance the agreement is good or bad for consumers and the market.
If the agreement is a cartel, the agreement is simply condemned.
2. Possible standards: from rule-of-reason to per-se illegality [69–82]
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Board of Trade of Chicago v. U.S., 246 U.S. 231 (1918) [69–70]
U.S. v. Trenton Potteries Co., 273 U.S. 392 (1927) [71]
Appalachian Coals, Inc. v. U.S., 288 U.S. 344 (1933) [71–73]
U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940) [74–78]
Fashion Originators’ Guild of America (“FOGA”) v. FTC, 312 U.S. 457 (1941) [80–81]
Naked restraints vs. reasonable agreements
o Crisis cartels
o Market division
o Naked boycotts
o Other devices
B. What standard applies? (or “characterization cases”)
1. Restraints that prohibit competition [82–89]
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Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) [82–83]
National Society of Professional Engineers v. U.S., 435 U.S. 679 (1978) [84–89]
2. Restraints that make a new product [89–95]
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Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979) [90–95]
3. Restraints that don’t exactly fix prices [95–103]
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Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980) [95–97]
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Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982) [98–102]
4. Restraints involving broader frameworks [103–108]
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NCAA v. Univ. of Oklahoma, 468 U.S. 85 (1984) [103–07]
o The Court says it is not per se illegal, and it’s not rule of reason.
o NCAA is an example of quick look.
Per se
Prof Eng
Ind. Fed. Del.
NCAA
Quick look
Rule of reason
5. Restraints on advertising [113–19]
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Cal. Dental Assoc’n v. FTC, 526 U.S. 756 (1999) [113–18]
o Most important case
o CDA’s rules “impose disclosure requirements for the advertising of discounts”—restriction requires an enormous
amount of disclosure to go next to any statement (small print).
o Souter argues that the claims are “nothing more than a procompetitive ban on puffery” but puffery is part of
competition.
o Souter’s rule: what is required is an inquiry meet for the case
 Turned three categories of analysis into a chart:
(BMI)
ROR
Amount of
detail in
analysis
“quick look”
Per se
Uncertainty of
anticompetitive effect
Price fixing
market div.
o
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o
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Per se analysis has two elements:
 (1) conduct getting per se treatment
 (2) agreement
 Agreement is an element of §1, so anything within the graph above fails if there isn’t an
agreement, so you must always prove agreement.
 Conduct refers to something that is always or almost always anti-competitive
 A per se case means you prove an agreement is per se illegal through the words of contract, conspiracy, or
combination and all three must involve more than one person
 Whether parties agree becomes a separate point of litigation
Rule of reason (“ROR”) is we consider all evidence that we could ever find
Inquiry meet for the case is some subset of evidence we could find is going to be dispositive and we can draw the
line at that point
Breyer’s dissent states that if dentists are competing to provide certainty of less pain, whether true or not, which is
something consumers value that is part of the good/service itself and Souter is ignoring that.
o
FTC and DOJ have joint jurisdiction to enforce antitrust laws but are structured differently.
o FTC is technically an administrative agency, so they have their own admin law judge.
Per se illegality describes price fixing that is almost always illegal
o Profit sharing is already per se illegal because you’re leveling off your incentive to compete
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C. Practical considerations in collusion cases
1. Who can agree to restrict competition? [127–30]
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Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984): The Supreme Court ruled that a corporation and its
wholly owned subsidiary are not capable of conspiring with one another. They are a single enterprise and their act is
unilateral.
American Needle, Inc. v. National Football League, 560 U.S. 183 (2010) [127–30]
o Two takeaways from American Needle:
 (1) The functional difference in the relationship matters, not the legal difference; and
 (2)
 Are the constituent members of the agreement companies that are either current or potential competitors of
each other in selling the thing in question?
 The fact that they compete with each other means that each of them is an independent center of conclusion
making with individual profit making incentives.
 Would it be possible for that agreement to have an anti-competitive effect?
o No one has to collude; rather, you collude because you think that by agreeing with competitors, you can get a higher
price and make more profit.
2. What’s enough to prove agreement? [130–40, H2]
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Proving a Cartel [130–32]
Interstate Circuit, Inc. v. U.S., 306 U.S. 208 (1939) [132–35]
Theatre Enterprises, inc. v. Paramount Film Distributing Corp., 346 U.S. 537 (1954) [138–40]
Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) [H2]
3. What’s enough to plead agreement? [147–156]
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Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) [147–150]
o If CLECs wanted to sue them under the 1996 act, they could without issue. Antitrust law only kicks in if they have
agreed not to follow the terms of the 1996 act.
o Reasoning: Without condoning the actions of the baby bells, they haven’t done anything thus far that looks like they
would need to agree.
o The agreement to collude is not itself enough for collusion to take place; collusion comes from cooperation on
stabilizing practices—cooperate unless you see someone do something that violates the collusive norm at which
point there’s this fierce reaction.
 To a large extent, two competitors do not need to talk to realize what the collusive scheme is
o The Court’s reasoning in Twombly considers arguments to be two people speaking to each other to constitute an
agreement, but the Court doesn’t address
o Express collusion – a verbal/written agreement between two parties to collude
o Tacit collusion – any type of collusion that does not involve spoken discussion
 Struggles for definition
In re Text Messaging Antitrust Litigation I, 630 F.3d 622 (7th Cir. 2010) [151–53]
o Before discovery
o Trade associations are opportunities to talk with competitors and anytime you speak with competitors, you could be
agreeing to collude.
 Trade association is a plus factor
 Within trade association are members of elite counsel with special status that doesn’t allow them to
cooperate, which is a plus factor
In re Text Messaging Antitrust Litigation II, 782 F.3d 867 (7th Cir. 2015) [153–56]
Sherman Act § 1
o Element 1: An agreement has to involve two separate centers of decision making/two separate actors that could
compete with each other if they choose to.
 If we have an agreement in common between two actors, then it’s an obvious restraint of trade.
 Circumstantial agreement looks like price fixing but isn’t put on paper.
 If it’s an independent decision among the companies, we don’t have an agreement and fail the agreement
element.
o Parallel conduct
o Plus factors
o We need adequate plus factors
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o
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o
o
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Parallel conduct doesn’t literally have to be parallel but it has to be as conduct consistent with the alleged
restriction of trade or restraint of trade.
 If the allegation is price fixing, all should set the same price.
 If the allegation is dividing markets, all should stay within their own markets and not interfere with each
other.
 We need something more than parallel conduct because parallel conduct can be consistent with normal
competition.
Predatory pricing is a disfavored and hesitantly attacked theory.
 The Court’s hesitancy in Matsushida pertains to predatory pricing—not § 1.
Requirement of an antitrust injury
An antitrust case is private parties can sue—often the same entitlement to sue as the federal government does.
 Theory that everyone having the option to sue gives everyone large benefits and damages that private
parties get if they win
 S
Folk theorem – recognition in any one instance of an oligarchy price problem there’s no incentive to collude with
anyone else
 If everyone announces that strategy, then that strategy is an equilibrium strategy = best response to what
everyone is doing and can sustain high prices
 Sustaining collusion is difficult because there’s a natural downwards trend tendency
§ 1 makes an agreement to collude illegal and puts a lot of emphasis on agreement but economically, an agreement
is neither necessary nor sufficient.
4. What’s at stake? [H3]
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Scott D. Hammond, The Evolution of Criminal Antitrust Enforcement Over the Last Two Decades, DEP’T JUSTICE (Feb. 25,
2010) [H3]
o
Review of Sherman Act § 1
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Under § 1, we exclusively look at horizontal agreements among competitors and horizontal line in restraint of trade.
o Per se illegal conduct: price-fixing in any form, market division, bid rigging, customer allocation, agreements not to
compete along certain dimensions.
o Not per se illegal but potentially illegal conduct
 Rule of reason and possibly, inquiry meet for the case
o Must establish that an agreement happened—if not in writing, can produce circumstantial evidence before the court
showing parallel conduct and plus factors
 Plus factors are things that point in the direction of collusion and away from possibility of independent
action for parallel behavior
Efforts to collude are inherently unstable
o Leniency programs further destabilize it
Agreement itself doesn’t cause collusion to work, and collusion may work and exist without an agreement
o We only punish agreements
Under § 1, two elements: (1) agreement among separate centers of decision making that are (2) unreasonable restraints on
trade.
III. Horizontal Mergers — Clayton Act § 7
A. Introduction
1. A (very) brief history of merger law [457–58]
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Horizontal mergers are combinations of competitors
In 1940 Congress passed the Clayton Act, which specifically prohibited stock acquisitions whose effect may be to
substantially lessen competition between the acquired and acquiring companies.
Clayton Act § 7 governs mergers today.
§7 does not have elements; rather, it has a path of mergers creating competition or monopoly
o The point of monopolies is to substantially lessen competition
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Prove monopolies by engaging in market definition that talks of (1) market relative to market product and (2) market
participants that can be identified in terms of who they are, how many there are, and the shares that can be computed in the
capacity of units sold or revenue earned.
o Once you identified hares, you can look at concentration statistics and compute concentration four different ways
o Concentration then supports a structural presumption
 Structural presumption has to do with anti-comp effect (don’t rely on this anymore, too weak)
 Theories of harm – the unilateral effect of competition elimination between firms and between/enabled
by/exercised by other firms
 Multiple subsets of unilateral effect of competition elimination theory and coordinated effect
theory
Merger – one buys another one or two agree to merge to become a new entity
o After a merger, the two entities are not competing anymore
o Mergers are not per se illegal because they become one entity, which we consider pro-competitive
o Every merger has, at minimum, pro-competitive and anti-competitive potential
 Need to know more to know which one will dominate
There is enough experience and history conveying that the pro-comp potential of mergers is significant enough to engage in
more inquiry before we can prohibit them
o Once we need to engage in that inquiry, we need to ask about the details of the merger (i.e., where it’s located, who,
why it matters) to determine whether the merger is problematic—context matters.
Mergers are basically full rule of reason analysis (implicitly??)
§ 7 doesn’t require the merger to be of any particular size. There is no de minimus threshold.
A merger can do everything collusion can do because mergers have pro-comp potential while collusion does not.
Every merger can be subject to review because § 7 is predictive, so there is no need to wait for negative consequences to
occur.
o Sherman § 1 requires proof of anti-competitive agreement. If you don’t have per se anti-comp agreement, then you
need to prove something bad happened.
2. Merger law under amended Section 7 [458–72]
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§ 7 makes it illegal to acquire another entity if it results in unfair market power
o Market share ≠ market power
Brown Shoe Co. v. U.S., 370 U.S. 294 (1962) [458–68]
o Brown Shoe is considered the first merger case (seminal case to site for modern mergers and § 7 as revised and
codified now)
o Facts: Brown Shoe Company, Inc. (D) was the third-largest seller of shoes in the United States and a leading
manufacturer and retailer of shoes. Brown merged with the G.R. Kinney Company, Inc., the eighth-largest seller of
shoes and owner of over 350 retail locations. Kinney also manufactured shoes. The federal government brought an
antitrust action to block the merger, arguing that the merger would produce significant anticompetitive effects in the
national wholesale and retail shoe markets. In district court, Brown argued that the market for shoes was robust and
would remain competitive in the wake of the merger, because Brown’s total post-merger market share was not
significant. The district court disagreed, however, and granted the federal government’s motion to disband the
merger. Brown appealed the decision.
o Issue: In a fragmented market, may the government block a merger that achieves a very small percentage of market
control if the merger reflects a potential trend toward concentration in the industry?
o Holding: In a fragmented market, the government may block a merger that achieves a very small percentage of
market control if the merger reflects a potential trend toward concentration in the industry.
o Reasoning: The amendments to § 7 of the Clayton Act were intended to establish a tool for the government to curb
market concentration by preventing mergers that are likely to produce anticompetitive effects. Here, the relevant
market was the national market for shoes. In the 118 cities where Brown and Kinney currently compete, the merger
would result in a market share of over 5 percent. However, in 32 of these cities, the post-merger market share would
exceed 20 percent. The market for shoes is highly fragmented, and even a small increase in market share could have
an adverse effect on competition among individual competitors. Additionally, the approval of the merger here could
lead to the approval of additional mergers, and the concerns about market concentration that § 7 was intended to
address would be undermined. The merger in this case would combine the largest independent retail store with a
large manufacturer, increasing the likelihood of more substantial market effects.
o Congress intended for § 7 to provide greater protection to small businesses, but § 7 is ultimately aimed at protecting
market competition rather than market competitors.
o To determine the likely effects of a merger, consideration must be given to the context of the relevant industry.
 First, the proper geographic and product market must be defined in order to assess what aspects of
competition might be affected.
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Post-merger market share is among the most important factors, but such market share should not
be considered in isolation.
 If a market is highly fragmented, then a merger that achieves a smaller percentage of market
control will have a greater effect on competition.
 Similarly, a merger that reflects a trend toward greater consolidation could have significant
anticompetitive effects if left unaddressed.
o Congress also intended for § 7 to apply to the probability of future market harm, and the government thus does not
need to show that harm will inevitably occur.
o Congress amended § 7 to help curb market concentration, and the government was reasonable in determining that
the proposed merger would create a likelihood of future market harm. The government has sustained its burden of
proof under § 7.
o Disposition: The district court’s decision is affirmed.
o The Court considered the merger illegal because prices would simultaneously rise and fall.
o Brown Shoe is important because of the practical indicia test: “The outer boundaries of a product market are
determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself
and substitutes for it. . . . The boundaries of a market may be determined by examining such practical indicia as
industry or public recognition of the submarket as a separate economic entity, the product’s peculiar character and
uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized
vendors.”
 The Court seen market definition as something that can be handled basically as a legal analysis
o When the Court says they protect competition and not competitors, the point is that whether a competitor is happy
doesn’t matter. The court wants adequate competition after the merge.
 Adequate competition after the merger means enough independent competitors in the area.
First step part of merger analysis is defining the market.
o The relevant market contains at least two things: (1) relevant product market and (2) relevant geographic market
(artificial distinction)
o Supreme Court requires need to define the relevant market to assess the consequences of a merger
 Don’t need to define the market for per se illegality under §1
 Don’t always need to define the market though the Sup. Ct. says we do
 99.9% merger cases start with market definition
o The need to define a market is a uniquely legal question
In a merger, there is an A-side and a B-side.
o A-side is the side surviving the merger or buying the firm
o B-side is the side that is being acquired or bought
If two companies are not competing, then the merger of both is not lessoning competition.
A merger can be blocked because any product could have an anti-competitive effect.
o If that one product is a tiny part of the company’s overall portfolio, company may sell off that aspect to eliminate
overlap.
Share ≠ market power
Merger Guidelines
o Sets the modern stage
o Did not apply to early cases
o Modern cases cite merger guidelines and operate within the framework
o Merger guidelines are not legally binding and are just a guidance document from the government
HSR Act 1978 Framework
o Before HSR, companies would
B. Affirmative case
1. Market definition [472–86]

