ANTITRUST Fall 2006
Professor Greaney T 4-6, R 5-6
I. INTRODUCTION TO AT LAW
Ø Central Concern of AT Law
§ Particular type of market failure → failure of competition; anticompetitive behavior
Ø Purpose of AT Law
§ (1) To protect competition by govt regulation of pvt economic conduct
· The historic view, widely accepted until the 1960’s
· Help the little guy (populist justification for AT laws)
§ (2) Promote economic efficiency
· Law and Economics View
· Includes protecting consumers in the end
· Newer viewpoint, ends up protecting competition
§ AT laws are supposed to close the gap bt markets in abstract and in reality.
Ø Markets Generally
§ Competition is generally a good thing for consumers
· forces producers to meet consumers demands at lowest possible $ and fewest resources
· increases societal wealth but does not cause equal distribution (leads to ‘help the little guy’ mentality in AT)
§ In a perfect world, the market decides what is produced and at what price.
· The market is consumer driven
§ Cooperation bt rivals can damage consumer interests
· Suppress production
· Raise prices
· Decrease innovation
§ The primary goal of any biz is profit maximization
Ø Trends in AT
§ Globalization of AT law and its concepts
§ Increased incidence of trans-national conduct that threatens to diminish competition
v Economics for Understanding Markets
Ø Basic economic knowledge
§ Markets – any place where at least one buyer and one seller come tog for purpose of exchanging goods and svcs
§ Demand – A rel showing how much of a partic good or svc buyers wd be willing and able to purchase at various market prices and during a specific time pd. The biz environment operates by Social Darwinism – only strongest, most profitable/efficient bizes survive.
§ Demand Curve
· Illustrates Diminishing Value/Basic Price Theory
· An inverse relationship bt price and consumption rate. Price ↑ = Demand ↓
§ Supply – A rel showing how much of a partic good or svc sellers wd be willing to make available for sale at various market prices and during a specific time pd
§ Elasticity – measure of responsiveness of quantity demanded of a good or svc to a change in its price
¨ Sig increase in price results in little change in quant sold
¨ Increase in price results in large change in quant sold
§ Perfect Competition
· Defn: An industry made up of a large # of small firms, each selling homog (identical) products to a large # of buyers.
· Presumptions of Perfect Competition
¨ Elasticity – consumers det production, price, market place and are free to change their minds
¨ Many buyers/sellers
¨ No one buyer/seller can unilaterally affect the market.
¨ Buyers/Sellers equally possess perfect market info
¨ Complete absence of barriers to entry into the markets
§ Marginal Cost Curve
Q U A N T I T Y
· A – Demand Curve
· B – Marginal Cost of Production
· E – Intersection, in perfect competition this is where the price will end up.
· Selling below the Marginal Cost line is selling at a loss.
· Selling above MC line is a higher than usual rate of return (suspect, in old AT = guilty)
Ø Monopoly – A seller who can unilaterally fix/control/raise/alter prices w/o losing market share. A producer driven market.
§ Hints: Low/no elasticity, high barriers to entry and selling to the left of E.
§ When the person complaining is the competition, be leery of the motives.
· AT protects competition, not competitors.
§ Monopoly statues are fairly worthless; their interpretation in case law matters… wc/ changes w/ the winds of politics.
§ Natural Monopolies → utilites bc impossible/impractical to have separate companies/suppliers
· Regulation is the watchdog over natural monopolies
· Flaw cd be inadequate regulation
§ Advantages of Monopolies
· huge benefits to producer (wealth transfer to monopolist)
§ Disadvantages of Monopolies
· loss of choice
· decrease in quality
· diminution of output
· increase in price
§ Deadweight Loss
· society loses bc socially valuable purchases cannot be made
· Greaney outline hypo
§ Sherman Act § 2 – Monopolizing trade a felony
Ø Price Controls: used to control $ in an attempt to make goods and svc affordable and accessible to all
§ Price Ceilings
· The max price at wc/ an individual can sell a good or svc, set by law
¨ Increases demand
¨ Reduces supply
§ Price Floors
· The minimum price at wc/ an individual can sell a good or svc
¨ Reduces demand
¨ Increases supply
Ø Indications of Anti-competitive Behavior
§ Similar cost regardless of seller is #1 indication of AT
· Competition shd drive price down to cost
§ Lack of divergence in price among competitors
§ Uniformity in price changes regardless of underlying cost to seller
· Ex: Gasoline, Utilities, cable tv
· Horizontal – all those directly producing the same product (80% of AT concerns)
· Vertical – all those selling the inputs necessary to produce the product
Ø U.S. v. Andreas (7th C 2000) Harvest King – Lysine Cartel; Price-Fixing
§ Facts: Few countries produced & sold lysine, including U.S. They all colluded& agreed to charge the same fixed higher price for lysine & reduced output. Formed a “cartel” & their motto was: our competitors are our friends. Our customers are the enemy. Customers were hurt bc they cdn’t “shop around” for subs bc all producers of lysine were in cahoots, limiting competition, wc/ AT is against.
· Leniency program: gov’t incentive to inform bc granted full immunity to first company or individual to come forward w/ E of AT. (In this case the guy was also acting illegally)
§ G/R: “AT only covers trade/sales in America affecting interstate commerce (as a matter of j.d.); however, it does reach foreign firms & their conspirators wc/ desire to sell in America”
· Barriers to cartelization (collusion)
¨ (1) reaching the agreement- must have meeting of the minds
Ø bc members have diff goals, issues, needs, etc
¨ (2) price- making sure every will in fact charge the same price
Ø Note: fixing prices for products that have differentiation (where there’s a lot of variety w/the product…i.e. cereals) is more difficult
¨ (3) sales/vol-making sure this is set in advance to minimize the risk of “cheating” in wc/ on member of the cartel may charge a lower price (in the absence of having a set volume to sell) in order to take all the biz away from the rest of the members who are charging the agreed upon higher price (distribution systems vary by company)
¨ (4) secrecy- keeping the conspiracy & cartel a secret from prying eyes of the gov…must disguise meetings, agendas, etc.
