Harvard University
Department of Economics
Economics 970: Economics of Antitrust
Spring 2005
Time/Location: Tuesdays and Thursdays, 2:30-4pm, Kirkland House, Seminar Room K
Math Level: 2
Instructor: Steven Joyce
Email: joyce@fas.harvard.edu
Phone: 617-661-9210
Office Hours: Wednesdays, 1-2:30, Littauer G-17, or by appointment
Course Description
Two office supply superstores decide to merge. A group of Ivy League and other elite
universities negotiate how much financial aid they will offer each individual student. A
photocopier manufacturer tries to make its customers to buy a service contract from it,
rather than from independent rivals. A software company builds its web browser into its
operating system. Are these practices legal? Should they be legal? If we assume perfect
competition, it’s very hard to come up with any explanation at all for these behaviors,
much less to make any policy recommendations. Yet each of these examples is based on
an actual antitrust case arising under U.S. law, so there should be some explanation for
them. Are they attempts by firms to gain or exploit market power, or do they benefit
consumers by enabling efficient production or dealing with some sort of market
imperfection? In this tutorial, we will analyze this question using the tools of
microeconomics. The main focus will be on U.S. federal antitrust law, although we will
also consider the antitrust laws of the European Union. We will primarily use a case
study approach – looking at messy real-world examples.
Students will learn economic models that depart from the standard textbook cases of
perfect competition and perfect monopoly, and will gain tremendous experience in
expressing their thoughts on complicated economic issues in everyday terms – terms
understandable by judge, juries, politicians, and regulators. Whether your future interests
are in politics, business, economics, or the law, this course will provide a sold grounding
in the analysis of these important issues.
Required Text
John E. Kwoka and Lawrence J. White, The Antitrust Revolution: Economics,
Competition, and Policy, 4th edition, New York: Oxford University Press, 2003.
This book consists of a number of antitrust case studies, each written by an economist
who worked for one of the sides. As a result, the case studies apply economics
intelligently and are well-grounded in the case-specific facts, but are somewhat partisan.
Assignments and Grading
Class Participation (20%): Students are expected to substantively contribute to each class
discussion.
Response Papers (2 papers, 1-2 pages each, 5% each): At the beginning of the semester
each student will be assigned two classes for which they will be responsible for preparing
a paper responding to the readings for that class. Since these papers are intended to
stimulate discussion, it is important that your peers have time to read the papers.
Therefore, the papers should be emailed to me at least 36 hours prior to the class in which
the readings will be discussed. The response papers will be graded check-plus, check, or
check-minus.
Empirical Exercise (4-6 pages, 15%): A project estimating the effects of a merger on
prices, using data that will be provided to you.
Short Paper (5-7 pages, 15%): A paper on exclusive dealing.
Term Paper (14-20 pages, 40%): The term paper is designed to allow students to apply
economic analysis of antitrust law to a specific industry or topic of their choosing
(historical or current). Students are expected to turn in two copies of a draft version of
their paper, one of which will be given to a fellow student to critique. Students will be
graded on their initial draft (14-20 pages, 10%), on the quality of their constructive
criticisms of their peer’s draft (3-5 pages, 10%), and on the final version of their paper
(14-20 pages, 20%).
Class Policies
Late Papers: All papers are due at the beginning of class, except for response papers,
which should be emailed to me 36 hours before class, and for the final version of the term
paper, which can either be emailed to me or placed in my mailbox outside of Littauer 201
before 5:00pm on Friday, May 13. Extensions will be granted on a case-by-case basis,
and must be requested at least 24 hours before the due date.
Attendance: Attendance is mandatory, and missing classes will result in a reduction of
your class participation grade.
Questions: Questions are encouraged, both in and out of class. The best way to ask me
questions outside of class is via email or office hours. You can also try to reach me by
telephone, but do not call before 10am or after 9pm.
Schedule
1. Introduction [Thursday, February 10]
Kwoka & White, Introduction.