Supreme Court two flavors of tests, each flavor having two different tests, for relevant markets:
o 1. Substitutability
 Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953): “For every product, substitutes exist.
But a relevant market cannot meaningfully encompass that infinite range. The circle must be drawn
narrowly to exclude any other product to which, within reasonable variations in price, only a limited
number of buyers will turn; in technical terms, products whose ‘cross-elasticities of demand’ are small.
 “Cross-elasticities of demand”
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United States v. E.I. du Pont de Nemours & Co. (Cellophane), 351 U.S. 377, 380–81 (1956): The relevant
market is composed of products that have reasonable interchangeability for the purposes for which they are
produced—price, use, and qualities considered.
 “Reasonable interchangeability”
o 2. Observational
 United States v. E.I. du Pont de Nemours & Co. (du Pont-General Motors), 353 U.S. 586, 593–94 (1957):
The products had sufficient peculiar characteristics and uses to distinguish them from the broader group.
 “Peculiar characteristics and uses”
 Brown Shoe, Co. v. United States, 370 U.S. 294, 325 (1962): The boundaries of a market may be
determined by examining such practical indicia as industry or public recognition of the submarket as a
separate economic entity, the product’s peculiar character and uses, unique production facilities, distinct
customers, distinct prices, sensitivity to price changes, and specialized vendors.
 “Practical indicia”
o Since the Court can use any of these, you—as an advocate—want to direct the court’s attention to the one that works
best for you.
Hypothetical Monopolist Test (“HMT”): If a particular group of producers were to merge together into a single monopolist
not subject to new entry or price regulation, would that hypothetical monopolist have the power and incentive to impose a
small but significant and non-transitory increase in price (“SSNIP”) on at least some of the products it controlled?
o If ‘Yes,’ then that group of producers constitutes a relevant market.
o If ‘No,’ then more products could be added to the group, and the counterfactual question could be asked again,
iterating on this process until a relevant market is found.
o SSNIP = small but significant and non-transitory increase in price
 Can be thought of as at least a 5% price increase
o HMT also referred to as the “SSNIP Test”
o Think of HMT relevant market as a scope of trade in which harm could result from the merger.
o HMT usually applies to products but theoretically could be used for distance, geography, or other metrics that
identify certain sets of customers.
o The Supreme Court has not endorsed the HMT, so HMT is used to make main argument on other tests.
The Supreme Court tests tell us things that are relevant without telling us how much substitutability. The HMT answers the
how much question.
o HMT is a powerful but abstract way of defining markets. HMT is rarely implemented in a quantitative way.
Geographic market helps to define the scope of trade in which harm could.
Price discrimination markets – a situation where a particular customer can be singled out for a price that only applies to that
customer. This happens in three degrees:
o First degree (“$ on someone’s forehead”): The seller knows what a person would be willing to pay either by history,
big data, or other identification, and the seller can quote a particular price for that person.
 Requires a buyer who values the product and cannot send in a proxy to acquire it for them.
 Arbitrage – a buyer getting someone who values something less than they do to sell it for lower price
 Arbitrage is not possible for service contracts.
o Second degree (“first class”): The seller doesn’t know what a person’s value is and they try to influence people into
paying more if they value it more. The seller creates a vatter of options and try to influence people into self-selecting
into higher price ones if they are people who value it more.
 The more a seller does this, the more lower class options get worse.
o Third degree (“demographics”): The seller classifies people based on demographics.
 Geography is like a demographic because you identified a particular group.
 Ex.: Student, teacher, and senior discounts are an example.
 If you get away with third degree price discrimination, an HMT market might not be able to impose a snip
globally but may be able to impose a snip on first degree discriminators or focus on a demographic to
identify a group.
United States v. H&R Block, Inc., 833 F.Supp.2d 36 (2011) [474–82]
o Relevant product market should ordinarily be defined as the smallest product market that will satisfy the
hypothetical monopolist test.
Price discrimination markets (“PD”) – markets defined around targeted trading partners
o Note on FTC v. Whole Foods Market, Inc., 548 F. 3d 1028 (D.C. Cir. 2008) [483–84]
o Note on FTC v. Sysco Corp., 113 F. Supp. 3d 1 (D.D.C. 2015) [484–486]
2. Market structure [486–509]

