ANTITRUST LAW
Prof. Lambert, Fall 2006
Sullivan/Hovenkamp, 5th Ed.
A) TERMS
1 Ancillary (restraint of trade): secondary to, a necessary part of, but not the main part
2 Collusion: competing firms getting together and deciding things as a whole
3 Cross-elasticity of demand: ability to substitute a different product for the relevant product
▪ Substitutes vs. Complementary
– substitutes: prices go up and down together, they compete
▪ Alcoa’s aluminum and Reynold’s aluminum
– complementary: prices move in opposite directions
▪ engines and oil filters
– price of engine goes up, less engines sell, forcing demand for oil filters to decrease, reducing price for filters
4 Elasticity of Demand: the ability to substitute in the same product market
▪ more elastic the demand, the more customers will go w/ a substitute if price goes up . . . seller’s ability to charge supracompetitive price lower
5 Elasticity of Supply: presence of unused capacity in the industry, or the existence of firms that could easily shift to production of the product (cardboard producer capable of switching over to paper
▪ the greater this is, the less control a producer has over market price
6 Industrial organization: study of how structure of businesses is determined and how mkt determined
▪ What is optimal number of firms in a particular market
7 Monopoly – one seller in the mkt; will reduce output to increase price it charges
8 Monopsony – one buyer in the mkt; the buyer will reduce output and lower price of things it purchases
9 Per Se illegal: Court has a list of restraints of trade that they have already analyzed and deemed them to be almost always output reducing, so court doesn’t even analyze, they just assume illegality
▪ (minimum) price fixing, big rigging, market division
10 Supracompetitive prices/profits: priced above cost; more than what is needed to repay backers
11 Vertical Maximum Resale Price Maintenance: Vertical Price Fixing
▪ Mfr sets maximum retail price that can be charged by retailer
– 1) limits ability of dealers to compete on services (bad for consumers – less services)
– 2) could be way to disguise minimum price fixing, which is a violation
B) INTRO
1 What is Antitrust Law? What are its Goals?
▪ Antitrust law is the law of competition, if it exists, prices remain lower and big powers can rarely control the market
– More competition means more quantity, leading to lower prices
▪ Antitrust concerns
– Monopoly
– Collusion: agreement among competitors to restrain trade (not compete)
▪ Goals
– Control economic concentration of power
▪ keep concentration of power spread out
– Enhance economic efficiency
▪ avoid Allocative inefficiencies
▪ encourage efficiency and progressiveness in the use of resources
▪ maintain price close to (marginal) cost, to minimize unnecessary and undesirable accumulations of private wealth
– Distribute wealth
▪ 2 Types of Efficiency
– Productive efficiency
▪ producing something on a large scale
▪ move that causes per-movement cost to go down
▪ W
tural monopolies and patents (state sanctioned monopolies) are OK, b/c we want them
– but, there are ways to drive out competitors, and create monopoly, which is what we don’t want
▪ Case law
– Trans-MO (1897)[2]: SC says ALL K that restrain trade are illegal
▪ Note: every K restrains trade in some fashion . . . not a good outcome
▪ doesn’t matter if reasonable or unreasonable restraint of trade
– Addyston Pipe (1899)[3]: doesn’t follow Trans-MO
▪ Rule: K restraining trade is legal if the agreement is:
– 1) ancillary to main purpose of the agreement
– 2) Necessary to achieve the benefit
▪ Gives 5 legal agreements: partial restraints on trade
▪ Reasoning behind decision: enhance competition
decide cases based on enhancing competition
