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Antitrust
University of Dayton School of Law
Gerla, Harry S.

Gerla – ANTITRUST – Fall 2011

Goals of Antitrust

The non-economic goals of antitrust law have fallen by the wayside

Robert Bork emphasizes the new emerging approach to antitrust law, which focuses on the economic goals

“The only legitimate antitrust goal is the maximization of consumer welfare.”

Today, the emphasis is more on total welfare, rather than solely consumer welfare

Other goals (opposing Bork’s view): enhancing consumer choice; preventing erosion of consumer bargaining power

Economic Theories

The Harvard/Traditionalist Approach

Monopolies are bad because they lead to an increase in price and decrease in output

Internal inefficiency is generated by lack of competition

Arrogance towards customers and suppliers

Collusion leads to inefficiency

Entry barriers: governmental regulations; anything that makes entry hard

The Chicago Approach

Monopolies are bad because they lead to an increase in price and decrease in output

Assume that most firms act rationally to maximize profits

Assume that most consumers are rational profit maximizers

Collusion can ruin a market, but it won’t work unless most firms are “in” on it; cheating ruins collusion

Entry barriers: governmental regulations; costs faced by new entries that incumbents didn’t face

Sherman Act § 2: Monopolization & Attempted Monopolization

· Elements of Monopolization

Ø Monopoly Power

Market Share of the Relevant Market

Barriers to Entry

Ø Monopolizing Conduct

Refusals to Deal

Predatory Pricing

Ø Causal Link

· Attempted Monopolization

Sherman Act § 1: Horizontal Restraints of Trade

· Price Fixing

· Price Dissemination

· Market and Customer Allocations

· Group Boycotts and Concerted Refusals to Deal

· The Conspiracy Requirement

§2 of the Sherman Act:

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other persons or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony”

· Elements of §2 Monopolization:

1) Possession of monopoly power in the relevant market

2) Monopolizing conduct which helps get, keep, or expand a firm’s monopoly power in a relevant market.

3) A causal link between the monopolizing conduct and it helping to get, keep, or expand the firm’s monopoly power.

1) MONOPOLY POWER: a firm has monopoly power when it is able to raise price and lower output without affecting consumer demand and has the ability to exclude competitors.

· Defining the relevant market:

o What goes into the product market and what geographical area defines the market

§ Are the products “functionally interchangeable”? à If yes, then they are in the relevant market.

§ Cross elasticity of demand – the effect a 1% change in price has in actual quantity sold of another product. à If substantial impact, then they are in relevant market.

§ Sub-Market Approach – Four Factors:

· Do the products have distinct prices? à more distinct, less likely to be in same market

· Do the products have distinct characteristics and uses? à more distinct, less likely to be in same market

· Are there distinct customers? à more distinct, less likely to be in same market

· Do consumers or people in the industry perceive the products as being in the same market?

§ SSNIP approach – The “Small, but Significant Non-transitory Increase in Price”

· If a firm increases the price of a product by 5% and keeps it there, could the monopolist make the price stick?

· Need price information to use this approach

§ Geographic Market: The area in which sellers operate and buyers can practically turn to for supplies – The “buyer’s side” is determinative when there appears to be two potential geographic markets

· In determining monopoly power look at:

o Market share: how much of the market the alleged violator has

o Elasticity of demand: how sensitive is demand to changes in price

§ More elastic = more market share required

§ More inelastic = less market share required

o Barriers to Entry: particular market characteristics that make entrance into the relevant market difficult.

§ High barriers = less market share required

§ Low barriers = more market share required

§ Examples: Costs that new firms have to pay which established firms didn’t face, Government regulations, Brand loyalty, Resources required that aren’t readily available, Securing distributors, and “network effects”

2) MONOPOLIZING CONDUCT: conduct that helps the firm get,

zing conduct

ATTEMPTED MONOPOLIZATION: Attempts to monopolize should be prevented if the defendant’s conduct, if not stopped, promises a reasonably imminent monopoly or a “dangerous probability” that a monopoly will result.

· Elements of Attempted Monopolization:

1) Defendant must engage in anticompetitive conduct

2) With the specific intent to monopolize: a showing of monopolizing conduct; that must be more clearly monopolizing than in “monopolization” analysis. AND;

3) A dangerous probability of achieving monopoly power exists: similar to monopoly power analysis but held to a looser standard:

§ Define market/market share

§ Barriers to entry

§ Elastic vs. inelastic demand

· Advantages: Plaintiff does not have to prove that defendant currently has or possesses monopoly power; rather, he has to prove that defendant has a dangerous probability of getting monopoly power

· Disadvantages: Plaintiff has to prove specific intent (i.e. defendant either desired or knowingly tried to monopolize the relevant market); intent can be inferred through conduct, but the conduct must be fairly clear (i.e. the “no brainer” categories

§1 of the Sherman Act

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal…”

· Analysis of §1 Collusion:

1) There must be concerted action

2) Is the conduct per se illegal or hardcore per se illegal? à If yes, then stop. If no then move to (3).

3) Quick look analysis

1) CONCERTED ACTION: there is no violation of §1 unless there is concerted action. However, concerted action alone does not create §1 liability there must also be conduct that violates §1.