William E. Kovacic and Carl Shapiro (2000), “Antitrust Policy: A Century of Economic
and Legal Thinking,” Journal of Economic Perspectives, 14(1)
<http://www.jstor.org.ezp2.harvard.edu/sici?sici=08953309%28200024%2914%3A1%3C43%3AAPACOE%3E2.0.CO%3B2-0>.
Handout on Oligopoly,
<http://www.courses.fas.harvard.edu/~ec970sj/Handouts/oligopoly.doc>.
2. Price Fixing [Tuesday, February 15]
Kwoka & White, pp. 172-180.
United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir., 1898).
Note: Addyston Pipe is available via LexisNexis <http://lib.harvard.edu/eresources/details/l/lexnexau.html>. Log in, click on “Legal Research” and “Get a Case”
and enter the citation “85 F. 271”.
3. Price Fixing, Continued [Thursday, February 17]
Kwoka & White, Case 8 (School Milk).
Kwoka & White, Case 10 (Lysine).
[Monday, February 21 – Presidents’ Day]
4. Price Fixing, Continued [Tuesday, February 22]
Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979),
<http://laws.findlaw.com/us/441/1.html>.
Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982),
<http://laws.findlaw.com/us/457/332.html>.
Kwoka & White, Case 7 (College Financial Aid).
5. Other Horizontal Restraints [Thursday, February 24]
Antitrust Guidelines for Collaborations Among Competitors,
<http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf>.
United States v. Sealy, Inc., 388 U.S. 350 (1967),
<http://laws.findlaw.com/us/388/350.html>.
United States v. Topco Associates, 405 U.S. 596 (1972),
<http://laws.findlaw.com/us/405/596.html>.
6. Review of Statistics, Econometrics, and Monopoly Pricing [Tuesday, March 1]
Empirical Exercise Out
Handouts.
7. Horizontal Mergers [Thursday, March 3]
U.S. Department of Justice and Federal Trade Commission, Horizontal Merger
Guidelines, April 8, 1997, <http://www.usdoj.gov/atr/public/guidelines/hmg.pdf>.
European Commission, “Guidelines on the Assessment of Horizontal Mergers under the
Council Regulation on the Control of Concentration between Undertakings,” Official
Journal of the European Union, OJ C 031, February 5, 2004, pp. 5-18,
<http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/c_031/c_03120040205en00050018.pdf>.
George A. Hay and Gregory J. Werden, “Horizontal Mergers: Law, Policy, and
Economics,” American Economic Review, 83(2), 1993, pp. 173-177,
<http://www.jstor.org.ezp2.harvard.edu/sici?sici=00028282%28199305%2983%3A2%3C173%3AHMLPAE%3E2.0.CO%3B2-W>.
8. Horizontal Mergers, Continued [Tuesday, March 8]
Northern Securities Co. v. United States, 193 U.S. 197 (1904),
<http://laws.lp.findlaw.com/getcase/US/193/197.html>.
Brown Shoe Co. v. United States, 370 U.S. 294 (1962),
<http://laws.lp.findlaw.com/getcase/US/370/294.html>, Parts I, III and V.
United States v. Von’s Grocery Co., 384 U.S. 270 (1966),
<http://laws.lp.findlaw.com/getcase/US/384/270.html>.
9. Horizontal Mergers, Continued [Thursday, March 10]
Kwoka & White, Case 2 (Office Depot & Staples).
Kwoka & White, Case 6 (Heinz & Beech-Nut).
United States v. Oracle Corp. (2004),
<http://www.usdoj.gov/atr/cases/f205300/205388.pdf>.
10. Vertical Restraints [Tuesday, March 15]
Empirical Exercise Due, Short Paper Assignment Out
Stephen C. Salop, “Exclusionary Vertical Restraints Law: Has Economics Mattered?”