¨ (5) policing- the cartel must have a mech of punishing those who don’tstick to the agreement (bc strong incentive to cheat)
¨ (6) tracking mech/end of yr audit- in wc/ cartel will be able to see who is & who isn’t sticking to the agreement
¨ (7) paying off cartel members who’ve been shortchanged- as seen in JTC
Ø Case to be discussed,in “bidding” cases, only one member of the cartel will get the job but other members of the cartel who didn’t get the biz need to be paid off.
¨ Ex of successful cartel: vitamin cartel
· Prosecutors will use circum E such as above to make the case of conspiracy and AT
¨ AG is responsible for prosecuting AT cases
Ø Brown v. MIT (3d C 1993) OUTLIER CASE – Shows tension in bedrock principals of AT
§ Facts:Students were victims of a cartel (the Ivies) Cartel agreedto compare scholarship offers that each school wasmaking to students & agreed not to engage in a competitive pricing war w/each other (against AT). Price fixing by fixing discounts
§ Question: Why is this scholarship agreement seen as price fixing?
· Answer: If they fix how much of a discount they will give students (i.e. scholarship), the schools are fixing the price that the student’s will pay for tuition (the discount is being rigged in a way that denies some of them a greater discount)
§ Rule 1: “In any case where you allege a restraint of trade, Δ has an opportunity to assert a justification” [does not apply to per se violations] · Here, the colleges’ justification was to promote socio-economic diversity classes & they alleged this justification was pro-competitive
· Here, the restraint of trade wd be the colleges not being able to give greater scholarships to students than each other (everyone must give out the same scholarship amts to at need students)
§ Rule2: Justifications for restraint of trade MUST be pro-competitive (advancing a pro-competitive purpose) Only pro-competitive justifications excuse anti-competitive restraints.
§ Rule3: “Advancing” consumer choice is a pro-competitive purpose, wc/ Δ’s in this case did
· per Greaney, this case looks like 3rd C is shoe horning social ends into pro-competitive justifications
§ Rule4: The focus of AT is on the preservation of competition ( & competitive markets) & the consumer
v Conduct That Can Impair Proper Functioning Competitive Markets
Ø Structural f
eeexclusionary boycotts below]
· Take away: The applicators clearly colluded to raise prices to the consumer (the govt) [illegal under §1 of the Sherman Act]. But to effectuate it, they excluded a rival. To have standing, JTC, had to show harm (their exclusion). Not harmed by the collusion bc they were not a supplier.
Ø Attempts to Monopolize
§ Π must prove
· 1) Δ has specific intent to harm competition (must show that Δ sought to destroy competitors/hurt competition);
· 2) anticompetitive conduct to achieve this unlawful purpose; and
· 3) offending acts create a dangerous prob of the success of the attempt to monopolize (must show Δ already has considerable power, requiring defn of market, proof of Δ’s share, and proof of other structural elements that bear on power).
· Thus, as w/monopolization offense, power and conduct are crucial wrt attempts. Often, only diff is degree of market power that must be shown. Must define mkt
v Overview Of Competition Law Systems
Ø Scope of Competition law
§ pvt conduct: AT/competition law only reaches pvt NOT public (govt) conduct that tries to restrict competitive markets
Ø Design of the Enforcement Mechanism
§ Potential AT prosecutors:
· executive dept (DoJ–AT Division)
· independent admin agency (FTC)
· states (atty generals of the states)
· individual consumers, competitors, of the alleged violator
§ Ramifications of Decentralized Enforcement: Diversifying prosecutorial power among 2 or more agents has 3 basic rationales. . .
· (1) to guard against default by any single prosecutorial agent
· (2) the relative efficacy of pvt lawsuits
¨ compared to a gov’t bureau, the victim of a price-fixing cartel may be closer to the RL info about a viol & may have stronger incentives to attach such conduct aggressively
· (3) competitive benefits of diversification
¨ having 2 enforcement institutions, such as the DoJ & the FTC “compete” ag each other can induce each agency to improve law enforcement (i.e. developing more effective ways to attack harmful behavior…)
¨ Potential Problems
Ø decentralizing prosecutorial power entails costs
¨ treasury must pay for some duplication in personnel & spend some resources to ensure that 2 public agencies do not extensively examine the same apparent misconduct
Ø splintering authority across a # of prosecutorial agents can
¨ reduce the clarity & predictability of competition law
¨ Where one agent’s decision not to prosecute does not bind other agents, a company must assume that it cd be opposed by any of the agents
§ Reliance on the courts: Although indiv agents may proceed on diff theories, judicial decisions estab binding principles that apply to all agents. The cts interpret the elaborate AT rules.
Ø Possible Remedies for AT Violations
§ Criminal Civil
imprisonment damages (double, treble (or more)
fines (corp & individual) injunctive relief
*divestiture or other structural relief
injunctive relief attny’s fees
Ø Competition Policy
§ Promoting free enterprise: The freedom g’teed each & every biz, no matter how small, is the freedom to compete – toassert w/vigor, imagination, devotion, & ingenuity any economic muscle it can muster
· Sherman Act as an example: Act was designed to be a comprehensive charter of economic liberty aimed @ preserving free & unfettered competition as the rule of trade.
¨ Rests on the premise that unrestrained interaxn of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality & the greatest material progress . . .
II. AGREEMENTS HAVING COLLLUSIVE ANTICOMPETITIVE EFFECTS
v Concerted Action Among Competitors
Ø § 1 of Sherman Act