Joe Miller- Antitrust- Fall 2015
The social control of economic power.
The Sherman Act condemns contracts, combos, conspiracies in restraint of trade and monopolization, combinations, and conspiracies or attempts to monopolize. The Sherman Act evolves to meet present economic conditions.
Ways to prevent the restraint of trade and protect competition:
Numerosity of competitors and independence of competitors.
· Prevent merging of firms/producers
· No collusion (courts more impressed by independence than numerosity)
Perfect competition happens when: (perfect competition doesn’t exist, only working competition)
A. Sellers and buyers are so numerous, no ones action has an effect on price.
B. Consumers register their preferences at market prices.
C. All prices are known to each producer.
D. No artificial barriers to product production.
Pareto efficiency: if someone is better off, someone must be worse off.
Barriers to entry:
A. Blocked access- legal prohibition
B. Scale economies
C. Capital requirements
D. Product differentiation
Why does competition need to be protected?
A. Benefit and protect consumers- lower prices, more options, newer goods, innovation, higher quality.
B. Leads to better allocation of resources.
Section 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 declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.
Section 2 of the Sherman Act
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person 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, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.
In a competitive market, price goes up and demand goes down. To sell more, price lower. Consumer surplus grows.
Monopoly: new entrants blocked, only one price. Possible entrants have no ability to go to individual consumers and charge an individual price. Consumers are paying more to get less.
-Producer surplus grows, consumer surplus shrinks.
Carter: small number of producers who act together to sell less at a higher price.
· Just like a monopoly.
Deadweight loss- customer sacrifice creates a share of the surplus that is wasted.
Theories of Harm
Horizontal price fixing- per se illegal, Socony
Horizontal non-price restraint- Rule of Reason unless the concerted group either cuts off access to a necessary supply, facility, market, or the concerted group has a dominant share of the market. If either, use per se rule. Northwest Wholesale.
Vertical non-price restraints- Rule of Reason, Continental T.V.
Vertical price ceiling- Rule of Reason, Khan.
Vertical price floor- Rule of Reason, Leggin.
Tying product- Per se if the tied and tying products are two separate things, one cannot be purchased without the other, market power for the typing product, and the tying arrangement affects a substantial volume of commerce in the tied market, Eastman Kodak v. Image Tech. Otherwise, rule of reason.
B. Grounds for Deemphasizing Competition
In some instances a monopoly can be good:
1. Reward for new inventions
2. In natural monopoly, some competitors cant service (public utility)
3. Certain industries are naturally monopolistic
4. State control
5. Restrictions on expert trade
6. National security interests
7. View that competition is too harsh.
8. Helps bring about working competition.
Section 1 of the Sherman Act- Wants independent decision making by firms especially on price. The structure of the market will depend on the number and size of producers.
Section 2 of the Sherman Ac
is already in transit or is to be shipped within specified time. Here there was a call rule in effect: at 1:15 there was a call rule at which the price was fixed till the Board opened the following morning; any member of the board who bought or sold after that time would pay the call price. Gov’t said this was like a cartel, and even under RR it is illegal for dominant buyers and sellers to fix their price. D argued that it was for the convenience and benefit of the members so people could go home and not worry – it made the Board the central place people came to establish price in the industry, and this was close to perfect competition. Held to not be a violation of the Sherman Act under the Rule of Reason.
Why? The call rule actually improved market conditions and had good effects. The way the price is determined is a wholly competitive process. Agreement had no effect on price or total volume of output.
Where the true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.
Similar to rule of reason test.
Facts: U.S. v. Trenton Potteries Co.
Sanitary potters ass’n engaged in the manufacture or distribution of 82% of the toilets, urinals produced in the US. Issue in this case was a jury instruction – this was a criminal case, not one for an injunction. Defense wanted instruction that if what they did was reasonable, then they can’t be convicted; Dist judge instead said price fixing per se illegal, and Ds were guilty if jury found allegations to be true.
Where price fixing is per se illegal no matter the reasonableness of the price.
Different from Chicago Board because that case dealt with regulation of a board of trade to help establish a market, not a price agreement among competitors in an open market.