American Economic Review, 83(2), 1993, pp. 168-172,
<http://www.jstor.org.ezp2.harvard.edu/sici?sici=00028282%28199305%2983%3A2%3C168%3AEVRLHE%3E2.0.CO%3B2-5>.
Continental TV v. GTE Sylvania, 433 U.S. 36 (1977),
<http://laws.findlaw.com/us/433/36.html>.
Business Electronics v. Sharp Electronics, 485 U.S. 717 (1988),
<http://laws.findlaw.com/us/485/717.html
11. Exclusive Dealing [Thursday, March 17]
David Besanko and Martin K. Perry (1993), “Equilibrium Incentives for Exclusive
Dealing in a Differentiated Products Oligopoly,” RAND Journal of Economics, 24(4),
646-667, <http://www.jstor.org.ezp2.harvard.edu/sici?sici=07416261%28199324%2924%3A4%3C646%3AEIFEDI%3E2.0.CO%3B2-5>.
Standard Fashion Co. v. Magrane-Houston Co., 258 U.S. 346 (1922),
<http://laws.findlaw.com/us/258/346.html>.
Tampa Electric Co. v. Nashville Co. 365 U.S. 320 (1961),
<http://laws.findlaw.com/us/365/320.html>.
12. Exclusive Dealing, Continued [Tuesday, March 22]
Continue discussing readings from previous class
13. Resale Price Maintenance [Thursday, March 24]
Kwoka & White, 3rd Edition, Case 15 (Monsanto), <http://www3.oupusa.org/sc/0195161181/pdf/0195120159_15.pdf>.
Kwoka & White, Case 13 (State Oil).
March 26 to April 3: Spring Break – No Class
14. Vertical Mergers [Tuesday, April 5]
Short Paper Due, Term Paper Out
Brown Shoe Co. v. United States, 370 U.S. 294 (1962),
<http://laws.lp.findlaw.com/getcase/US/370/294.html>, Parts I and IV.
Kwoka & White, Case 16 (GE & Honeywell).
Kwoka & White Case 18 (AOL & Time Warner)
15. Tying [Thursday, April 7]
Michael D. Whinston, “Tying, Foreclosure, and Exclusion,” American Economic Review,
80(4), 1990, pp. 837-859, <http://www.jstor.org.ezp2.harvard.edu/sici?sici=00028282%28199009%2980%3A4%3C837%3ATFAE%3E2.0.C40O%3B2-P>.
International Salt Co. v. United States, 332 U.S. 392 (1947),
<http://laws.findlaw.com/us/332/392.html>.
16. Tying, Continued [Tuesday, April 12]
Jefferson Parish Hopsital District No. 2 v. Hyde, 466 U.S. 2 (1984),
<http://laws.findlaw.com/us/466/2.html>.
Kwoka & White Case 17 (Kodak).
17. Boycotts and Refusals to Deal [Thursday, April 14]
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985),
<http://laws.findlaw.com/us/472/585.html>.
Fashion Originators’ Guild v. FTC, 312 U.S. 457 (1941),
<http://laws.findlaw.com/us/312/457.html>.
18. Predation [Tuesday, April 19]
Frank H. Easterbrook, “Predatory Strategies and Counterstrategies,” 48 University of
Chicago Law Review 263 (1981).
Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574 (1986),
<http://laws.findlaw.com/us/475/574.html>.
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993),
<http://laws.findlaw.com/us/509/209.html>.
19. Predation, Continued [Thursday, April 21]
Alvin K. Klevorick, “The Current State of Law and Economics of Predatory Pricing,”
American Economic Review, 83(2), 1993, pp. 162-167,
<http://www.jstor.org.ezp2.harvard.edu/sici?sici=00028282%28199305%2983%3A2%3C162%3ATCSOTL%3E2.0.CO%3B2-A>.
Kwoka & White, Case 20 (American Airlines).
