Antitrust Law Outline

 
Antitrust – Page-Fall- 2013
Definitions
·         Trust – property held by one party for the benefit of another
·         Trust company – financial organization which provides trust services
o   Trust services
§  Acting in capacity of trustee, fiduciary or agent for individuals and companies
Antitrust Economics
·         Economic Generalizations Employed by Courts About Antitrust
o   Protects consumers
o   Protects competition, not competitors
o   Competition trumps all other social values
o   Competition enhances consumer welfare
o   Agnostic about actual prices charged in market in question
o   Distinction between horizontal and vertical relationships
o   Monopoly is a market failure requiring correction by government intervention
·         Economic Theory
o   Economics
§  Theory of average human behavior
§  How to allocate scarce resources based on rational consumer actions
o   Individuals make choices to maximize their own welfare
o   Price Competition
§  Individual consumers have knowledge about a market, its sellers and their respective prices.
§  Consumers will always seek to buy goods at the lowest price.
§  If prices of a product increase, consumers will substitute.
§  In a competitive market, sellers will seek to increase their share of it by attracting customers through lower prices
·         Raising prices will drive customers to competitors
§  In unhealthy markets, sellers raising prices will not be punished because consumers have no reasonable alternative.
o   Market Self-Regulation
§  Markets should be allowed to regulate themselves
§  Market self-regulation > government regulation
§  Antitrust seeks to preserve conditions which allow markets to properly self-regulate
§  Process causes optimal resource allocation
o   Ideal Competitive Market Conditions
§  No entry barriers
§  Perfect information for all buyers and sellers
§  Zero transaction costs
§  Goods are fungible with readily available substitutes
o   Ideal Perfect Competition
§  Demands the lowest possible prices for products
§  Long-run equilibrium price in perfect competition = cost of production
·         All producers in a perfectly competitive market will earn zero economic profit
§  Competition will push down the cost of production to as low as possible due to sellers/producers incentive to productive efficiency (to remain competitive)
§  Productive efficiency allows sellers/producers to potentially gain economic profit or to win greater market share from competitors
§  Competitive process à optimal resource allocation
o   Impairments to Ideal Market Conditions
§  High entry barriers
·         High start-up costs
·         Regulatory barriers
o   License requirements
·         Control by one seller of the facilities required for effective competition
§  Informational dysfunctions
·         Information costs
·         Fraud
·         Asymmetries
§  Imperfect Substitutes and Product Differentiation
o   Competitors are HOSTILE to Free Competition
§  Drives down their profits à lower profits
§  Incentive to abuse markets in ways to raise profits
o   Ideal Market and Perfect Competition are UNOBTAINABLE
§  Some sellers/producers will obtain market power which will allow one or many to set prices, rather than buyer/consumer preferences
§  Sellers prefer a price > competitive price
·         Limit on this is monopoly price
o   Price above monopoly price will reduce sellers’ profits
§  Dynamic efficiency gained over time can make short-run social losses due to super-competitive prices acceptable
·         Economic Theory Applied
o   See Packet and Supplement, p. 28
o   Price consumers will pay at certain level of output
o   Quantity consumers will demand a certain price
§  Producer total revenue (TR) = Qd x Pd
§  Revenue – total amount of money the seller earn from the sale of a good, before accounting for any costs
o   Economic Cost of production per unit
§  Economic cost – cost of all raw materials, labor, equipment and a competitive rate of return on money invested in firm to keep it going
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