Market structure = market share
o Step 1: Market definition
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o
o
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Step 2: Measuring market share
Step 3: So what?
 This is structural inference that requires the first two steps to be correct because we need the share to
measure how big an entity is in its market.
Multiple different ways of defining market share, and multiple definitions produce different market shares.
United States v. Philadelphia National Bank, 374 U.S. 321 (1963) [486–93]
o Rule: “This intense congressional concern with the trend toward concentration warrants dispensing, in certain cases,
with elaborate proof of market structure, market behavior, or probably anticompetitive effects. Specifically, we think
that a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a
significant increase in the concentration of firms in that market, is so inherently likely to lessen competition
substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have
such anticompetitive effects.”
o Cluster markets look at products or a cluster of products
o Geographic markets defined by two innovations:
 (1) within the area of competitive overlap, (2) the effect of the merger on competition will be direct and
immediate.
 The proper question to be asked is where within the area of competitive overlap the effective
merger on competition would be direct and immediate.
 The “market area in which the seller operates, and the purchaser can practically turn for supplies.”
o It’s a group of producers that are more competitive than the group outside of that area.
o Think of it like an HMT question.
United States v. General Dynamics Corp., 415 U.S. 486 (1974) [495–500]
o Rule: Market shares should be assigned to reflect “probable and future ability to compete.”
Market shares must have reliable economic content in to support a presumption of illegality.
o Last horizontal merger case decided on the merits by Sup. Ct.
o Controversial part of General Dynamics is why the PB presumption failed, which is because the PB presumption
should never have been implicated in the first place.
60% share
Of what? Market
definition
*How measured?
So what
o
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Intermediate step to describe size of entities wanting to merge and anticipate their post-merger size and share.
 We can determine the size in multiple ways:
 Look at the number of firms
 Look at the share of the merged firm
 Look at C indices *REVIEW THIS
How to measure shares:
o # units sold
o Revenue
o Capacity
Market concentration describes how many or how few firms compete in a relevant market.
o There are several ways to measure market concentration:
 (1) Describe how the merger changes the number of competitors in the market
 If fringe producers had insignificant ability to expand, we might only focus on the large
competitors.
 (2) Describe the market shares of merging firms
 This doesn’t convey much info about market as a whole but may be helpful data point in
predicting the effect of a merger.
 (3) Describe the combined market shares of the largest firms
 C2 index is calculated as the combined market share of the two largest producers.
 C4 index is the combined market share of the four largest producers.
 (4) Index market concentration using the Herfindahl-Hirschman Index (“HHI”)
 Formula is HHI = ∑i (percent sharei)2
 Formula of HHI is the summed squares of the percentage market shares of all competitors.
o A perfectly competitive market has an HHI of 0
o An uncontested monopolist has an HHI of 10,000
11
Everything else falls in between 0 – 10,000
 Merger guidelines suggest HHI thresholds at which markets should be
considered concentrated or unconcentrated.
HHI is the most common in modern merger analysis
o
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United States v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990) [502–09]
o Note: Ginsburg and Thomas were DC Circuit judges and co-authored opinion
o In the aftermath of Baker Hughes, the structural presumption is dramatically weakened by legal effect …
o Defendant’s argument, which was opposed at start that Thomas accepts: This is a small market in which there's a
small number of really big sales in any given year. So if one company sells 200 instead of zero. This year, their share
becomes 70% but next year it could be 0% so any percentage you put before us, we don't know if we can trust it,
that's the argument. And your response is, well, even if that's true, it's not like those past shares are irrelevant. If a
company sells two this year and they will sell to next year. What else is a good reflection of a firm future
competitors potential of those recent sales?
o The fact that HHUDRs are big companies does not protect them from being taken advantage of.
o The sophistication argument is a common argument that seems intuitive but falls apart if you think about it more.
o If substantial size businesses start to worry that their vendor for a particular product is in a market that's getting too
concentrated, and they're worried about it, they might start qualifying new entrants, basically inviting other entrants
into the market and getting them the kind of business they wouldn't otherwise be able to get just so that there's new
competitors available. They can use their size of sophistication to do that. So entry through sophistication is not
crazy, but I guess it's the entry thing.
o Merger happens, and price goes up. Once price goes up, it stays there for a bit. Entry happens, and price goes down.
o Government changed language from “quick and efficient” to “timely, likely, and sufficient” after Thomas rejected.
3. Coordinated effects [510–29]

Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987) [510–17]
o Facts: Hospital Corporation of America (Hospital Corp.) (defendant) was a hospital chain. Hospital Corp. owned a
hospital in Chattanooga, Tennessee. In 1981 and 1982, Hospital Corp. acquired two additional hospitals in
Chattanooga. The acquisitions also gave Hospital Corp. management contracts for two more hospitals in
Chattanooga. Accordingly, after the acquisitions, Hospital Corp. controlled five of the 11 hospitals in Chattanooga.
The Federal Trade Commission (FTC) (plaintiff) filed a complaint against Hospital Corp. The FTC alleged that
Hospital Corp.’s acquisitions violated § 7 of the Clayton Act, because the transactions substantially lessened
competition in the Chattanooga hospital-services market. The FTC demonstrated that Hospital Corp.’s market share
increased from 14 percent to 26 percent. The combined market share of the four biggest hospitals in the Chattanooga
market increased from 79 percent to 91 percent. The FTC presented additional evidence of Chattanooga hospitals’
cooperative tradition and other economic aspects of the hospital-services market that showed a market prone to
collusion. Hospital Corp. argued the mergers did not threaten competition, because differences in services and
organizational structure made collusion difficult or unappealing. Hospital Corp. also argued the fact that hospitals
are paid mainly by sophisticated insurance companies deters anticompetitive collusion. The FTC ruled that Hospital
Corp.’s acquisitions violated § 7 of the Clayton Act. Hospital Corp. appealed.
o Issue: Under an economic approach for determining whether a merger is unlawful under antitrust law, is the primary
question whether the merger increases the likelihood of collusion in the affected market?
o Rule: Under an economic approach for determining whether a merger is unlawful under antitrust law, the primary
question is whether the merger increases the likelihood of collusion in the affected market.
o Section 7 of the Clayton Act prohibits mergers that are likely to substantially lessen competition in the affected
markets. Accordingly, a plaintiff must show that a merger creates a significant danger of substantial anticompetitive
effects.
o Reasoning: Hospital Corp.’s acquisitions reduced the number of competing hospitals in the relevant market from 11
to seven. Additionally, the market was highly concentrated, and after Hospital Corp.’s acquisitions, the four largest
competitors enjoyed 91 percent of the market compared to the pre-market share of 79 percent. The significant
reduction in the number of legitimate competitors is important to an antitrust analysis, because fewer competitors
means that it would be easier for firms to coordinate on pricing. The problem is amplified by the existence of a
Tennessee law that requires any additions to hospital capacity to be approved by a state agency. As a result, an
increase in price by colluding hospitals might not be subject to the general limitation of a competitor’s lower prices,
because any customers leaving for lower prices would create excess capacity at the colluding hospitals and thus
prevent the approval of a lower-priced competitor’s additional hospital capacity. Additionally, the nature of hospital
services makes it infeasible for customers to merely switch to hospitals in other cities if the hospitals in the
Chattanooga area collude and increase prices.
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Hospital Corp. argues that collusion between hospitals is unlikely, because the market for hospital services
is diverse, and the services at each hospital are not interchangeable. However, there is no established
standard for determining when the diversity of services offered in a market decreases the likelihood of
collusion by competitors. Additionally, Hospital Corp. did not distinguish hospital services from other
complex markets where the likelihood of collusion supports a finding that a merger is unlawful under
antitrust law.
o The FTC’s conclusion that Hospital Corp.’s acquisitions created a significant risk of anticompetitive consequences
is supported by the consequent reduction in the number of competitors and the nature of the hospital market in
Chattanooga, and Hospital Corp. failed to show that the FTC’s determination was unreasonable. The FTC order
finding the acquisitions to be a violation of § 7 of the Clayton Act is affirmed.
FTC v. Elders Grain, Inc., 868 F.2d 901 (7th Cir 1989) [517–19]
FTC v. CCC Holdings, Inc., 605 F.Supp.2d 26 (D.D.C. 2009) [519–25]
United States v. H&R Block, Inc., 833 F.Supp.2d 36 (D.D.C. 2011) [525–29]
Review of coordinated effects
o (1) structural evidence
 Conc. Etc. PNB
o (2) non-structural evidence
 Factors pro/con
o Maverick – defined as a particularly . . .
 A maverick company cannot be acquired, which is incredibly lucrative and can dissuade companies from
being mavericks.
4. Unilateral effects [529–49]
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Unilateral effects theories focus on the immediate elimination of competition between the merging parties and the
consequences that this might have for prices and other competitive behavior.
o Instead of structural evidence of coordination and nonstructural evidence, unilateral effects theories are usually
based on economic data like pricing information.
 Uses a database model of market before and after merger to determine how merger with quantitatively
effect things.
FTC v. Staples, Inc., 970 F. Supp. 1066 (D.D.C. 1997) [530–38]
o “The Court finds that the sale of consumable office supplies through office supply superstores is the appropriate
relevant product market for purposes of considering the possible anti-competitive effects of the proposed merger
between Staples and Office Depot.”
o “IF the relevant product market is defined as the sale of consumable office supplies through office supply
superstores, the HHIs in many of the geographic markets are at problematic levels even before the merger.”
o Price zones and pricing differences between markets served by one, two, and three office supply superstores:
 Three-player markets become two-player markets or one-player markets. Two-player markets result in
monopoly.
 Everything increases in price or increases Staples’ ability to raise prices.
o Staples (1997) stands at intersection where there is still some coordinated effect in that a two player market has a
higher price than a three player market.
Note: There is a more recent Staples case but it’s not the same.
Agencies usually use coordinated effects theory or unilateral effects theory, but now (in the last 20 years), most use unilateral
effects theory.
o Can’t quantify unilateral effects theory
FTC v. Swedish Match, Inc., 131 F. Supp. 2d 151 (D.D.C. 2000) [540–45]
o Loose leaf tobacco and moist snuff are functionally interchangeable, but substitution from loose leaf to moist snuff
is unlikely to result from a price increase on loose leaf tobacco.
o Price-cost margin – profit
 The bigger the margin, the less a company/entity cares about raising its prices
o Some consumers pay the higher prices, but others divert elsewhere
o Diversion ratio – how big is a diversion relative to the number of customers who are diverting elsewhere
o As soon as you prove unilateral effect, you don’t need market definition or market structure
 Works backwards
 If you have data to prove unilateral effect, the data establishes that the two firms are the market.
 From the plaintiff’s perspective, if you have a UE argument then the same evidence supports
market definition
Staples (1997) = unilateral effects theory
Swedish Match = differentiated products unilateral effect theory
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Differentiated products unilateral effect theory – a merger eliminates a unique competitive constraint when the
merging parties were previously especially close competitors.
Auction market
Quantity suppression of unilateral effects
o
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C. Defenses
1. Entry [549–62]
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Entry defense asserts the idea that entry by new rivals will control or even precent abuses of market power.
United States v. Waste Management, Inc., 743 F.2d 976 (2d. Cir. 1984) [550–557]
o Market definition considerations should take into account that waste management uses distinct types of equipment to
serve various classes of customers.
 Containerized vs. non-containerized equipment
 Containerized equipment consists of dumpsters and roll-offs, each emptied by different trucks.
 Non-containerized refers to trucks with compactors into which trash cans and bags are loaded by
hand.
 Classes of customers:
 (i) single or multiple dwelling residential customers
 (ii) apartment complexes of varying size
 (iii) “business” customers
 (iv) “industrial” customers
o Entry by potential competitors may be considered in appraising whether a merger will “substantially lessen
competition”
 De novo entry might not work here, but the entry defense does
 Lateral entry
o Anyone who is currently selling and has been for a long time can be considered a current participant
o Rapid entrants are potential competitors that would enter quickly without incurring significant sunk costs
 Merger guidelines consider rapid entrants as current participants when calculating market shares
 Rapid entrants are lateral entrants
 Rapid entrants are usually participants who already
o Rapid entrant vs. entrants is a question of where it makes the most sense to fit a company.
 Rapid entrants are participants already planning to enter or in the process of entering but have not started
selling.
 The usual approach is to treat them as a market participant and try to guess what their share should
be as though they were already competing
 An entrant refers to participants who could enter but have not yet
 This is analyzed as a defense
o When considering market competition, we include current participants, rapid participants
Chicago Bridge & Iron Co. v. FTC, 534 F.3d 410 (5th Cir. 2008) [557–62]
o Courts have historically shyed away from the argument of reputation as a barrier to entry
o Parties will say reputation is part of business—not something that makes entry hard
o Reputation is a critical thing that is sought in a vendor, and if a new entrant won’t have an established reputation , it
will make it hard for them to enter the market
 Reputation as an abstract idea is different from the idea of reputation in an industry
o Reputation can (1) establish that a competitor knows what they are doing (i.e., bad PR for an accident or unethical
practices), and (2) defer blame.
 In practice, reputation is usually crucial
o Government regulation is a serious and common barrier to entry
 Government regulation can do a lot of good but also slows down the process and requires competitors to
navigate regulatory hurdles
Entry must be (1) timely, (2) likely, and (3) sufficient.
o Counterpoint to the entry defense is that the government wants to be able to bring potential competition challenges
and a potential competition channel—A and B aren’t currently competing but if they merge, they will be competing.
Types of entry:
o De novo entry – courts often talk about entry defenses from the perspective of de novo entry
 A smart attorney will make another kind of entry work
o Lateral entry – entry from someone else outside of the market
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Brown-Field entry / expansion entry – a lot of firms will have excess capacity that’s shuttered at the moment but
they could maybe bring it back online or expand current operations quickly
 Expansion is extremely expensive in tech markets, but expansion in product markets is less expensive.
Entry defense has not been formally endorsed by the Supreme Court, but the Court would accept it.
o
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2. Exit
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AKA Exiting assets defense
Citizen Publishing Co. v. United States, 394 U.S.131 (1969) [562–65]
Exit defense requires the merging parties to show (1) imminent risk of liquidity, (2) unlikely reemerge, and (3) there is no
less anticompetitive buyer.
o The “no less anticompetitive buyer” requirement is not theoretical but whether there is another willing buyer.
 This includes buyers who are willing to pay the scrap value of the assets and maybe a little more.
 Antitrust law does not care how much money CEOs make.
Exit defense has been formally endorsed by the Supreme Court.
3. Efficiencies [568–85]
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Efficiencies can also be referred to as “economies” or “business justification”
o Economies is the older language for economies for scale or scope
o Business justification is used outside of the merger context (i.e., § 1 or § 2 monopolization)
 When courts talk about business justifications, they sometimes seem to be treating it differently from a
merger case in that it almost seems like they accept any justification as enough for an affirmative defense.
Efficiencies defense has not been formally endorsed by the Supreme Court—in fact the Court has done the opposite of
endorse this defense—but the Court would accept it.
FTC v. University Health, Inc., 938 F.2d 1206 (11th Cir. 1991) [569–74]
o A failing company is a problem, but a weak competitor is not a problem—they can be the most competitive
competitor.
o Holding: A defendant who seeks to overcome a presumption that a proposed acquisition would substantially lessen
competition must demonstrate that the intended acquisition would result in significant economies and that these
economies ultimately would benefit competition and, hence, consumers.
o Once its determined the merger would lessen competition, expected economies, however great, would not isolate a
merger from a § 7 challenge (citing Sup. Ct.)
 At a minimum, this means that some efficiencies aren’t enough. If a merger is really anticompetitive its
going to eliminate competition result in basically a merger to monopoly.
 A mere showing of some efficiency is not an affirmative defense. It’s a defense on the merits as
opposed to an affirmative defense.
 Efficiencies that are enough to undo the anticompetitive effect of the merger means the merger is not
anticompetitive.
o Efficiencies are measured in the same terms as anticompetitive effect—in terms of lowering or reducing price.
 If the efficiency in terms of benefit to consumers is big enough that it outweighs the anticompetitive harm
on net, then the merger is good for consumers.
o Cost savings is when at a minimum, you take all productive assets and consolidate them down to one side of
executives and lawyers
o When is an efficiency going to be passed through that kind of the heuristic that usually works is to ask, is it a fixed
cost or a variable cost?
 Marginal cost is difficult to identify, so you usually get access to a variable cost.
o The Sup Court precedent requires asking “is the efficiency going to be passed through?”
 Is it going to be passed through in the form of better prices, better products, or better something?
 If the savings from efficiency is a fixed cost—something that you get as a lump sum one time—
then the answer is usually that it is not going to change you pricing behavior.
 If it changes yoru marginal or variable cost, if it makes it cheaper to produce or supply, then it
might get passed through. (not guaranteed, but it’s a candidate)
o When evaluating efficiency claims, the first question if it even looks plausible is to ask “is it a fixed cost savings or a
marginal or variable cost savings?
o Courts typically handle the efficiencies defense by asking for a pretty significant showing. The burden is on the
defendants to prove.
o University Health provides an instance where an efficiencies defense can be reconciled with Supreme Court
precedent set in FTC v. Proctor & Gamble, Co., 386 U.S. 568 (1967).
FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) [576–84]
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o
o
o
o
The Supreme Court has explained that the outer boundaries of a product market are determined by the reasonable
interchangeability of use [by consumers] or the cross-elasticity of demand between the product itself and substitutes
for it.
Fixed trade spending consists of slotting fees, pay to stay arrangements, new store allowances and other payments to
retailers in exchange for shelf space and desired product display.
Variable trade spending includes payments to retailers tied to sales volumes and intended to insure a specific sales
volume and lower shelf price.
ACV = “All Commodity Volume”
 Think of this as the percent of all stores that stock the baby food of one of the companies.
D. Advanced topics in merger law
1. Potential competition challenges [590–605]
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Mergers involving firms that do not presently compete in any relevant market are not horizontal mergers.
If merging firms are potential or likely entrants into a relevant mar
Potential competition merger challenges can be thought of as a form of non-horizontal merger since the companies are not
competing now.
Distinguishing features of potential competition merger challenges are that companies are not competing now.
o Has a similar flavor to nascent competition or killer acquisitions, which can be potential competition challenges.
United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973) [590–
o In a normal merger, the but for world is that the two parties continue competing with each other. In a potential
competition challenge, the but for world is not
Falstaff distinguishes two theories of how mergers involving potential competitors could lessen competition: (1) Actual
potential competition, and (2) Perceived potential competition
o Actual potential competition – A merger forecloses a future world in which the potential competitor enters the
market de novo and thus contributes to
 IOW: Makes things better than it is today
 If we were not to have a merger, then there would be a more competitive world than once entry occurred.
 Wings effect – A side is waiting in the wings to pounce and jump into the market at any tie so the
companies in the market must be careful not to show how much money they are making, which causes
hyper-competition among the companies in the market.
 Actual potential competition theory is about actual entry that occurs in the future.
o Perceived potential competition – e
 IOW: Effects of the A side operating outside the market already exists today.
 IOW: A side might not be a competitor, but they rare effectively a competitive constraint today
 Don’t ever need to see entry occur
 The only way perceived potential competition makes sense is if you have a weird amalgamation of facts:
 Must be cheap and almost costless to enter
 Must be able to exit without incremental costs
 Must undercut rivals on price before rivals have opportunity to respond themselves.
o Paradoxes of perceived potential competition theory:
 1) the act of defending the case, A and B are going to provide everuone else strong evidence that there isn’t
a threat of entry.
 2) weird result of thinking about entry being attracted by profit margins when the entry by definition is
going to ruin those profits
 3) to win a potential com challenge, entry has to be esy for mering parties but can’t be a defense of easy
entry
 Government simultaneously needs to argue that entry is easy for the merging firms but hard for
everyone else.
o Entry defense is when the defendants invoke entry to say that a merger is not a problem.
o Potential competition challenge is when the government invokes entry to say that a
merger is a problem.
HARM
DEFENSE
NOW
Perceived potential
competition
Current defendant
effect of threat of entry
FUTURE
Actual potential
competition
Future corrective
entry
16



