Antitrust
AGREEMENTS AMONG RIVALS (HORIZONTAL AGREEMENTS)
Ancillary Restraint
Restraint is reasonable (and thus lawful if)
Restraint is necessary to achieve lawful main purpose
No less restrictive means available
-it’s essentially a proportionality question
Structured ROR
To show prima facie case
1. define the market
2. show there’s market power
3. show an anticompetitive effect
If do that, D then has burden to show pro-competitive justification
Per se rule: Irrebuttable presumption of illegality (only issue: did D engage in conduct?)
Unlawful b/c almost always harmful and no redeeming virtue
If you come up w/ credible argument restraint affecting prices actually makes markets work more efficiently, effect on price might be viewed as ancillary & subject to ROR.
So, joint selling arrangements might be pro-competitive
Socony
Broad per se rule established: Per se condemnation of price fixing
Broad interpretation of price fixing
*Any agreement between competitors formed w/ purpose and effect of raising, lowering, depressing, fixing, pegging or stabilizing prices is illegal per se.
Don’t need to show MP Don’t look at justifications
Don’t even need the power to actually fix prices
Collusion/Cartels require
Reaching consensus
Ease of detecting and punishing cheating
Barriers to entry
Collusion easier if cartel members
Roughly same size
Roughly same productive efficiency
The more firms in industry participating, better chance of success
Sometimes price-fixing agreements will have virtues:
BMI: JV created a new product
Helped copyright holders enforce rights
Efficiency
*“price fixing” shorthand to describe (bad) conduct per se rule has applied
Instead, look at: effect and purpose
Possible efficiencies
Characterize the restraint first: is restraint type we’d condemn as naked?
Maricopa: maximum price agreement; per se violation
Unlike BMI, no new product make possible by cooperation
Polygram: no subject to per se b/c of joint venture
But court calls “inherently suspect,” and D must offer justification
Dagher: per se rule not apply to price fixing by JV (Texaco, Shell selling gas)
(but a joint venture can still unreasonably restrain trade)
Market Division by Competitors
Also reduces competition, but may be MORE anti-competitive than price fixing
Topco: horizontal market division subject to per se rule
But unlike Socony, anticompetitive effect less clear
Higher prices not guaranteed, little MP
BRG: market division per se unlawful; only purpose to restrain competition
Market division not ancillary to anything else (like in Topco)
Group Boycotts Having Collusive Effects
Group boycotts: “concerted refusals to deal”
Black letter law—per se unlawful, but really only if:
D’s have MP
Control something vital to competition
In reality, ROR applies
Group boycotts having collusive effects: direct effect on price or output
Aimed at customer or supplier
Akin to price fixing; likely court will apply per se rule
Group boycotts w/ “exclusionary” effects: direct effect on boycotter’s rivals officially per se, but really use a qualified per se rule:
Define market
Calculate market shares
Measure elasticity of demand
Examine/calibrate entry barriers
SCTLA: If used to facilitate naked price fixing, will be treated as per se illegal
Collusive Effects (Horizontal Restraints) and the ROR
Chicago Bd. of Trade: ROR is very malleable; factors equally important
Brandeis: look at—conditions of business before/after restraint; nature of restraint & its effect; history/purpose of restraint; purpose to be attained
Prof. Engineers: Movement from bi-mode approach
Line between per se and ROR blurred; treating standard on continuum
Emergence of “Quick Look” ROR—between per se and ROR
-Unlike p
ivity!”
Polygram: uses CA Dental’s continuum approach, “enquiry meet for the case”
-even if per se & QL inapplicable, full blown ROR maybe not req.
Akin to QL, but frames one step at a time:
-If nature of conduct likely to harm consumers, inherently suspect
THEN D must produce plausible justification
-If does, burden shifts back to P to…
Explain why restraint likely to harm consumers, or
Adduce evidence demonstrating anticompet. effects likely
-If does, burden shifts back to D to show…
Restraint in fact does not harm consumers, or
Benefits outweigh harms
Here, court rejects plausibility of their free rider argument
TACIT COLLUSION: SOLVING CARTEL PROBLEMS:
Often only issue of fact in per se case: agreement or parallel pricing?
Circumstantial evidence is often all you have!
Oligopoly Problem: makes hard for Sherman to reach noncompetitive behavior
Chance others will follow leader, w/out explicit agreement
*In deciding if enough proof, see if evidence consist w/ econ of collusion
Solutions in reaching consensus, deterring cheating, preventing new entry?
Factors facilitating or frustrating coordination:
Number of firms: more vs. fewer
Product heterogeneity vs. homogeneity
Excess capacity
Public vs. private transactions
Small transactions v. “lumpy” sales
Small # of large buyers vs. large # of small buyers
Brand Name Prescription Drugs
Wholesalers’ argument:
Each piece of circumstantial evidence can have innocent explanation!
Evidence has to be consistent with econ theory to be presented to jury
P’s theory makes no eco sense– contrary to D’s econ self-interest!
