Antitrust Outline

Imperfections:
1. Direct regulation: This can lead to externalities, unintended deliortive effects. Ex. Bar exams ensure quality
2. Antitrust: Promoting competition in markets.
-Essentially common law.
Sherman Act:
Section 1: Contracts in restraint of trade are illegal. Requires more than one party (you can’t contract with yourself)
Section 2: Monopolies = felony. Does not require more than one party.

Clayton Act:
Section 7 (15 USC sec. 18): Mergers that lessen competition or create a monopoly = no good!
-Requirements Contract: “you must buy all your requirements from me”
-Tying: “if you buy this computer, you must buy this OS.” “If you buy this car, you must have this equipment in it.”

Robinson Patman Act:
Amends the Clayton Act.
-Prohibits price discrimination: “I can’t sell the same product to different buyers at different prices.”
Primary Line: I sell gizmo to people in Atl for 1$ less than everywhere else to compete with Atl supplier. Competition exist between me and the other supplier.
Secondary Line: Selling something to Walmart for 1$, and to Wilburts for 1.50$, moves the competition to wilburts v. walmart.

Enforcement of Antitrust:
Justice Dept
FTO: cease and desist orders
Private Action (most desireable case would be a class action for a private action claim)

8/26/09

Economic Underpinnings:

Demand
Demand is a schedule of price, the amount you are willing and able to buy at a given time.
1. The entire schedule (Price and Quantity over time)
2. WILLING and ABLE – not just willing or just able.
Quantity Demanded is the individual amount demanded at a particular price.
The Demand Curve: When you plot the graph formed by the price and quantity, the line that results. Usually ownward turned because you buy less if the price is high
1. Curve Shifts: When the demand line is moved, but that maintains it slope
2. Different Slopes: When the demand line is altered by the change in quantity or price.
Elasticity: The more the change in price affects the change in quantity, the more elastic the demand. If the quatity demanded stays relatively the same, it is inelastic.

Supply:
the amount of goods a supplier is willing to sell at a given price.
1. The entire schedule
2. The amount you are WILLING and ABLE to sell.
Supply Curve: The line that results from plotting the amount supplied at a given price. Usually upward turned because you sell more if the price is high.

Demand and Supply Curves:
Equilibrium: Where the lines intersect each other is where supply meets demand, where the amount the seller is willing to sell= the amount people are willing to buy.
Surplus: If there is a surplus, the seller is selling the notebooks at a price too high to move all his merchandise and the surplus tends to drive the price down.
Shortage: If there is a shortage, the seller is selling the goods at a price to low to supply the demand. This will drive the price up.

Consumer Surplus: The difference between what you were willing to pay and what you really paid. This is expressed on the graph by the difference between the price at equilbrium and the price as it is expressed on the Demand Curve at other locationg.
Producer Surplus: The difference between the price at which the seller was willing to sell, and the price at which he sold. This is the bottom half of the triangle created between the supply and demand curves dissected by the line representing equilibrium.

Equilibrium is the most efficient point in a competitive market, and it is towards this end (equilibrium) that Antitrust law is geared. The principle goal of antitrust is to MAXIMIZE EFFICIENCY.
Allocative Efficiency: Resources are brought into the making of something when the benefit outweighs the costs to society. When you look at a single unit of quantity on the Demand/Supply Curve, the amount on the supply Curve is how much the seller is willing to pay to obtain those materials, and the amount on the Demand Curve is how much that one unit is worth to customers.
1) Need a large number of producers and suppliers
2) Perfect information
3) Items that are fungible
Productive Efficiency: You are producing at the lowest cost.

8/27/09
Price goes up, Quantity goes down, Consumer surplus goes down, and consumer surplus is transformed into producer surplus. I don’t understand any of that. Many people have thought that producing below equilibrium has led to unemployment because it raises the demand while lowering the supply, and with lowered supply there is lower production than could be supported by demand.

The cost of Monoply:
Rent: Anything you get above the minimum utility. Ex. Professional Athletes. Rent seeking is trying to get more than the minimum that you are taking. A cost of monopoly is the cost of rent seeking and avoidance. It’s not represented on the graph, but it can never be bigger than the producer surplus portion of the graph – because you would never pay more for something than it’s worth.
It’s not so much about who’s going to be richer or poorer, it’s about the investment in becomning richer or poorer because it doesn’t create anything new – it just redistributes the wealth.

Cost Curves:
Firms have:
Fixed costs: They do not vary at the level of output.
EX: It costs you 15$ to produce pizzas every month even if you sell different quantities each month. FC/Q It creates a curve graphically, because as quantity increases, the FC is spread out over a greater profit.
Variable Cost: The costs associated with the quantity produced.
Total Cost: Fixed Cost + Variable Cost
Average Total Cost: Fixed Cost + Variable Cost
Quantity
Marginal Cost: The cost of producing one more unit.

Antitrust Paradox: If competitive market provides for 100 firms to produce at equilibrium, and the minimum cost is only reached by each firm producing over what their share of the equlibrium quantity, the paradox would be the choice in policy. You can’t have both: You can choose to have the most efficient market in the price of the goods, or the most competitive market by having a higher number of firms.
Could two firms tht wanted to merge be permitted to merge because they say they will be more efficient? Compeition kept the price low, but that price could never be as low as it could be if the firms merged. Does this mean that monopolies are the most efficient way of reaching the lowest cost?

9/01/09

1977: Supreme Court would follow the University of Chicago school of economics.
After this, You can narrow the substantive law, or you can narrow the groups that enforce it.
Price Fixing: A group of competitors get together and fix the price higher than what it would otherwise be. Horizontal.
Before Illinois, the problem was that the price fixing firms would sell them to a distributor who would raise the price to compensate, putting the price hike onto the consumer. The problem was, does the consumer have recourse against the interim price fixers? The SC in Hanover, said “No defensive use”, giving a windfall to the distributors who could not be held accountable for passing along the hike.
Illinois Brick Co. v. Illinois (81) [1977]:
Manufactures fix prices on blocks, sell them to masonry contractors, who pass it on to the general contractor, who pass it on to consumers. Can a plaintiff two or three levels down the price fixing tree bring an action for offensive damages against the original fixers? Damages are the quantity you purchased times the difference between the fair price and the raised one. (You buy 1000, and the difference is 1$, you get 1000$). You must be a direct purchaser to recover from the harms in price fixing. Consumers cannot sue the orginal fixer – only the direct purchaser.