§1.01 Focus of Antitrust
1. Antirust is the study of competition – this area of law seeks to assure competitive markets thru/ the interaction of seller and buyers in the process of exchange. NOTE: antitrust law protects competition and not competitors
a. customer: motivated by a desire to purchase products at the highest quality and lowest price; through purchases they seek to maximize satisfaction
b. seller: attempt to determine what consumers will buy and how to supply products at the highest quality and best prices; also attempt to produce those products by expending the least amount of resources.
1) when buyers and sellers react as these assumptions suggests, the market is competitive. NOTE: important feature of this competitive interaction is that buyers and sellers act independently, not in concert.
a) for sellers this means that ea. searches for opportunities to respond to the demands of consumers and if they don’t respond a competitor will fill the void, which means a consumer has an opportunity to pick and choose among alternatives in order to maximize their satisfaction.
2. When the market—the interaction of buyers and sellers—deviates from the competitive ideal, antitrust law has a role to play.
a. Who can bring a suit? private parties or federal or state gov’ts may invoke the antitrust laws in order to regulate or correct the market failure.
1. Producers aim to reach: direct resources into goods and services that consumers value the most (allocative efficiency), and produce these products at the lowest per unit cost (productive efficiency)
2. Economic theory underlying antitrust centers on price theory: the study of individual markets, including how prices and quantities are determined and how products and resources are allocated.
3. Perfect Competition: levels of competition is considered on continuum, extending form a “perfect competition” to “pure monopoly”
a. this is a state where a producer can come and in and go freely into the market; there are many buyers and sellers; no individual firm is large enough to affect price by individual action—this is impossible to achieve but this is ideal.
b. Demand and Supply
1) demand is a schedule of prices and the quantities individuals are willing and able to pay
i. inelastic demand – price individuals would not be willing to pay if the price increases
2) supply is the schedule of prices and the amounts sellers are willing to make available to consumers.
4. Elasticity: measures the responsiveness of how sensitive buyers and sellers are to price changes. Demand is elastic if a small change in prices causes a large change in quantity demanded. Inelastic demand is a situation in which the quantity demanded is unresponsive to price changes.
a. factors for determining elasticity of demand include: availability of close substitutes for the good or service, the # and variety of uses to which the good or service can be put, and the price of the good or service relative to the buyer’s income.
b. marginal cost – term used to describe the way in which a firm’s costs behave as it increases output
1) definition: the add’l cos
ngeable, the goods will generally be included in the relevant product market.
1) The Cellophane Case: Supreme Court outlined the criteria for determining the relevant product market: the general rule is if the product is “reasonably interchangeable” (used for the same purpose) then it should be taken into account. The Court used a broad definition of flexible wrapping material to define duPont’s product market.
a) the Court use the cross-elasticity of demand to aid in determining “reasonable interchangeability”: measures the relation of demand for two different goods or services. Cross elasticity is defined as “the percentage change in the quantity of the given product taken by buyers, divided by the percentage change in the price of another product.” Measures the demand of the other product if there is a sharp increase in the demand of the offered product, b/c if there is then we can conclude it’s an adequate market substitute. NOTE: it is hard to do this analysis and it is hardly used b/c its difficult to get right.