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Antitrust Law
Temple University School of Law
Mehra, Salil K.

Spring 2013
I.            The Sherman Act
A.         Title= Protect Trade and Commerce Against UNLAWFUL Restraints and Monopolies
B.          §1
1.           Agreements/conspiracies in restraint of trade are illegal
C.          §2
1.           Monopolization and attempts to monopolize by a single firm are illegal
2.           *difference b/w monopolization and attempts to monopolize
a)           monopolization=having monopoly power and the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of superior product, business acumen, or historic accident (Grinnell, Alcoa)
(i)            you are challenging the existence of the monopoly/the actions taken by one
b)           attempt to monopolize=anticompetitive conduct undertaken with a specific intent towards that conduct/monopolization, with there being a dangerous probability of achieving monopoly power
(i)            you are challenging the actions taken in an attempt to gain monopoly power
(ii)          specific intent=intent to destroy competition.
3.           legal conduct for a monopolist is also legal for an aspiring monopolist BUT illegal conduct for a monopolist may not be illegal conduct for an aspiring monopolist because the latters lack of market power may mean that the actions do not/are not likely to have anticompetitive consequences.
II.         Section 2 Cases…Defining the Market and what is monopolization
A.         A firm has market power if it has the ability to reduce output and raise prices without losing business.
1.           So need to be sure there are competitor(s) in the market to check the ability of one firm to monopolize
B.          3 general things come into play when defining the relevant market
1.           Nature of the product
a)           Fungible means easily substitutable-wheat
b)           Differentiated products are somewhere in the middle of the spectrum
(i)            Soda, beer, cars
2.           Spatial and geographical limitations
a)           Different if dealing with wholesale or retail
(i)            Wholesale=wider geographic market bc retailers willing to go further to avoid higher cost
(ii)          ???Depends somewhat on fungibility of product
3.           Supply limitations/barriers to entry
a)           Including time lag
C.          The overriding question in market definition is, if A raises prices will people buy less of A and start buying B?
1.           Is B a substitute for A?
2.           Is B available close to where A is available?
3.           Can enough B be made quickly enough by existing producers to satisfy the shifting demand from A? Can potential makers of B enter the market quickly enough to satisfy that increased demand in B?
D.         ALCOA….§2 Case…when monopolies are bad
1.           ALCOA has monopoly power/is a monopoly because it has 90% of the market
a)           Barriers to entry prevent the other 10% of the domestic market from expanding quickly enough to be a legit check on this power
b)           Similarly barriers to entry prevent foreign producers from entering the domestic market.
2.           Due to the market share % and the barriers to entry ALCOA has the ability to raise prices without losing business
3.           But a monopoly in and of itself is not illegal
a)           Monopolies not illegal when growth or development into a monopoly as a consequence of
(i)            a superior product
(ii)          business acumen
(iii)        historic accident
b)           those who don’t seek but cannot avoid control of the market
c)           Don’t want to chill innovation by then punishing it.
4.           The monopoly power must be abused
a)           ALCOA used its monopoly power to maintain its monopoly-illegal
5.           Attempts to monopolize are also illegal as the act wants to nip in the bud monopolies when it can.
E.          Page 150 chart
1.           The portion of the consumer surplus lost at the monopoly price/output level is a transfer of wealth from the consumer to the producer
2.           The area n one gets because quantity goes down is an efficiency loss
F.           DuPont…§2 case….defining proper market to determine market share
1.           The market share of a firm is a % that =the units sold by the firm/total units sold
a)           Two additional questions are:
(i)            What units/products count?
(ii)          Where should the geographic limit of the market be?
2.           *Sufficient market share leads to the inference of monopoly power, which is the ability to control prices and/or exclude competition.
a)           Even if a lower %, could still be monopoly power because of things like entry to barrier, patent, etc….reverse is also true that high % could be refuted by low barriers to entry…and remember monopoly power is not itself enough
3.           As to the “what”…for what should be included in the denominator
a)           Court rejects using a functional difference approach because it is a top-down subjective approach
b)           Rather the court, correctly, uses the bottom-up approach that focuses on substitutability/cross-price elasticity of demand.
(i)            When price of A goes up do people in response buy more B
(ii)          If the answer is yes then they are substitutable products, and the more substitutable they are the higher the cross-price elasticity of demand there is.
(a)                 (economists would say that since there are degrees of substitutability b/w A and B the inclusion of things in the denominator should be relative rather than all or nothing)
4.           Dissent points out the cellophane fallacy (see 138-9 in black letter book and 165-166 in casebook)
a)           When determining the “what”, the majority looks to the substitutability of products at the monopoly prices when it should be analyzed at the competitive prices.
b)           This is because use of the monopoly price results in an overly broad denominator and a fictitiously low market share for the firm in question
(i)            So it ends up benefiting the monopolistic firm in question because the very fact that they charge monopoly prices has created the substitutability, which includes them in denominator, which reduces market share, which lessens likelihood of a finding of an AT violation.
5.           *Dissent gives us some indica of monopolization
a)           seeking and maintaining dominance through illegal agreements dividing the world market, concealing and suppressing technological info,  restricting licensees production by prohibitive royalties, and numerous exclusionary manuveours.
G.         Syufy
1.           Market definition can be tailored to fit a particular firm thus resulting in them having a sufficient market share to be called a monopoly
H.         Grinnell…§2 case…
1.           (already covered this in pieces above but….)Monopolization has 2 elements, (1) possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth of development as a consequence of a superior product, business acumen, or historic accident.
