a) Commentators Views on the Virtues of the Sherman Act
i) Courts developed it
(1) While congress initially came up with Sherman, they punted to the courts who have been able to develop the doctrines gradually
ii) Fear of Political Domination by Trusts
(1) A dominant trust can have huge power over the political system and become too big to fail
iii) Builds Character
(1) Work harder, become more efficient, and succeed without cheating
(2) If you work harder and are better at your job you make more money.
(1) Protestant ethic that hard work can let you set your own destiny
v) Competition equals more a better environment for consumers
vi) Small businesses helped by competition
i) Price Elasticity
(a) Consumer’s response to different prices
(i) Example: Soda. If prices change, consumers switch products.
(2) Inelastic Demand
(a) Demand does change so you can easily set prices
(i) Example: Polio Vaccine. If prices change its still worth it to not get Polio
ii) Supply Elasticity
(a) How quickly costs increase as production increases
(2) Inelastic Supply
(a) Costs do not change as production increases or decreases
(a) Price does not equal demand
(2) Consumer Surplus
(a) When buyer gets an item at price that is lower than what buyer values it at
(3) Producer Surplus
(a) When seller sells the item for more than seller values the item
(a) Under perfect competition supply meets demand and there is efficiency
(2) Allocative Efficiency
(a) Surpluses do not occur in transactions. People make what people buy.
(3) Productive Efficiency
(a) When demand meets costs there is no surplus because perfect competition does not waste money
(4) Productive Inefficacy
(a) Producing goods of lesser quality (or the wrong goods) that people do not want
(5) Allocative Inefficiency
(a) People cannot afford what they really want so they buy a substitute or do not buy.
v) Consumer Preference
(1) Is waited by wealth. If you really want something, but do not have enough money to buy, your demand is not calculated as being very high.
(1) A buyer monopoly where the buyers have banded together to control what is sold and how sold
c) The Virtues of Competition
i) Freedom from Concentrated Power
ii) Lower Costs
iii) Productive Efficiency / Allocative Efficiency
iv) Agile Market
vi) Good Morals
d) The Evils of Monopoly
i) Productive and Allocative Inefficiency
(1) Resources are not put towards their most valuable use. Generally, not enough of the item is produced to meet demand.
ii) Producer Surplus
(1) Monopolies tend to sell items for more than they are worth.
iii) Barriers to Entry
(1) Blocked Access
(a) Controlling the sole supply of essential markets or resopurces
(i) Eg. Patents, cable company’s control of wires, Owning all diamond mines
(2) Product Differentiation
(a) Branding Identifies Products and increases demand beyond what the item’s true worth is. Advertising helps with perpetuating this. In a perfectly competitive market, the products are anonymous.
(3) Scale Economies
(a) If you control a large portion of the market, you can produce cheaper than others and exclude competition
(4) Capital requirements
(a) Industrial infrastructure needed to produce. These are costs of entering market.
(5) Network Effects
(a) Indirect control of competition
(b) Eg. There are not ethanol cars in the US because there are not ethanol gas stations.
iv) General Evils
(1) Unequal income distribution not based on merit
(2) Unequal opportunities because of monopoly’s control of opportunities
(3) Unchecked Power
(4) Inflexible economies (monopoly based markets are not flexible – need bailouts)
(5) Fairness in economic behavior
e) Why we occasionally de-emphasize competition
i) To reward new invention (eg. Patents)
ii) Natural monopolies (only one entity can realistically fill need)
iii) Regulation can be good (like with insurance or liquor)
iv) National Security
v) Sometimes society benefits from forcing industries to survive outside competition (eg. Wind power subsidies)
2) ANTITRUST STANDING
a) Four types of Suits
i) Private Suits
(1) Requires direct anti-trust injury to have standing
(2) Damages are trebled
(3) ▲’s are jointly and severable liable and there is no right to contribution
(4) Statute of Limitations = 4 years although the S.O.L. can be tolled while the government does its own suit based on the same matter
(5) ¶s can group together for a class action against ▲.
ii) Equitable Suits
(1) Can get an injunction on ▲ but no DAS.
(2) Only need to have threat of anti-trust injury to have standing
(3) S.O.L. still equals 4 years
(4) It’s a lot easier to get standing for equitable suits
iii) Criminal Suit
(1) 98% of these are used against hard-core Per-Se horizontal price fixing ▲s.
(2) Fines are large and pecuniary and there is the possibility of three years jail time.
(3) 5 year S.O.L
(4) Unlikely to be used where the legal standards are more difficult to discern.
iv) Parens Patriae
(1) States can sue under this
(2) Standing can be if the state itself is directly effected in a buying situation
(3) Standing is also available with the state suing in its sovereign capacity without showing injury to itself.
(a) The state is basically suing on behalf of consumers who are not suing and the state can keep some of the DAS, but the DAS are limited to what private parties suffered who are not bringing suit themselves. State has to let the private party collect their own DAS in their own actions first.
(b) State can also just sue in equity
b) Anti-Trust Injury
i) To Have Anti Trust Inj
2. surrounding circumstances giving rise to a presumption contract meant to restrain trade or enhance prices
(2) To trigger Rule of Reason analysis, you need to show pro-competitive effects of the questioned economic activity. One there, you can weigh the purpose and effect of the action against the pro-competitive effects. The purpose is pretty much assumed and only becomes an issue if the effect is in question. If the effects are unreasonable, you do not have a winning case no matter what your true intentions really happen to be. If the effects have some pro-competitive virtues, the act can still be illegal if there is an obvious intent to conspire to constrain trade. (See, Socony Vacuum)
(3) Standard Oil – the initial Rule of Reason Case
(i) If the criterion by which it is to be determined in all cases whether every contract, combination, etc., is a restraint of trade within the intendment of the law, is the direct or indirect effect of the acts involved, then of course the rule of reason becomes the guide…
(b) What to take away
(i) The Sherman Act was intended to forbid only “unreasonable” restraints of trade, was not directed at restrictions reasonably ancillary to the doing of business, and did not impair the freedom to enter into ordinary business contracts. When the restraint is not a reasonable part of doing business, it is not allowed.
(4) Chicago Board of Trade – pro-competitive justification – creating new markets
(a) Every restraint of trade is not bad. Every contract restrains trade, but we like contracts because they encourage commerce and dealing. All restraints on trade have to be looked at to see if they have redeeming values.
(b) This case had a grain trading board that restricted time and place of conducting business, this was an obvious restraint on trade but the court feels that the restraint is worth it because the board creates a new market for goods and market for goods and this new market means more competition.
(i) Creating a new market is a precompetitive justification for restricting trade and triggers the rule of reason
(5) National Society of Professional Engineers – What are anti-competitive effects?
(a) The rule of reason does not really care if prices are reasonable
(b) The rule of reason never asks whether the characteristics of a particular industry make monopoly better for commerce or competition
You fail the