Supreme Court has said twice that perceived potential competition is a viable theory of harm and twice reserved deciding
whether actual potential competition is a viable theory.
United States v. Marine Bancorporation, Inc., 418 U.S. 602 (1974) [596–602]
o Elements-based effects test: A market extension merger may be unlawful if the target market is (1) substantially
concentrated, (2) acquiring firm has characteristics, capabilities, and economic in incentive to render it a perceived
potential de novo entrant, and (3) if the acquiring firm’s premerger presence on the fringe of the target market in fact
tempered oligopolistic behavior on the part of existing
Potential competition theory is one of the tools that can be used, but it is not working for the government.
2. Discovery; searching for problems in advance [H4]
IV. Monopolization — Sherman Act § 2
A. Introduction
1. Overview of market form, antitrust law, and major issues [305–18]







Hard core monopolization – monopolization with no purpose or effect except to harm competition
Antitrust law protects competition and consumers, not competitors; it is not a prescription against unfairness.
Antitrust law doesn’t penalize outcomes, it penalizes processes.
o In a § 7 case, we care about the effect of the merger, but it is the event of the merger that starts the antitrust inquiry.
o In a § 1 case, we care about the effect of the restraint of trade (in principle), but it is the event of an agreement in
restraint of trade that starts the inquiry.
United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) (Alcoa) [307–13]
o Background: Charles Martin Hall, a 22 year old chemist in Oberlin, OH, found a way to use massive amounts of
electricity to extract aluminum. Where there was not a market, Hall created one.
 One of the biggest cases in Antitrust history
 10,000 pages of exhibits entered as evidence
o First, the court defines what the market is to determine Alcoa’s control over the market by considering the aluminum
market Alcoa participates in through its products
 Types of aluminum: virgin is the first extraction from raw ore, scrap is recycled aluminum, and internal
production is the aluminum ingots
 33% = virgin + scrap - internal
 64% = virgin + scrap + internal
 > 90% = virgin – scrap + internal
 Court determines that Alcoa’s relevant market share is > 90%
 To have scrap aluminum requires having virgin aluminum
 Durable goods problem – company becomes in competition with its own products that last a long
time
 This makes sense if you parse market definition through modern terms—think of HMT
o Court says that from looking at profit margins charged, we can’t say something is extortionary.
o Charging high prices as a result of having a monopoly is not monopolizing.
 Still good law
o Charging
o Buying competitors is an example of something counted as monopolizing—it’s a violation of § 7
§ 2 does not make monopoly illegal; it makes it illegal to monopolize, attempt or conspire to monopolize.
Analysis under Sherman Act § 2
o Define the market
 Today, the main way to prove monopoly power is to show a relevant market share of around 90%
Remedies
o The function of the remedy is not to punish; it is to restore the market to the condition it would have enjoyed had
there been no violation, and to deter future violations.
o Remedies are constant problems in monopolization
 It’s difficult to break up a single unified company, and even if you break up a company, the companies
might continue to act like local monopolists.
17



o If it’s a case where divestiture could work in principle, that’s the cleanest solution.
o Otherwise, an injunction to stop the company from being a monopolist would be the next best option.
United States v. Aluminum Co. of America, 91 F. Supp. 333 (S.D.N.Y. 1950) [315–317]
United States v. Microsoft: identifying the appropriate remedy presents a dilemma
Structure-conduct-performance paradigm – in
B. Offense of monopolization
1. Possession of monopoly power [319–26]

United States v. E.I. Du Pont De Nemours & Co., 351 U.S. 377 (1956) [319–24]
o Relevant product market could be either:
 (a) cellophane (~ 75%)
 (b) flexible wrapping material (< 17.9%)
o “Monopoly power is the power to control prices or exclude competition.”
 This is still the black letter law and legal definition of monopoly.
o Note: Case is famous for the Supreme Court’s error, which is called the “Cellophane fallacy.” DuPont would not
raise its prices because no business on its own will ever raise its price above its current price unless something else
changes.
 Cellophane fallacy – No business on its own will ever raise its price above its current price unless
something else changes.
 When the Supreme Court looks at elasticity of demand or interchangeability, it commits the fallacy of
thinking that’s the same for every price and it is not because a monopolist shrinks distances between its
products and other products by raising its price to the point where competitors, even if they weren’t a good
substitute start starts to feel like one.
 Elasticity, in terms of substitutability, could be extremely low at a competitive price. At a profit
maximizing price, it is extremely high by definition.
 In merger cases, we can encounter the Cellophane problem but it’s a rare subset
 In a monopolization context, we are using market shares to say whether a company already has market
power. The assumption is that the harm has already occurred. We would have to operationalize the HMT
by starting with what a competitive price would be.
o Cellophane is mostly useful as a bad example.
2. Acquisition or maintenance by anticompetitive conduct [340–45, H5]


United States v. Grinnell Corp., 384 U.S. 563 (1966) [H5]
o It’s only because they already had monopoly power that they were able to exclude the competitor.
o The only reason they wanted to exclude the competitor was to maintain their monopoly power.
o “The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in
the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or
development as a consequence of a superior product, business acumen, or historic accident.”
Monopolization and attempt to monopolize are different offenses
o Monopolization
 (1) Possession of Monopoly Power: Does the company have monopoly power? (status question)
 To prove a company has monopoly power, establish the company has:
o (a) market power >60% or 90%—most use this approach
o (b) “direct evidence” ~ price—cleaner and better approach but less common
 (2) Willful Acquisition: Does the company have willful acquisition or maintenance of monopoly power by
exclusionary conduct?
 Exclusionary conduct is a wrongful act or conduct (i.e., buying a competitor, predatory prices
where price is sufficiently low to drive competition out of business, etc.)
o Attempt to monopolize—treated as a distinct crime under § 2
 (1) Does the company engage in exclusionary conduct?
 (2) With specific intent to monopolize?
 (3) Dangerous probability to conspire?
 In the case of attempts to monopolize, it is usually said that a firm must specifically intend to gain
monopoly and its challenged acts must threaten to produce a dangerous probability of achieving monopoly.
Swift & Co. v. United States, 196 U.S. 375, 396 (1905).
o Exclusionary conduct:
 (1) acquiring of competitors
 (2) exclusive dealing
18



(3) violations of duty to deal ~ essential facilities doctrine
 Essential facilities doctrine is a lower court doctrine
 Duty to deal is the Supreme Court’s version
 (4) predatory pricing ~ raising rivals’ costs (RRC)
Conduct that is anticompetitive for purposes of the attempt offense will also be anticompetitive for purposes of the
monopolization offense, and to that rather large extent, the offenses merge.
Lorain Journal Co. v. United States, 342 U.S. 143 (1951) [342–44]
o Lorain Journal is as close as you can get to a monopolization case that would be a per se illegal monopoly.
C. Anticompetitive conduct
1. Essential facilities [348–60]






Essential facilities doctrine – A firm with monopoly power and a gatekeeper of facilities necessary for effective competition
had the duty to give access to competitors if it could do so consistently with its own business needs.
United States v. Terminal Railroad Association of St. Louis, 224 U.S. 383 (1912) [348–49]
MCI Communications v. AT&T Corp., 708 F.2d 1081 (7th Cir. 1983) [349–50]
o The Court of Appeals identified four elements necessary to establish liability: (1) control of the essential facility by
a monopolist; (2) a competitor’s inability practically or reasonably to duplicate the essential facility; (3) the denial of
the use of the facility to a competitor; and (4) the feasibility of providing the facility.”
o The defendant’s innocence or blameworthiness . . . has absolutely nothing to do with whether a condition constitutes
a barrier to entry” evincing monopoly power.
Otter Tail Power Co. v. United States, 410 U.S. 366 (1973) [350–51]
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) [351–56]
o Aspen Skiing became ~the~ case for plaintiffs the way BMI became ~the~ case for defendants under Sherman § 1
Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370 (7th Cir. 1986) [357–59]
o Bad intent doesn’t automatically make something exclusionary because almost all competitive intent is designed to
hurt competitors.
 “If conduct is not objectively anticompetitive the fact that it was motivated by hostility to competitors is
irrelevant.”
o Holding: “Today it is clear that a firm with lawful monopoly power has no general duty to help its competitors” and
thus no duty “to extend a helping hand to new entrants [or] help [rivals] survive or expand.”
2. Essential facilities (cont.) [360–71]

