I. Sources of Antitrust cases in United States
A. Department of Justice – Antitrust Division; only one that could put someone in jail.
B. Federal Trade Commission
C. Each State – can bring an antitrust case. Sizes of active antitrust unit vary by state
D. Private Attorney General concept –
1. approximately 70% of antitrust cases are private cases, others brought by government units (who usually bring more important cases)
II. Antitrust Legislation
A. Sherman Act
1. § 1 most important – every contract & combination or conspiracy is illegal if it restrains trade
2. § 2 – every person who shall win monopolies or attempt to is illegal
3. § 4 on p. 1090 – automatic punitive damages on antitrust laws. The victim gets back treble damages & attorneys fees if wins. This is designed to encourage plaintiffs to bring cases. If plaintiff loses he doesn’t have to pay defendant’s attorney’s fees either.
4. §7 p. 1091 – this is designed to be stricter than the Sherman Act
B. Clayton Act
1. § 4 gives 1 sided treble damages
2. § 7 closes the asset loop hole – may be to lessen competition or tend to monopolize.
C. Robinson-Patman Act
1. Can’t charge for different purchasers in commodities for like products that may affect commerce.
D. FTC Act
1. Unfair methods of competition or deceptive acts.
III. Goals of Antitrust Laws
A. 1890 – 1960/70s:
· Distrust big business
· Like “ma & pa” business
B. 1978:
· Promote economic efficiency (p. 7 – 9)
C. 1982:
· Protect consumers from paying super competitive prices to monopolies or cartels.
IV. Standards under which Antitrust Actions are Evaluated
A. Criminal
1. Worst things; you fix prices, you go to jail.
2. Examples:
a) Price-fixing
b) Bid rigging (this and price fixing set up little monopolies)
c) Division of market/customers
3. History:
a) From 1890 – 1921 only labor leaders went to jail for antitrust violations
b) 1940s lots prosecuted;
c) 50s, few
d) 1960 first time major corporations convicted of antitrust violations – price fixing
e) 1980s tons sent to jail for price fixing – resulting in country club prisons
f) 1987 – US Sentencing Committee Guidelines (p.66) requiring sentencing & increased fines
B. Per Se – illegal with no defenses
C. Rule of Reason – look at everything, what’s your explanation, did you have market power, power to harm people, etc.
V. Central Themes Recognized as the Underpinning for Antitrust Policy
A. Non-economic approach that enforcement was to be carried out so as to control economic concentration of industrial power
· “Competition” – promotion of equality among businesses through the dispersion of economic power.
· Objective of theme – free access to markets
· Evil to be condemned – economic power
· Core values – freedom of individual choice, distributive justice, & pluralism
· Small entrepreneur favored & protected against encroaching economic leverage of larger concentrated entity even at increased costs to consumer.
B. Antitrust as a body of law designed to promote the goal of enhancing economic efficiency
· Laws intended to protect competition rather than competitors.
· Effort to improve allocative efficiency without impairing productive efficiency so greatly as to produce either no gain or a net loss in consumer welfare.
· Efficiency – whether the challenged conduct creates a restraint or limitation on output.
· Absent finding of output limitation, conduct is deemed efficient & beyond condemnation of antitrust laws.
VI. Exemptions and Immunities
A. Labor Exemption
B. Insurance
C. Banking
D. Electric Power
E. Railroads
F. States
G. Baseball
VII. Antitrust Economics – Terms
A. Relevant Market – legal conclusion when antitrust things happen
B. Barriers to Entry – If there is easy entry, we don’t have a market powers problem.
· 3 Dimensions
1. Timely – how long does it take to enter the market? Usually we will put up with market power that lasts 2 years, but not more.
2. Likely – how likely is it that firms will enter?
3. Sufficient – can you affect anything? Bring prices down? It has to be enough ent
nt where consumers will stop buying.
H. Competitive Pricing vs. Monopoly Pricing
· Monopoly pricing causes Allocative Inefficiency loss from monopoly pricing, is the amount of money they are losing by raising the price a little too much so that consumers don’t buy it. The consumer surplus goes down. (as monopoly price goes up, consumer’s surplus goes down or potentially disappears if they are no longer willing to buy or are breaking even at the monopoly price)
· This is also called the Deadweight Welfare Loss. Consumers won’t buy as much, but they will buy enough to continue to make it worth it for the monopoly to raise prices.
I. Marginal vs. Infra-Marginal Consumers
· Infra-Marginal Consumers – people who aren’t on the line. Who are fanatic & will pay more for a product. Get a higher surplus.
J. Monopoly
K. Oligopoly
· When producers have to take competitors pricing & output decisions into account. Not perfect competition. A market where there are only 2 or a few choices.
· Pricing can be at a monopoly level, at the competitive level, or somewhere in between. They rise & fall succinctly w/o collusion.
· Look at structural features: number of firms & their size, ease of entry (if entry is easy, then you can’t play any of these games), trends, innovation etc. in market share
· Psychological factors that make an industry more or less competitive:
o Soft drink Industry – highly concentrated but highly competitive
o Insurance Industry – not enough competition. They have a partial antitrust exemption, huge history of collusion, insurance companies are regulated by states, know each other, less compet.
L. Sunk Costs – non recoverable costs to enter a market.
· Ultimate barrier to entry