20. Price Discrimination [Tuesday, April 26]
Richard Schmalensee, “Output and Welfare Implications of Monopolistic Third-Degree
Price Discrimination,” American Economic Review, 71(1), 1981, pp. 242-247,
<www.jstor.org.ezp2.harvard.edu/sici?sici=00028282%28198103%2971%3A1%3C242%3AOAWIOM%3E2.0.CO%3B2-O>.
Federal Trade Commission v. Morton Salt Co., 334 U.S. 37 (1948),
<http://laws.findlaw.com/us/334/37.html>.
21. Monopolization and Dominant Firms [Thursday, April 28]
Term Paper Draft Due, Critique out
Kwoka & White, pp. 180-186.
Berkey Photo v. Eastman Kodak, 603 F.2d 263 (2nd Cir., 1979).
Note: Berkey Photo is available via LexisNexis <http://lib.harvard.edu/eresources/details/l/lexnexau.html>. Log in, click on “Legal Research” and “Get a Case”
and enter the citation “603 F.2d 263”.
22. Monopolization and Dominant Firms, Continued [Tuesday, May 3]
Kwoka & White, Case 14 (Intel).
Kwoka & White, 2nd Edition, Case 12 (AT&T), <http://www3.oupusa.org/sc/0195161181/pdf/0673468801_12.pdf>.
23. Monopolization and Dominant Firms, Continued [Thursday, May 5]
Comments on Peer’s Term Paper Draft Due
Franklin M. Fisher and Daniel L. Rubinfeld, “United States v. Microsoft: An Economic
Analysis,” in Did Microsoft Harm Consumers? Two Opposing Views, Washington, D.C.:
AEI-Brookings Joint Center for Regulatory Studies, 2000, <http://aeibrookings.org/admin/pdffiles/phpfd.pdf>, pp. 1-44.
David S. Evans and Richard L. Schmalensee, “Be Nice to Your Rivals: How the
Government is Selling an Antitrust Case without Consumer Harm in United States v.
Microsoft,” in Did Microsoft Harm Consumers? Two Opposing Views, Washington,
D.C.: AEI-Brookings Joint Center for Regulatory Studies, 2000, <http://aeibrookings.org/admin/pdffiles/phpfd.pdf>, pp. 45-86.
Final Version of Term Papers Due Friday, May 13, 5:00pm
Additional Readings
Phillip Areeda and Louis Kaplow, Antitrust Analysis: Problems, Text, Cases, 5th edition,
New York: Aspen Law & Business, 1997.
This classic treatise on U.S. antitrust law is essential reading for all antitrust lawyers.
Robert H. Bork, The Antitrust Paradox, New York: Basic Books, 1978.
This famous book argues for an economic approach to antitrust law, and claims that
much existing antitrust law harms consumer welfare.
William Breit and Kenneth G. Elzinga, The Antitrust Casebook: Milestones in Economic
Regulation, 3rd edition, Ft. Worth: Dryden Press, 1996.
This collection of (edited) court decisions in important antitrust cases contains most of
the older cases on the reading list.
Ernest Gellhorn and William E. Kovacic, Antitrust Law and Economics in a Nutshell, 4th
edition, St. Paul, Minn.: West Publishing Company, 1994.
This quick reference describing U.S. antitrust law is a useful alternative to more
comprehensive works such as Areeda and Kaplow.
Richard A. Posner, Antitrust Law: An Economic Perspective, Chicago: University of
Chicago Press, 1976.
A classic legal text.
U.S. Antitrust Statues, <http://www4.law.cornell.edu/uscode/15/ch1.html> and
<http://www4.law.cornell.edu/uscode/15/ch2schI.html>, Sections 1, 2, 13, 14, 18, 45.
The Sherman Act, the Clayton Act, the Federal Trade Commission Act, as well as
various amendments.
W. Kip Viscusi, John M. Vernon, and Joseph E. Harrington, Jr., Economics of Regulation
and Antitrust, 3rd edition, Cambridge, Mass.: MIT Press 2000, Chapters 3-9.
This is an economic textbook covering antitrust.