Verizon Communications Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398 (2004) [361–69]
o Issue I: Whether the 1996 Act preempts the Sherman Act.
 IOW: Whether the 1996 Act has any effect on the application of traditional antitrust principles in the
Sherman Act.
o Holding on I: No. “That Congress created these duties does not automatically lead to the conclusion that they can be
enforced by means of an antitrust claim.”
 “Just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not create new claims
that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause’s
mandate that nothing in the Act “modify, impair, or supersede the applicability” of the antitrust laws.”
o Issue II: Whether the activity of which respondent complains violates preexisting antitrust standards.
o Holding: No.
o “The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not
unlawful; it is an important element of the free market system. The opportunity to charge monopoly prices at least
for a short period is what attracts ‘business acumen’ in the first place; it induces risk taking that produces innovation
and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found
unlawful unless it is accompanied by an element of anticompetitive conduct.”
 “Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to
serve their customers. Compelling such firms to share the source of their advantage is in some tension with
the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or
both to invest in those economically beneficial facilities.”
 Monopolies—once acquired are bad—but pursuits of monopolies have positive effects on the
market.
o This is the exact reason we have the entire patent system—to “encourage” innovation.
 We want monopolies to be just out of reach of businesses.
o IOW: We should consider monopolies to be positive and good generally and find the
19

o
o
o
Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price,
quantity, and other terms of dealing—a role for which they are ill suited. Moreover, compelling negotiation
between competitors may facilitate the supreme evil of antitrust: collusion. Thus, as a general matter, the
Sherman Act “does not restrict the long recognized right of [a] trader or manufacturer engaged in an
entirely private business, freely to exercise his own independent discretion as to parties with whom he will
deal.” United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
Trinko does four things:
 (1) Limits Aspen Skiing
 (2) Reframes the analysis by saying monopoly is usually good except in the special case where it is bad
 (3) we do not believe that traditional antitrust principles justify adding from the proposition there’s no duty
to aid
 (4) dramatically eviscerates the duty to deal
To bring a duty to deal case as a plaintiff, plaintiff must be prepared to argue either (1) a traditional recognition of an
antitrust duty to deal in the situation or (2) that the court should recognize a new duty to deal.
Trinko does not
 Trinko is a dramatic retraction of the duty to deal.
 Duty to deal barely exists after Trinko.
 This still has not changed, but it still could!
3. Predatory pricing [371–84]




Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967) [373–74]
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) [378–83]
o Primary-line injury – a predatory pricing scheme designed to purge competition from the market and harms direct
competitors of the discriminating seller
o “First, a plaintiff seeking to establish competitive injury resulting from a rival’s low prices must prove that the prices
complained of are below an appropriate measure of its rival’s [i.e. the defendant’s] costs. . . .”
 IOW: You cannot engage in predatory pricing unless you charge less than your costs when you are selling
(e.g., the rival sets the price below the rival’s own costs) or an appropriate measure of cost.
 Court doesn’t define appropriate costs.
 Economists favor marginal costs, but lawyers come up with different formulations of variable
costs.
 The below-cost rule can still run competitors out of business by undercutting them, so the rule says we are
essentially okay with the possibility that some predatory pricing will exclude competitors as long as its
above cost pricing.
 “As a general rule, the exclusionary effect of prices above a relevant measure of cost either reflects the
lower cost structure of the alleged predator, and so represents competition on the merits, or is beyond the
practical ability of a judicial tribunal to control without courting intolerable risks of chilling legitimate
price-cutting. . . .”
o “The second prerequisite to holding a competitor liable under the antitrust laws for charging low prices is a
demonstration that the competitor had a reasonable prospect, or, under 2 of the Sherman Act, a dangerous
probability, of recouping its investment in below-cost prices. . . .”
 “Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a
predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the
market, and consumer welfare is enhanced. Although unsuccessful predatory pricing may encourage some
inefficient substitution toward the product being sold at less than its cost, unsuccessful predation is in
general a boon to consumers.”
For predatory pricing, the full test requires:
o (1) The company has to possess monopoly power,
 Or in an attempt case, be in a dangerous prospect of obtaining it; and
o (2) The company has to engage in exclusionary conduct.
 If the exclusionary conduct is predatory pricing, then there are two additional requirements:
 (i) The company must have set its price(s) below an appropriate measure of its costs, and
 (ii) There must be a reasonable prospect for thinking the company could have recouped its
investment in low cost pricing.
o Neither (i) nor (ii) is a logical requirement, they are prophylactic additional rules.
Recap of Exclusion:
o Acquisition
o Exclusive dealing
 Brook Group
o Refusals to deal
20
o
Predatory Pricing – two elements
 Lorain Journal
4. Price squeezes and loyalty rebates [387–404]





Price Squeezes
o Price squeeze allegations arise when a vertically integrated company with an alleged monopoly at the wholesale
level but with no antitrust duty to provide that wholesale input to its retail competitors,
Pacific Bell Telephone Co. v. LinkLine Communications, 555 U.S. 438 (2009) [389–96]
o Issue: Whether a price squeeze claim can stand when the defendant has no antitrust duty to provide wholesale input
to the plaintiff.
o Opinion by Roberts misses the point because the key to the price squeeze is not the two levels but the relationship
between them.
 (1) Wholesale (high price)
 “In this case, as in Trinko, the defendant has no antitrust duty to deal with its rivals at wholesale;
any such duty arises only from FCC regulations, not from the Sherman Act.”
o This is merely an assertion because there is no test to determine when the duty to deal
exists.
o Trinko removed the antitrust duty to deal, effectively saying duty only exists when it
exists.
o Aspen still exists.
 (2) Retail (low price)
 Under Roberts’ approach, any price squeeze is per se legal.
o Economic analysis
 (1) Wholesale competitor; Retail monopolist
 (2) Wholesale monopolist; Retail competitor
 (3) Wholesale monopolist; Retail monopolist
 The economic reason is the one monopoly rent theorem – idea that you cannot gain more monopoly power
than you already have by monopolizing multiple levels of your own supply chain
 Basis for a lot of vertical restraint of trade considerations.
o Price squeezing no longer exists
Bundled Discounts and Loyalty Rebates
o Both are non-linear price discounts
o How you analyze a bundled discount or loyalty rebate can take two approaches:
 Exclusive Dealing under Lorain Journal
 Predatory Pricing under Brook Group
o When analyzing a bundled discount or loyalty rebate,
 Step 1: determine how you want to analyze it and argue to analyze it the way you want

Le Page’s Inc. v. 3M (Minnesota Mining & Manufacturing) Co., 324 F.3d 141 (3d Cir. 2003) (en banc), cert. denied, 542
U.S. 953 (2004) [398–99]
Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) [399–404]
o The example that the court presents is a good example of framing the problem:
 Assume for the sake of simplicity that the case involved the sale of two hair products, shampoo and
conditioner, the latter made only by A and the former by both A and B. Assume as well that both must be
used to wash one’s hair. Assume further that A’s average variable cost for conditioner is $2.50, that its
average variable cost for shampoo is $1.50, and that B’s average variable cost for shampoo is $1.25. B
therefore is the more efficient producer of shampoo. Finally, assume that A prices conditioner and shampoo
at $5 and $3, respectively, if bought separately but at $3 and $2.25 if bought as part of a package. Absent
the package pricing, A’s price for both products is $8. B therefore must price its shampoo at or below $3 in
order to compete effectively with A, given that the customer will be paying A $5 for conditioner
irrespective of which shampoo supplier it chooses. With the package pricing, the customer can purchase
both products from A for $5.25, a price above the sum of A’s average variable cost for both products. In
order for B to compete, however, it must persuade the customer to buy B’s shampoo while purchasing its
conditioner from A for $5. In order to do that, B cannot charge more than $0.25 for shampoo, as the
customer otherwise will find A’s package cheaper than buying conditioner from A and shampoo from B.
On these assumptions, A would force B out of the shampoo market, notwithstanding that B is the more
efficient producer of shampoo, without pricing either of A’s products below average variable cost.
 COSTS
 A’s Shampoo = $1.50
21


 A’s Conditioner = $2.50
 B’s Shampoo = $1.25
 B’s Conditioner = $– (doesn’t make one)
PRICES
 A’s Shampoo = $5
 A’s Conditioner = $3
o A’s Bundle (S+C) = $5.25
 B’s Shampoo = $ (?)
 B’s Conditioner = $–
Discount
 $8.00 – $5.25 = $2.75
D. Modern monopolization?
1. Complex exclusion (Microsoft) [405–27]

United States c. Microsoft Corporation, 253 F.3d 34 (D.C. Cir.), cert. denied, 534 U.S. 952 (2001) (monopolization) [408–
o Holding 1: Tying arrangements involving software-platform products should be judged under the rule-of-reason analysis of
antitrust law. In a tying arrangement, a seller conditions the sale of one product on the sale or inclusion of another product. If
a seller possesses market power in the market for the tying product and only sells the tying product alongside the tied
product, a buyer desiring the tying product is forced to also purchase the tied product. Market power exists if a seller can
force a buyer to behave in a way that the buyer would not behave in a competitive market. Generally, if a seller is
determined to have market power in the market for the tying product, the tying arrangement is considered to be a per se
violation of antitrust law. To establish the existence of a tying arrangement, a plaintiff must first show that the defendant is
actually tying together the sale of two products and not selling a single product. However, not all tying arrangements are
anticompetitive, as the bundling of products can offset restraint of trade by creating efficiencies for sellers and reducing
transaction costs for consumers. Accordingly, a defendant accused of an unlawful tying arrangement may present evidence
of efficiencies or other business justifications in order to refute the alleged anticompetitive effects.

