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University of Pennsylvania School of Law
Yoo, Christopher S.

Antitrust Outline Yoo Spring 2011
Basic Statutory Framework
• Sherman Act of 1890
– § 1: combinations in restraint of trade
– § 2: monopolization/unilateral action
• Federal Trade Commission Act of 1914
– § 5: Prohibits “unfair methods of competition”
• Clayton Act of 1914
– Price discrimination (beefed up by Robinson-Patman Act of 1936), tying & exclusive dealing
– Merger review (toughened in 1950)
Sherman Act of 1890
• Section 1
– 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 hereby declared to be illegal.
• Section 2
– 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 shall be deemed guilty of a felony.
Concerted vs. unilateral action
– Concerted action: Sherman Act § 1 (prohibiting combinations in restraint of trade)
– Unilateral action: Sherman Act § 2 (prohibiting monopolization)
Early Section 1 Cases
U.S. v. Trans-Mo. Freight Ass’n (U.S. 1897)
– Railroad price fixing cartel held illegal
– No detailed inquiry into intent & effect necessary
– “Every” restraint of trade is illegal
U.S. v. Joint-Traffic Ass’n (U.S. 1898)
– Railroad price fixing cartel held illegal
– Some restraints of trade are legal
– No detailed inquiry into intent & effect necessary
U.S. v. Addyston Pipe (6th Cir. 1898)
– Iron pipe fixing price cartel held illegal
– No detailed inquiry into justifications necessary
• Distinguished between “naked” and “ancillary” restraints
• Suggested that naked price fixing is illegal per se
Standard Oil Co. v. U.S. (U.S. 1911)
– Section 1 takes its “rudimentary meaning” from the common law, but is not limited to it
– Basic rule is reasonableness of restraint
• Examine effects of challenged conduct
• But Trans-Mo. and Joint Traffic did not look at effects
– Reconciled: price fixing was irreconcilable with competition
– BUT: provides foundation for per se illegality in some cases
– Decision interpreted as establishing rule of reason
Definition of Per Se Illegality
N. Pac. Ry. v. U.S. (U.S. 1958)
– Applies to practices “which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use”
– Also “avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved … in an effort to determine at large whether a particular restraint has been unreasonable—an inquiry so often wholly fruitless when undertaken”
Horizontal concentration – inherently problematic, e.g.: price-fixing, output restrictions, dancing partners (Socony), market divisions (Topco), group boycott
Vertical integration – less problematic b/c often good for consumers
Horizontal Restraints
Factors that Complicate Cartelization
• Lack of entry barriers
• Lack of dominant market share
• Inability to verify prices and quantities
– Actual transaction data
– Secret discounts
• Differences in cost/production technologies
• Product differentiation
Practices that Facilitate Cartels
• Examples
– Sharing price information
– Standardization of terms
– Limiting price discrimination/basing point pricing
• These practices can also make markets more competitive
• Legality is governed by the rule of reason
Price Fixing
Per Se Illegality vs. Rule of Reason for Price Fixing
• Based on principle of judicial economy
Early Price Fixing
Trans-Mo. (1897); Joint Traffic (1898)
Price fixing is per se illegal
Lack of impact on prices is not a defense
Unclear whether requires market power
Standard Oil (1911)
– Announced rule of reason for horizontal merger
– Distinguished prior per se cases as involving practices that were irreconcilable with competition
CBOT (1918)
Enacting a rule where “to-arrive” sales are sold at fixed prices after hours; price can change during the day only. Court says not price-fixing even though literally it is – instead applies kitchen sink type analysis.
– Applied rule of reason to price fixing
– Implied rule of reason for all horizontal restraints
Trenton Potteries (1927)
Trade commission w/ huge market power fixing prices for pottery for bathroom, argued their price was reasonable.
– Price fixing is illegal per se
– Reasonableness of fixed price is not a defense
– CBOT distinguished as commodities market reg.- unsatisfying!
– Whether market power is required not presented/remained an open issue
Appalachian Coals (1933)
Great Depression coal prices decreased; coal producers in Appalachian entered agreement appointing exclusive selling agent; aggressive pricing techniques avoided. Ct found legal.
– Applied rule of reason to price fixing (CBOT)
– Upheld because of no direct effect on prices
– Irreconcilable with precedent (really about crisis, New Deal)
Socony-Vacuum Oil (1940)
D major oil companies pair up w/ independent oil producers and buy their oil when they dump it in market, aiming to decline available oil in market; found illegal p-fixing.
– Price fixing is illegal per se (first use of the term)
– Rule applies to anything that tampers with price
– Lack of market power and crisis are not defenses
– Appalachian Coal/CBOT: not fixing prices directly, distinguishable
Summary of Early Price Fixing
Price fixing is illegal per se after Socony
– Lack of market power is not a defense
– Lack of effect on market is not a defense
– Failure to distinguish CBOT & Appalachian Coals remains a source of confusion
• Definition of price fixing becomes critical
– Not price fixing: CBOT and Appalachian Coals
– Price fixing: Socony
Modern Price-Fixing
– Implies that cartel price is unstable
– Suggests cartel’s success depends on enforcement
Nat’l Soc’y of Prof’l Eng’rs v.U.S. (

75% of dentists in assoc, introduce strict rules about advertising, no false and misleading, no advertising fees, discounts, quality claims. Ct says quick look not enough, have to look at anti-comp effects, focus on naked vs. ancillary restraints. Remand to 9th circuit to apply full RoR analysis.
• Naked restraints do not require much analysis
• Quick look applies when harm to compet. is obvious
• Here restriction may enhance consumer info.
Output Restrictions
NCAA v Board of Regents of U Oklahoma (US 1984) – p 232
NCAA limiting appearance limitations for each school on TV broadcasts. Ct found illegal price-fixing (although not direct). Didn’t accept argument that college athletics need NCAA to exist. Quick look analysis? Unclear whether market power matters here.
• Agreement restrains output
• League sports are different
• Joint selling agreements may be efficient
• Lack of market power is irrelevant and not true
• Joint marketing is exclusive
• Restriction not related to competitiveness of league
Summary of Price Fixing
Scope of the per se rule is hard to determine
– Socony declared that anything that affects price is illegal per se
– Black-letter rule that price fixing is per se illegal can’t be taken at face value
• Some practices that don’t fix prices are illegal per se (Prof’l Eng’rs; Catalano)
• Some practices that fix prices are subject to the rule of reason (BMI)
– Applicable rule turns on courts’ intuition about likely effect on competition.
How Do Courts Decide?
• Look at conduct, not impact (per se)
• Look at impact (rule of reason)
Black letter law is straightforward
– Default principle is the rule of reason
– Some practices are illegal per se
• Price fixing, output restrictions, division of markets, group boycotts, tying
Application of black letter law is confusing
– Not determined by literal terms of “price fixing”
– Really more of a sliding scale
• Per se rule may include look at market conditions
• Rule of reason may be truncated – quick look
One Synthesis of the Price-Fixing Cases
• Rule of reason: full analysis of market power and efficiencies
• Quick look: some consideration of effic.
– If plausible, proceed to full rule of reason
– Applies to practices that are so suspicious that almost per se illegal, but lack of judicial experience requires consideration of justifications
• Per se illegality: no analysis of market power or efficiencies