Antitrust – Sharpe – Spr. 2016
Introduction: Forces of Competition
Rivalry Among Competitors
likely to be high competition between existing players where:
many players of about the same size
not much differentiation between players and products
much price competition
low market growth rates
U.S. v. Andreas
ADM colludes with japanese consortiums to form price-fixing cartel for lysine
Sherman § 1 Antitrust violations
per se: clear, on-its-face violation
rule of reason: more nuanced analysis required
Introduction to Relevant Markets
Price Elasticity of Demand
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where Q = quantity of product and P is the price
Measure of the extent to which quantity demanded of a good changes when price of the good changes
compare percentage change in the quantity demanded with the percentage change in price
inelastic demand
large % change in price leads to small change in demand (< 1); perfect inelasticity is a vertical line
elastic demand
when quantity demanded changes by large % in response to very small % change in price (>1); a horizontal line
substitution effects
demand for a good is elastic if substitute is easy to find
demand for good is inelastic if substitutes are hard to find
Demand Side Elastisity
downward-sloping demand curves mean that buyers substitute other products in response to price changes
How Firms Exercise Market Power
Market power/monopoly power: ability of a firm or group of firms within a market to profitably charge prices above the competitive level for a sustained period of time.
Consumer Surplus Triangle: amount people are willing to pay vs. how much they actually pay
Producer Surplus: for every product produced below the competitive price, but sell above that price, is surplus
Allocative efficiency loss
Premise: money changing hands is societally beneficial
In a monopoly setting, fewer transactions are occurring and deadweight loss occurs
people who would pay lower price now much pay higher price, so consumer surplus falls and producer surplus increases
Characteristics of Competitive M
Public Remedies for Violations
Criminal [DOJ]
Imprisonment, fines, asset forfeiture, injunctive relief
damages, injunctive relief, atty fees
Antitrust Standards of Proof
Per se illegal
illegal activity no matter the motivation, effect or impact
applied to behavior for which only purpose is anticompetitive
Rule of Reason
courts must determine if activity was unreasonable restriction on competition
requires evaluation of economic effects
applied to behavior which can be procompetitive in some cases and anticompetitive in others
Alternate forms of Original Sherman Act Rules
Two approaches to Per Se condemnation
Trans Missouri Freight: literal per se
every restraint of trade is unlawful [no longer used]
Addyston Pipe: Taft Per Se rule
no purpose/effect other than restraint
not related to any legitimate main purpose
