Antitrust Outline

Crane_Antitrust_Fall_2009

GOALS OF ANTITRUST & ANTITRUST STATUTES

A. GOALS OF ANTITRUST

I. Why Antitrust?
A. Efficiency (social welfare)
1.) Dynamic efficiency
2.) Static efficiency (price effects)
a.) Moving from a competitive price to monopolistic price reduces output and creates dead weight loss
b.) In competitive market, surplus flows to consumer
i.) Producer surplus is non-existent
B. Wealth Transfer (consumer welfare)
1.) movement of wealth from buyers to sellers
a.) Wealth is not being lost, just reallocated
2.) Gov’t has policies to promote wealth transfer; why shouldn’t producers benefit from wealth transfers
3.) Chicago School rejects the concern over wealth transfers
C. See graph on p. 170 for discussion of two types of welfare

II. Normative Arguments
A. Protection of small businesses
1.) progressive Era legal thought
2.) Modern courts reject justification
B. Consumers (see consumer welfare above)
C. Decentralized economic power
1.) Protect democracy
a.) Coercive effect of large corporations (e.g., Nazi Germany)
2.) Pitofsky’s Political Content of Antitrust (p. 7)
a.) Enhance individual and business freedom by reducing the range within which private discretion by a few in the economic spehere controls the weldare of all
b.) States will have to become larger actors in economic affairs if the economy is permitted to be dominated by a select group of giant firms
D. Protection of Employees
1.) Monopsonist power can squeeze wages
E. Limit protection to efficiency
1.) Posner (p. 7)
a.) there is no justification for carrying enforcement into areas whre competition is less efficient than monopoly because the costs of monopoly pricing are outweighed by economies of centralized production in one or a very few firms
E. What happens when these normative justifications conflict with each other

B. ANTITRUST STATUTES

I. Sherman Act

II. Clayton Act (1914)
A. More specific language
1.) Not too different from §1 of Sherman Act
B. §7 – applies to mergers
C. §4 – private right of action
D. §2 – price discrimination

III. Federal Trade Commission Act (1914)
A. Creates independent agency that has overlapping jurisdiction with DOJ
B. DOJ & FTC have developed expertise in individual industries
1.) Formal agreement to divide industries in early 2000’s
a.) DOJ – software, transportation
b.) FTC – computer hardware, energy
2.) Senators became upset and formal agreement abandoned, but in practice still works this way
3.) Some gray area between the two departments’ turf
C. FTC can either sue in court or seek an administrative action
1.) Appeals can be taken to any court of appeals of the defendant’s liking
2.) FTC may now favor administrative actions

IV. Robinson-Patman Act (1936)
A. Amends price discrimination provisions to give it more teeth
B. A person who procures or receives a lower price may now be liable
C. Eliminated exception for quantity discount unless they were cost justified
D. Reaction to chain stores who were perceived to be taking advantage of smaller competitors
E. Chicago’s critique of Robinson-Patman:
1.) Argues that output is increased with price discrimination and thus efficiency increases
2.) If in theory the producer is able to determine the highest price each consumer will pay, the producer can set the price for that consumer at the highest price the consumer will pay and thus output with be optimized

V. Celler-Kefauver (1950)
A. Amends Section 7 of the Clayton Act
B. Closed two loopholes:
1.) Asset acquisition – originally Clayton only applied to acquisition of rivals stock (securities)
a.) Now applies to stock acquisition and consolidations
2.) Horizontal Mergers v. Vertical Mergers – Section 7 only applied to horizontal mergers and CK meant to also apply to vertical mergers

VI. Hart-Scott-Rodino Antitrust Improvement Act (1976)
A. Not a substantive statute; requires parties who meet the dollar thresholds of mergers to prior to closing merger requires that premerger notice given to the DOJ & FTC
1.) Antitrust enforcement budget funded by H-S-R filings
B. Prior to act agencies often learned about mergers through news
C. Agencies can block mergers for a long period by requesting “a second request”
1.) Agency identifies a problem and requests more documents
2.) Cannot close merger until you substantially complete a second request
D. Effect of Act in practice:
1.) Shifted most merger review from litigation to administrative review in agencies
a.) Allows mergers to be stopped by a simple administrative request
2.) Negotiations begin over merger
a.) What packages of divestitures and remedies will satisfy government
E. Hart-Scott is not an approval statute
1.) Only an Act requiring filing and waiting periods
2.) If an agency does not sue, they still have the right to sue later
3.) Not a procedural impediment to suing after “clearing a merger”
F. Two other parts of HSR
1.) Expanded investigatory powers
2.) Grants states power to sue as parens patriae (sue for damages on behalf of states citizens)
a.) Invokes debate on when states should be able to sue under antitrust law

VII. Foreign Trade Antitrust Improvements Act (1982)
A. Particularly an issue when U.S. was one of the only jurisdictions enforcing antitrust law
B. What happens when there is conduct abroad that injures U.S. consumers?
1.) Can consumers from foreign markets sue a global cartel in U.S. courts to recover damages?

EARLY DEVELOPMENT OF LEGAL DOCTRINE

I. U.S. v. Trans-Missouri Freight (1897), p. 51

II. U.S. v. Addyston Pipe & Steel (1899), p. 56

SHERMAN ACT SECTION I: PRICE FIXING
I. Conditions favoring Cartelization
A. Costs of organizing should be small (transaction costs)
B. Not be burdensome size or other diseconomies
C. Price elasticity of demand should be low at the competitive price
D. Durability
1.) Maintain small number
2.) Barriers to entry

II. ELEMENTS OF SECTION 1 CLAIM
A. Agreement or Concerted Effort
B. That Unreasonably Restrains Trade
1.) Per Se Rule
2.) Rule of Reason
C. Has an Effect on Interstate Commerce

III. Doctrinal Framework for Rule of Reason Analysis: 5 Steps
A. Plaintiff proves restraint
B. Plaintiff shows restraint is likely to have anti-competitive effects
C. Plaintiff shows either:
1.) D has market power
2.) Or directly shows that restraint actually has anti-competitive effects
i.) Indiana Dental or Todd
D. D can rebut showing of anti-competitive effects or market power or D can show offsetting pro-competitive virtues of the restraint
E. If D rebuts P’s claim, burden shifts back to P to show that any pro-competitive virtues could have been achieved in a less restrictive way (Brown p. 274)
F. Degree of Scrutiny in a Rule of Reason Case
G. Where does Quick Look intersect with Rule of Reason:
1.) Prong 1: following a proof of restraint, armchair judge may stop P and say that this type of restraint is almost always an illegal restraint on trade and the judge will require D to show a pro-competitive effect
2.) If D satisfies initial proof, case goes to Prong 2

A. Price Fixing & the Per Se Rule

I. Chicago Board of Trade v. U.S. (1918), p. 207 [CLASSIC STATEMENT OF RULE OF REASON] A.
B. True test of legality is whether the restraint imposed such as merely regulates and thereby promotes competition or whether it is such as may suppress or even destroy competition
1.) Must consider the facts peculiar to the business to which the restraint is applied
2.) Condition before and after the res