ANTITRUST LAW
LAO
FALL 2012
v INTRODUCTION TO ANTITRUST LAW:
Ø Chapter 1:
What is AT?
o Set of laws to protect the competitive marketplace
o Protects competition, not competitors (and the market economy)
o Intent changes with time, has at times
§ protect small businesses – no longer today
§ achieve efficiencies – modern emphasis
§ avoid concentration of economic power
§ modern trends = analysis must be based on sound econ analysis
Basic Economics
o Competitive markets mean
§ Consumers aim to max their satisfaction by allocating their lim resources among various goods and services
§ Producers aim to direct resources into producing goods and services consumers value the most (allocative efficiency)
§ And product them in the most cost effective way (productive efficiency)
§ If buyers and sellers act accordingly, market is said to be competitive
o Continuum = Perfect competition —————– Monopoly
o Perfect competition
§ Many buyers and sellers
§ No single firm with market power
§ Homogenous product or service
§ Perfect info on price, output, or other market details
§ Ease of entry
§ Supply curve slopes up
§ Demand curve slopes down
o Monopoly
§ Monopolist can control price and quantity (output)
§ Will produce until Marginal rate = marginal cost
§ Rational monopolists charge profit maximizing price
§ Price will be above competitive levels
§ Will reach a certain point where raising price is no longer profitable
§ Social Costs of monopoly: AT prospective
à wealth transfer a social cost? (transfer of consumer surplus to producer surplus)
– CS says no, society is not poorer, just transferred
à Deadweight loss (allocative inefficiency)
– Consumer loss that is not captured by the producer
– All agree that this is a social cost
– Societies’ resources are diverted to something that is valued less by the consumer
à Efficiency loss from rent seeking:
– To maintain ability to charge supracompetitive price, producer is willing to spend up to amounts of its supracompetitive profit to protect its market power
– Called rent seeking expenditures
– Almost all agree that this is a social cost
o Economies of scale
§ When cost input declines as output increases
§ Minimum optimal scale (MOS)
à Smallest production scale capable of optimizing the economies of scale
“Harvest King”- The Lysine Cartel
Leniency program
o Full immunity from criminal prosecution for first company (and individuals w/in company) to inform gov’t of AT violations
o Cannot be ringleader
o Conditional – in return for complete cooperation
o Some protection with respect to civil liability exposure
§ No treble damages
§ Lim to ∆ share of the affected commerce
o Has been extremely successful in busting cartels, collusion etc.
Global Significance of AT law
o AT in one j/d can have impact beyond those borders
o Int’l firms doing business in US subj to US AT law
o US firms doing business in other countries subj to competition laws of those j/d
Andreas (7th Cir. 2000).
Identifying the Core Questions of Antitrust Law
Brown Univ (3rd Cir)
o Shows non-economic considerations are sometimes considered in AT cases, despite protests/claims to the contrary
Brunswick
o Introduces idea of AT injury
o Protecting competition not competitors
o Must show an injury to have standing to bring case
JTC
o Road builder sufficiently harmed by other road building firms’ conspiracy to fix prices and exclude plaintiff; b/c exclusion was collusive, it was sufficient antitrust injury to sustain case.
Outside reading: Crane, Chicago, Post-Chicago, and Neo-Chicago, (2009).
o Harvard School
§ Focuses on significance of market structure (“structural theory”)
§ Market structure influences conduct
§ Concentrated markets are conducive to anticomp behavior
§ Concentrated markets are not conducive to competition
§ Influential in AT during 50s/60s/70s
o Chicago School
§ Pendulum swing to the other extreme
§ Big firms are big because they are efficient
§ Pursuit of economic efficiency is the goal of AT
à Productive and allocative efficiencies
§ Shift away from the structural approach
à Structure is the result of performance
à Long lived market dominance is usually proof of efficiency, not result of anticomp acts
§ Economies of scales are more pervasive than economists once though
à They explain market concentration
§ Markets tend to be self-correcting
§ Few natural barriers to entry
§ Businesses are rational and the goal of a rational business is to max profit
à More sales at competitive prices, or
à Exercise market power (raise prices, limit output)
à Rational businesses will choose first path b/c monopoly is difficult to attain and maintain
§ Should penalize conduct only if inefficient and tolerate conduct that does not result in inefficiency
§ Even if mkts are imperfect and prone to anticomp outcomes, govt intervention is justified only if result is an improvement, taking into account costs of intervention (often high)
o Post-Chicago School
§ Group of economists reacting to CS models
§ Agrees AT should be based on economics and price theory
§ But acknowledges markets are imperfect
à Will not function as CS model predicts
à Will not easily self-correct
§ Exclusionary practices are more plausible and have more harmful effects than CS assumes
Two categories of anticom conduct:
o Collusive:
§ Collusive effects directly impair markets and typically will involve coordinated action by competitors, who collectively possess market power and are attempting to emulate monopolist behavior by restricting output and raising price.
§ Examples: price fixing; agreement or mergers by major competitors.
§ Analysis of collusive effects tends to focus on the process of competition generally, a
on
§ Horizontal price fixing is per se unlawful
o Addyston Pipe, 1898
§ Also found per se illegality
§ Ancillary restraint analysis: restraints are either
à Naked
– Serves no purpose but to restrain trade
– Per se illegal
à Or ancillary to a legit legal purpose
– If integral to legit transaction
– And no less restrictive than necessary
– Than lawful
– Effectively a structure ROR analysis
o Unstructured ROR
§ Standard Oil, 1911
à Examine purpose, nature, effect of restrain
à Open ended ROR inquiry
§ Chicago Bd of Trade, 1918
à Left room for a lot of uncertainty
à ROR no longer applied this way
Evolution of the Per Se Ban on Price-Fixing by Competitors
o Per se illegal Definition: irrebuttable presumption of illegality
o Rationale:
§ for conduct that is almost always anticompetitive,
§ rarely justified,
§ too difficult and expensive for complete ROR analysis,
§ possible unfairness is mitigated by the clarity of the rule,
§ not much social cost
o Trenton Potteries, 1927
§ Reasonableness issue in context of price fixing
§ Per se rule was most appropriate when the ∆ controlled “in any substantial manner a trade or business in interstate commerce” they were in a position to exercise market power
§ “The power to fix prices, whether reasonably exercised or not, involves power to control the market and to fix arbitrary and unreasonable prices.”
o Appalachian Coals, 1933
§ Competitors formed exclusive joint selling agency
§ Objective was to prevent market consequences of weak demand and oversupply
§ Court declined to apply per se rule – said no monopolistic menace
o Socony-Vacuum, 1940
§ Industry conditions
à Oversupply of oil in ‘spot market’, and long term K prices pegged to spot market prices
§ Cooperate to take excess oil off market to stabilize spot market prices; in turn would stabilize long-term prices
§ Broad per se rule established
à Per se condemnation of price fixing and
à Broad interpretation of price fixing
à “purpose and effect of raising, depressing, fixing, pegging, or stabilizing prices” = illegal per se
à directly interfering w/ the free play of market forces
§ not necessary to show a purpose to fix prices, or the power to fix prices
§ no need to show ∆ has market power
§ no inquiry into asserted justifications by ∆
