Class 3: Booth 42201: The Legal
Infrastructure of Business
Market Power:
Antitrust
Randal C. Picker
Leffmann Professor of Commercial Law
Senior Fellow, The Computation Institute
The Law School
The University of Chicago
773.702.0864/r-picker@uchicago.edu
Copyright © 2003-12 Randal C. Picker. All Rights Reserved.
Sherman Act Sec. 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.
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The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker.
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Sherman Act Sec. 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 $101,000,000
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.
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Monopoly Outcome:
P
Marginal Revenue =
Marginal Cost
10
CS
PM
P = 10 – Q
Demand Curve
Profits
PC
TC
DWL
MC = 4
MR = 10 – 2Q
Marginal Cost
QM
10
QC
Marginal Revenue
Q
4
Twombly Complaint
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Twombly Complaint ¶ 51
Plaintiffs allege upon information and belief that
Defendants have entered into a contract,
combination or conspiracy to prevent entry in their
respective local telephone and/or high speed
internet service markets and have agreed not to
compete with one another and otherwise allocated
customers and markets to one another.
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Revised DOJ-FTC Grid
Increase in Post-Merger Concentration
PostMerger
HHI
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< 100
100 to 200
> 200
Unconcentrated:
< 1500
No challenge
No challenge
No challenge
Moderately Concentrated:
1500 to 2500
No challenge
Scrutiny
Scrutiny
Scrutiny
Highly Concentrated:
> 2500
No challenge
Scrutiny
Presumed
to raise
mkt power
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US Complaint (31 Aug 2011)
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US Complaint (31 Aug 2011)
Gov’t Ex. 20
A new competitor “born” on the Internet is
Netscape. Their browser is dominant, with 70%
usage share, allowing them to determine which
network extensions will catch on. They are
pursuing a multi-platform strategy where they
move the key API into the client to commoditize
the underlying operating system. They have
attracted a number of public network operators to
use their platform to offer information and
directory services.
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Gov’t Ex. 20
One scary possibility being discussed by Internet
fans as whether they should get together and create
something far less expensive than a PC which is
powerful enough for Web browsing. This new
platform would optimize for the data types on the
Web. Gordon Bell and others approached Intel on
this and decided Intel didn’t care about a low cost
device so they started suggesting that General
Magic or another operating system with a non-Intel
chip is the best solution.
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Article 101 (81)

1. The following shall be prohibited as
incompatible with the common market:
 all
agreements between undertakings, decisions
by associations of undertakings and concerted
practices which may affect trade between Member
States and which have as their object or effect the
prevention, restriction or distortion of competition
within the common market, and in particular those
which:
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Article 101
(a)
directly or indirectly fix purchase or
selling prices or any other trading
conditions;
(b) limit or control production, markets,
technical development, or investment;
(c) share markets or sources of supply;
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Article 101
 (d)
apply dissimilar conditions to equivalent
transactions with other trading parties, thereby
placing them at a competitive disadvantage;
 (e) make the conclusion of contracts subject to
acceptance by the other parties of supplementary
obligations which, by their nature or according to
commercial usage, have no connection with the
subject of such contracts.
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Article 102 (82)

Any abuse by one or more undertakings of
a dominant position within the common
market or in a substantial part of it shall be
prohibited as incompatible with the
common market insofar as it may affect
trade between Member States.
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Article 102

Such abuse may, in particular, consist in:
(a)
directly or indirectly imposing unfair
purchase or selling prices or other unfair
trading conditions;
(b) limiting production, markets or technical
development to the prejudice of consumers;
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Article 102
 (c)
applying dissimilar conditions to equivalent
transactions with other trading parties, thereby
placing them at a competitive disadvantage;
 (d) making the conclusion of contracts subject to
acceptance by the other parties of supplementary
obligations which, by their nature or according to
commercial usage, have no connection with the
subject of such contracts.
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Microsoft (CFI 2007)
XP N sales represent 0.005 percent
(1/20,000th of one percent) of overall XP sales
in Europe.
No PC manufacturers have ordered or
preinstalled Windows XP N on PCs.
Only 1,787 copies of Windows XP N have
been sold to retailers and distributors in
Europe.
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Microsoft Factsheet, Apr 2006
Screen Capture Slide
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Link
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European Commission, 27 Feb 2008
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European Commission, 17 Jan 2009
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www.browserchoice.eu
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www.browserchoice.eu
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www.browserchoice.eu
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21 May 2012
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FTC Search Engine Guidelines, 27 June 2002
“The Federal Trade Commission responded to
a complaint filed by Commercial Alert
requesting that the agency investigate
whether certain search engines are violating
Section 5 of the Federal Trade Commission
Act ("FTC Act"), 15 U.S.C. § 45(a)(1), by failing
to disclose that advertisements are inserted
into search engine results lists.”
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FTC, 27 June 2002
“Finally, the staff recommends that you
review your Web sites to ensure that:
• any paid ranking search results are
distinguished from non-paid results with
clear and conspicuous disclosures;
• the use of paid inclusion is clearly and
conspicuously explained and disclosed;
and
• no affirmative statement is made that
might mislead consumers as to the
basis on which a search result is
generated.”
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FTC, 27 June 2002
3. No Competition: Hardwired
in favor of Google
1. Organic Search
Competition (no $)
FTC
• Deceptive practice?
• Tying?
DG Comp
• Tying ala Microsoft
(Media player and IE)
4. Onebox result:
2. Auctions (all $)
hardwired Google
reviews; organic
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competition?
Google HP Restaurants Search, 25 June 2012
Visiting as IE6 shows design possibilities:
alternate third-party homepage sites
presented on first page of search results.
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Google HP Restaurants Search: IE6
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25 June 2012
Copyright © 2012 Randal C. Picker