2.           Court mistakenly identifies the market as a national one based on the elasticity of supply-meaning even though a person in city x can only hook up their alarm system to that city’s stuff there is nothing preventing a new seller from entering the market-i.e. low barrier to entry.
a)           Court also incorrectly focuses on the fact that the company makes all pricing decisions for its nation-wide network from one central center
3.           The facts here actually indicate a bunch of individual city markets and so only the city in question should have counted
4.           Also the court applied the top-down approach to the product definition which is wrong
5.           This and Syufy indicate the problem of tailoring the definition of the relevant market.
III.      Section 1 Cases…horizontal price fixing agreements
A.         Section 1 prohibits contracts/agreements in restraint of trade.
1.           Same idea as Sec. 2 in that with these agreements a bunch of firms become one and can act like the single firm monopolist punishable under section 2.
B.          The agreements in this section are agreements to restrain trade by fixing prices
1.           Either directly by setting them
2.           By reducing output
3.           Or in some secondary manner
C.          How to have a successful cartel
1.           Fewer actors, people you can trust, goods that are not easily substitutable, high barriers to entry.
D.         Markets susceptible to cartels
1.           Few producers in a concentrated market
2.           Easy to monitor each other
3.           Fungible, homogeneous products
4.           Barriers to entry (bc this is the general definition of barriers to entry)
a)           time lag of entering market
b)           scare resources lead to cost and demand disadvantages for potential entrants
c)           economies of scale
(i)            minimum viable scale…some things cant be produced for a profit unless you produce a lot of it.
d)          Sunk costs.
E.          Leniency and whistleblower programs
1.           Effective way to curb cartels since it makes it much harder to trust the other members of the cartel.
F.           Chicago BOT… horizontal price restriction….gives us ROR
1.           ROR case bc
a)           On its face this doesn’t seem illegal because its natural market conditions that dictate the call price to begin with and its just the BOT holding it firm.
b)           The agreement itself to create the BOT has obvious efficiency and pro-competitive justifications
(i)            Better information, cuts out middle-men
c)           The call rule in particular has substantial pro-competitive and efficiency justifications
(i)            Information, stops predators from operating outside of the bounds of the BOT which would unde

        there is an anti-comp effect here
b)           but the purpose is not a naked restraint
c)           rather the anti-competitive restraint is ancillary to the positive effects (**so the purpose of the restraint is to create these positive benefits)
(i)            integration of sales, monitoring and enforcement of copyright
(ii)          blanket license creates a new product that has pro-competitive and positive efficiency results thus per se not applicable
M.        NCAA…. Horizontal price restriction
1.           NCAA adopts plan for televising football games…stated purpose is to reduce adverse effect of live TV upon football attendance.
a)           Plan limits the number of games any one college can have on tv
b)           Plan is like a blanket license in that it requires CBS and ABC to purchase from the NCAA at their set price access to games, and then CBS/ABC negotiate individually with the schools for which game to televise.
c)           Big time schools had formed the CFA bc they thought they should get more say in TV rights
d)          NCAA says CFA can not enter into any tv agreement other than the NCAA one
2.           ROR applies, but still found illegal under §1
3.           Per se rule is not appropriate even when there is horizontal price-fixing and output limitations when the industry is one that requires horizontal restraints on competition if the product is to be available at all.
a)           Thus the ROR is appropriate to consider whether the NCAA’s justifications outweigh the anti-comp effects
4.           *It is not a valid defense to say that the plan cant have anti-comp effect because of an absence of proof of market power….the lack of such power does not justify a naked restraint.
a)           (even though NCAA does have such power)
5.           Why plan fails ROR analysis:
a)           There is no efficiency justification like in BMI bc here the schools are not allowed to negotiate individually for price if they wish to, thus no transaction costs saved through the plan as there was through the use of the blanket license in BMI.
b)           The necessary restrictions in this industry that got this to ROR are not narrowly tailored to the justifications proffered by the NCAA
(i)            Some restrictions are necessary for the product to be viable but not these.
c)           The revenue sharing justification is a fallacy since all the other revenue stream stuff is left unregulated.
(i)            Which again goes to the not narrowly tailored thing since the justification is revenue sharing, but this restraint doesn’t do that because of other unregulated revenue streams
d)          A finding that many more games would be televised without the plan shows there is no legit pro-comp. purpose to this restriction
e)           *An agreement cant restrict competition merely because the competition itself is what’s causing the problem for the defendant.
(i)            So here, NCAA wants to remove competition for live ticket sales by restricting tv games
N.         Quick Look Analysis
1.           Brown University et. al….horizontal price restriction
a)           Ivy league universities agree to agree on the amount of financial aid a student accepted to multiple schools would be given by any of those schools
b)           Would be per se illegal
c)           BUT because the schools are non-profit entities you want to afford them a slight chance, hence per se not appropriate
(i)            Yet full ROR not approprite right away either
d)          *we get quick look analysis
(i)            if an agreement is a naked price restraint on its face but there is some reason why per se not appropriate then….
(ii)          Defendant has burden of production in demonstrating an ancillary benefit
(iii)        If defendant can produce one then onto full ROR analysis
(iv)        If defendant cannot produce one then per se illegal.
e)           (talk about why we have per se rule and ROR and thus why we would have QL in certain cases)