o
o
o
The efficiencies claimed by Microsoft are achieved through the integration of Microsoft’s software
programs and allow for increased functionality for third-party platforms and convenience for consumers.
This type of integration appears to be a regular practice in the market for software platforms, even among
firms that lack market power. Although this practice is pervasive in the market, the competitive effects of
technological integration are not an area of familiarity for judicial tribunes. As a result, subjecting the
arrangement to a per se analysis is inappropriate. In other words, there is simply not enough information
regarding either the competitive benefits or the potential trade restraints resulting from technological
integration to subject the entire class of actions to a per se analysis. Thus, the arrangement should be
assessed under the more discerning rule of reason, with proper inquiry into the actual anticompetitive
effects and efficiencies created by Microsoft’s challenged bundling policy.
Holding 2: A judge may be disqualified for publicly commenting on the merits of a pending or impending case if the
judge destroys the appearance of impartiality or actual impartiality. Canon 3A(6) of the Code of Conduct for United
States Judges (Code) forbids federal judges from commenting publicly on the merits of a pending or impending
case. This applies to all cases pending before any federal court, as well as when there is reason to believe that a case
will be filed in federal court. Canon 3A(4) of the Code also prohibits a judge from making ex parte communications
on the merits of a pending or impending case. Further, Canon 2 of the Code provides that a judge must avoid even
the appearance of impropriety in all activities. The Code governs the ethical obligations of judges in order to uphold
the public’s confidence in the integrity of the judicial system.
 Microsoft’s case was pending during each of the judge’s interviews with reporters. Indeed, the case is still
pending. The judge provided his views on the case to members of the public while knowing that his
comments would be widely distributed. The judge also discussed factual and legal matters in the case, such
as the credibility of witnesses and Microsoft’s culpability. The judge’s insistence that the interviews be
kept secret suggested that the judge knew that commenting to the press was improper. In sum, the judge’s
disregard for his ethical obligations jeopardized the public’s confidence in the integrity of court
proceedings. The appropriate remedy when there is a concern about a judge’s apparent or actual
impartiality is disqualification. Thus, the judge is disqualified retroactively to the date of the restructuring
order. Complete retroactive disqualification is unnecessary, because Microsoft did not demonstrate or
allege an actual bias or prejudice by the judge.
Disposition: The judgment of the district court is affirmed in part, reversed in part, and remanded to a different
district judge.
“Whether any particular act of a monopolist is exclusionary, rather than merely a form of vigorous competition, can
be difficult to discern: the means of illicit exclusion, like the means of legitimate competition, are myriad. The
22
o
o



challenge for an antitrust court lies in stating a general rule for distinguishing between exclusionary acts, which
reduce social welfare, and competitive acts, which increase it.”
Analysis:
 First, to be condemned as exclusionary, a monopolist’s act must have an “anticompetitive effect.”
 It must harm the competitive process and thereby harm consumers. In contrast, harm to one or
more competitors will not suffice.
o “The [Sherman Act] directs itself not against conduct which is competitive, even severely
so, but against conduct which unfairly tends to destroy competition itself.”
 Second, the plaintiff, on whom the burden of proof of course rests, must demonstrate that the monopolist’s
conduct indeed has the requisite anticompetitive effect.
 In a case brought by a private plaintiff, the plaintiff must show that its injury is “of ‘the type that
the statute was intended to forestall,’” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
487–88 (1977);
 No less in a case brought by the Government, it must demonstrate that the monopolist’s conduct
harmed competition, not just a competitor.
 Third, if a plaintiff successfully establishes a prima facie case under § 2 by demonstrating anticompetitive
effect, then the monopolist may proffer a “procompetitive justification” for its conduct. See Eastman
Kodak, 504 U.S. at 483.
 If the monopolist asserts a procompetitive justification—a non-pretextual claim that its conduct is
indeed a form of competition on the merits because it involves, for example, greater efficiency or
enhanced consumer appeal—then the burden shifts back to the plaintiff to rebut that claim.
 Fourth, if the monopolist’s procompetitive justification stands unrebutted, then the plaintiff must
demonstrate that the anticompetitive harm of the conduct outweighs the procompetitive benefit.
 In cases arising under § 1 of the Sherman Act, the courts routinely apply a similar balancing
approach under the rubric of the “rule of reason.” . . .
 In theory, fourth point involves two different things: (1) The plaintiff could show that the
procompetitive justification is pretext, and (2) if they don’t know its pretext when they could
demonstrate the c
o Showing pretext is showing the act doesn’t have significant or pro-competitive benefit
promised
 Finally, in considering whether the monopolist’s conduct on balance harms competition and is therefore
condemned as exclusionary for purposes of § 2, our focus is upon the effect of that conduct, not upon the
intent behind it. Evidence of the intent behind the conduct of a monopolist is relevant only to the extent it
helps us understand the likely effect of the monopolist’s conduct. . . .
 DC Circuit’s framework is more flexible and does not limit to the list of anticompetitive conduct.
The entire case is about Microsoft’s fear that there could be a world in which the browser became the operating
system, which was far in the future from the time of this case.
Anticompetitive effect of the license restrictions
o
Markets
o Markets are used in different ways that are not clearly identified
o One way to use markets is to ask “does the company have monopoly power based on its share of some market that
could be monopolized?” which is a separate question from “what is the company doing with that share?”
o A monopolist shares one
Causation
Note on Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013) [427–29]
o Holding: “Even a monopolist generally has no duty to share . . . its intellectual or physical property with a rival.”
2. Recent cases (Facebook, Google) [432–48]


Exclusionary practices include cutting off critical data from rivals on its platform that posed competitive threats, and
increasing the difficulty of platform interoperability.
FTC v. Facebook, 560 F. Supp.3d 1 (D.D.C. 2021) [433–34]
o The central principle that governs refusal-to-deal claims is that, as a general matter, a monopolist has “the right to
refuse to deal with other firms,” which includes the right to “refus[e] to cooperate with rivals.” Trinko (2004)
o “Monopolists are both expected and permitted to compete like any other firm,” and “[p]art of competing like
everyone else is the ability to make decisions about with whom and on what terms one will deal.”
o The general no-duty-to-deal rule holds even where a monopolist refuses to deal with its competitor merely “in order
to limit entry”—in other words, because it wants to prevent that rival from competing with it.
o The rule declaring unilateral refusals to deal essentially “per se lawful,” or “presumptive[ly] legal[ ],”rests on three
overriding considerations of antitrust policy.
23


First, and most importantly, “[f]irms may acquire monopoly power by establishing an infrastructure that
renders them uniquely suited to serve their customers. Compelling such firms to share the source of their
advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive
for the monopolist, the rival, or both to invest in those economically beneficial facilities.”
 Second, courts are not central planners.
 Third, forced sharing may lead to collusion.
o Holding: A firm’s merely announcing its choice not to deal with competitors, whatever the. Motivation for doing so,
cannot violate Section 2.
 Facebook had no antitrust duty to avoid creating that deterrent.
 The decision was plainly lawful, per Trinko, because it was prospective.
o Rule: Announcing or maintaining a general no-dealing-with-competitors policy cannot, in and of itself, violate
Section 2; rather, the analysis must focus on particular acts.
United States v. Google LLC, Colorado v. Google LLC, No. 20-cv-3010 (APM), No. 20-cv-3715 (APM) (D.D.C. Aug. 5,
2024) [435–47]
o Revenue share – amount of money calculated as a percentage of the advertising revenue that generated from queries
run through the default search access points
o Issue: Whether Google monopolizes the market.
o Holding: Google is a monopolist, and it has acted as one to maintain its monopoly. It has violated Section 2 of the
Sherman Act.
 “Specifically, the court holds that (1) there are relevant product markets for general search services and
general search text ads; (2) Google has monopoly power in those markets; (3) Google’s distribution
agreements are exclusive and have anticompetitive effects; and (4) Google has not offered valid
procompetitive justifications for those agreements. Importantly, the court also finds that Google has
exercised its monopoly power by charging supra-competitive prices for general search text ads.”
o Possession of monopoly power may be proven through direct or indirect evidence.
 Direct evidence of monopoly power is rare.
 “Where evidence indicates that a firm has in fact profitably” raised prices substantially above the
competitive level, “the existence of monopoly power is clear.” Microsoft, 253 F.3d at 51.
o Indirect, structural approach
 Courts examine market structure in search of circumstantial evidence of monopoly power.
 Monopoly power may be inferred from a firm’s possession of a dominant share of a relevant market that is
protected by entry barriers.
o [S]cale is an important factor in search quality. As Google admits, “the volume and availability of user interaction
data is one factor that can affect search quality[.]” . . . Securing users to generate scale, in order to then exploit the
benefits of scale, is a significant barrier to entry.
o There are cases that differentiate true functional interchangeability from consumer behavior.
V. Other Types of Restraints
A. Horizontal restraints
1. Cooperative ventures [181–82]


Anything beyond per se condemnation is called “rule of reason” analysis.
o When we do rule of reason analysis, we must define the market as a first step in examining whether there
are anticompetitive effects.
Two types of collaboration:
o Loose knit collaboration – Competitors do not integrate their businesses—even in part—but have
common objectives.
 These cases are usually trade association cases
 Competitors may be sharing information, setting standards, policing fraud, or pooling patents that
block one another.
o Tighter knit collaboration – competitors integrate their businesses—to a degree—to realize synergies and
solve market problems.
 This class of cases includes joint ventures and alliances.
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2. Cooperative ventures (cont.) [193–99]


Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210 (D.C. Cir. 1986) [193–99]
o “A joint venture made more efficient by ancillary restraints is a fusion of the productive capacities of the
members of the venture. That, in economic terms, is the same thing as a corporate merger.”
 This is not much different from what would have happened had the companies just merged with
each other. If they had merged, we would approach under Rule of Reason under § 7 standard.
Rule of Reason
o Market definition/structure
o Effects of restraint
o Defenses
o
3. Information exchanges [223–24]




Information exchanges can induce cartel-like behavior and be the tip of the iceberg underlying a cartel.
Information exchanges can be for salutary and for conspiratorial ends.
o Firms must have reliable market information to compete effectively,
o However, collecting the most sensitive market information about the competitors is one of the major tasks
of cartelists; they need this information to set the joint profit-maximizing price and to police cheating on
the cartel.
o In highly concentrated markets susceptible to lock-step oligopoly behavior, perfect information even
without conspiracy can entrench interdependence and cause prices to rise.
o Associationalism – stemmed from an ideal of cooperation and community and referred to trade
associations undertaking most exchanges of price and related data
 Jerome Eddy was a profit-conscious trader who observed that businesses in the same industry
often announced prices at levels that would yield “fair” profits (i.e., price comfortably above
costs), but that a major hindrance to such profitable cooperation was secret price shading. A firm
might follow the industry price on most sales but secretly cut prices to get additional business.
 Eddy proposed “open price associations” – trade associations that would supply members with
complete information on production, inventories and sales of all members of the industry.

Information exchange cases are rule of reason cases.
4. Information exchanges (cont.) [239–50]


United States v. United States Gypsum Co., 438 U.S. 422 (1978) [240–42]
Todd v. Exxon Corporation, 275 F.3d 191 (2d Cir. 2001) [244–49]
o §1
 (1) per se illegal with circumstantial evidence
 Information exchange is a plus factor
 (2) anticompetitive information exchange
 Rule of reason
o Alongside the “structure of the industry involved,” the other major factor for courts to consider in a data
exchange case is the “nature of the information exchanged.”
 (1) Time frame of the data - “Exchanges of current price information, of course, have the greatest
potential for generating anti-competitive effects and although not per se unlawful have
consistently been held to violate the Sherman Act.”
 Historic data is treated as less suspect, future predictions are most suspect, and current
data is in the middle.
 Longer time frame is better
 (2)
5. Tacit collusion [284–303]

Is there an oligopoly problem?—Non-competitive behavior without collaboration [284–88]
25
o


Oligopolistic mergers are prevented precisely because the resulting non-competitive behavior cannot be caught by
Section 1 of the Sherman Act.
o The “oligopoly problem” has attracted little attention in these early years of the twenty-first century, except to the
extent that preventing increasing concentration in oligopoly markets remains a concern in merger analysis.
o In markets of few firms, the sellers may have market power.
 More likely to be the case where barriers to entry and to expansion by fringe firms are high, the product is
homogeneous and simple, buyers are numerous and have no acceptable substitutes, and there are many,
continuous and open sales
 Where most of these circumstances are present, the few sellers may be able to avoid price competition and
to achieve a higher than competitive price without entering into an agreement proscribed by Section 1 of
the Sherman Act.
 May be easier for firms in an oligopoly to achieve a supracompetitive price without any agreement than it
is for firms in more fragmented markets to achieve a supracompetitive price through an explicit cartel
o Initiatives that aim to address oligopoly problems:
 (1) “facilitating practices”—practices that foster oligopolistic coordination.
 (2) break up a tight oligopoly under FTCA § 5
Excerpt from The FTC’s Deconcentration Case Against the Breakfast-Cereal Industry: A New ‘Ballgame’ in Antitrust?
[286–88]
o FTC attorneys push to investigate breakfast-cereal industry with an eye toward requiring larger firms—Kellogg,
General Mills, and General Foods—to separate themselves (by “spin-off”) into several cereal firms each.
o Action against breakfast-cereal industry is first case in antitrust history that seeks to
 (1) declare high concentration (oligopoly) and its accompanying super-competitive prices illegal and
 (2) actually do something about the structure of such an industry, namely, deconcentrate it.
o If a complaint should actually issue against the cereal producers, this group maintains, it will either be (a) focused on
some economically insignificant aspects of the industry’s “conduct”—e.g., false advertising, price discrimination, or
the like—or (b) accompanied by a meaningless consent-order “settlement” under which the cereal producers will
agree, as the quid pro quo for being allowed to retain their concentrated industry structure and thus their power to
charge super-competitive prices, to “cease and desist” doing something that has nothing to do with their monopoly
power anyway
o The essence of the FTC’s brand proliferation theory was that possible grain, texture, shape and sweetness variations
were finite and that the cumulative result of the strategies of the RTE companies was to keep every plausible product
niche filled by repeatedly and promptly introducing and promoting new brands in each nitch where the popularity of
an existing brand was falling and its producer could be expected to let it lapse.
 The complaint did not attack structure alone; but on the other hand, it did not rest either on collusion or on
conduct that, if engaged in by one firm only, would have been subject to challenge.
o “Shared monopoly” theory
 Critics named it to suggest something radical and untested
 Government tried to use it to identify a structural condition involving oligopoly so tight that the
participating sellers are able to approximate the monopoly result by interdependent behavior.
 Both sides shied away from it
o Case was tried before an admin law judge who ruled in favor of the cereal companies, and FTC filed notice of intent
to appeal.
o Federal administration changes resulted in withdrawal of notice of intent to appeal and three commissioner
statements in In the Matter of Kellogg (1982)
In the Matter of Kellogg, Co., 99 F.T.C. 8 (1982) [288–93]
o Issue: Whether a full briefing on the merits of the case against Kellogg applying FTCA § 5 to oligopolistic conduct
is warranted.
o Liability be premised on the basis of two related but distinct theories:
 (1) A traditional conspiracy to monopolize based upon principles contained in Sherman § 2
 (2) A shared monopoly theory under FTCA § 5
 Shared monopoly theory does not depend upon a showing of collusion
o Commissioner Clanton argues that full briefing on the merits is not warranted and there is no basis to continue the
case for the following reasons:
 Complaint counsel argues that the only effective form of relief—under both traditional and shared
monopoly theories—is divestiture.
 Under traditional theory, conspiracy to monopolize was not properly pled.
 Shared monopoly theory cannot serve as a predicate for the Commission to restructure an industry
in the absence of at least demonstrating clear predatory behavior.
 Complaint counsel argues that even absent a conspiracy the conduct is sufficiently like one to justify a
finding of liability under FTCA 5
 Complaint counsel argues for a structural remedy for the industry which is commendable but too uncertain.
26



Commission sought to address a legitimate concern, not about oligopolies per se, but rather about
oligopolistic behavior that is uniquely anticompetitive.
 Whether the theories of relief proposed by complaint counsel are proper is one thing, but it is clear
to me that the Commission was not attempting through this case to challenge structure or bigness
per se.
o Section 5 may well provide the Commission with sufficient authority to attack noncollusive behavior that
contributes to or enhances anticompetitive conduct, and which is without compelling business justification.
 In these circumstances, the principal remedial tool for dealing with this kind of behavior would be a
conduct order.
o FTCA § 5 can reach anticompetitive behavior that is not covered by the Clayton or Sherman Acts.
o such authority extends to non-collusive, marketwide behavior that may not involve traditional forms of predation
o Presumably, this could include behavior that would not be illegal for a single firm to engage in but, due to the
industrywide nature of the practice, could lead to significant anticompetitive effects.
o In highly concentrated industries competitors may learn to react to each other’s moves in a fashion that is closely
analogous to the workings of a cartel. Firms will recognize that it is not in their self-interest to chart an independent
course because other competitors will be able to quickly detect and match their moves, thereby leading to lower
profits for the industry as a whole.
o Areeda–Turner Approach: Evidence of persistent monopoly performance in a market, whether exhibited by a single
firm or a small group of firms, should be sufficient to justify sweeping relief in the form of divestiture or other like
remedies.
 Would require fairly strong evidence that the market is performing badly and that structural remedies
would not lead to inefficiencies.
 Actions should be limited to government initiatives and not allowed in private suits.
o Shared monopoly theory depends less on the unreasonableness of specific forms of behavior than it does on the
totality of the conduct.
o Conduct remedies should reflect two realities about the oligopolistic market context:
 (1) the lower probability that serious anticompetitive problems will exist for long, and
 (2) the potentially greater costs of attempting to restructure an industry.
Oligopolistic Interdependence: Should Non-Collusive Facilitating Practices Be Enjoined? [294]
E.I. Du Pont De Nemours Co. v. FTC, 729 F.2d 128 (2d Cir. 1984) [294–302]
B. Vertical restraints
1. Distribution restraints and RPM [627–30]
2. Distribution restraints and RPM (cont.) [635–52]
3. Distribution restraints and RPM (cont.) [652–66]
4. Tying [669–70]
5. Tying (cont.) [677–85]
C. Restraints outside the reach of antitrust law
1. International limits [873–78]
2. State action and political action limits [878–83]
VI. Review
A. Section 1

Per se illegality
27


Cal. Dental
Rule of reason (“ROR”)
B. Section 7



Market definition
o Market structure
o Market presumption
Effects
o Coordinated effects
o Unilateral
Defenses
o Entry
o Exit
o Efficiencies
C. Section 2: Monopolization




Monopoly power
o Market definition
o Market structure
Exclusionary conduct
o Effects from wrongful conduct
No business justification *
o Efficiencies
28