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University of Pennsylvania School of Law
Yoo, Christopher S.

I.                   Sherman Act §1:
A.                 Per Se Illegality:
From N. Pac. Ry. V. U.S. (U.S. 1958): because of a practices pernicious effect on competition and lack of any redeeming virtue they are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse of their use.
Judicial Economy Argument Advocating: “avoid the necessity for an incredibly complicated and prolonged economic investigation…”
B.                 Rule of Reason:  
II.                Traditional Cases:
The Economic view has come to prevail in Anti-Trust cases, while Justice and Fairness concerns are left to the law of Business Torts.
A.                 Chicago Board of Trade v. United States (CBOT):
1.                  Facts:
CBOT fixed price after a set after-hours trading period. Restricted trading period but had pro-competitive effects.
2.                  Issue:
Was Price Fixing Per Se illegal?
3.                  Holding/Reasoning:
True test is whether or not the restraint has a pro-competitive effect or an Anti-competitive effect.
a)                  Test and Outcome:
Outcome, because the rule only applied toa small part of the total market and only for a set period of the day, it didn’t affect price or volume.
(1)               Purpose of the Restraint
(2)               Power of the Parties
(3)               Effects of the Restraint
b)                  Pro-Comp Effects:
Public market for grain, brings more of trading into regular hours, more direct buyer-seller contact, increased number of country dealers engaged in trading, eliminates risks, simplifies shipping and delivery.
B.                 United States v. Trenton Potteries:
1.                  Facts
Firm controls 82% of market and argues that while prices have been fixed they have been fixed in a reasonable way.
2.                  Issue:
Whether the price was considered reasonable?
3.                  Rule:
Whether restraint reasonable must be looked at in terms of competition.
·         Reasonable Price today may be unreasonable tomorrow.
·         Sherman Law is a limitation on rights that COULD LEAD to negative consequences.
4.                  Holding Reasoning:
Trenton Pottery price fixing was unreasonable, the actual price is not the issue of reasonableness rather the practice.
C.                 Apalachian Coals v. United States:
CRISIS can lead to abnormal factors and effects. Rule of reason to price fixing is applied… THIS IS LARGELY INGORED TODAY.
D.                 US v. Socony-Vacuum Oil Co.:
“Price is the Central Nervous system of the Economy” PRICE FIXING IS PER SE ILLEGAL
1.                  It does not matter if it is still subject to competitions.
2.                  Avoidance of competitive evils is no justification.
3.                  Flexibility of price does not matter.
4.                  MUST PROVE MARKET POWER in §2 of Sherman Act
III.             Modern cases on horizontal restraints Text 208-63
A.                 Economic Underbelly of Behavior:
1.                  Rationality:
·         Spread between monopoly and competitive market encourages rational behavior.
·         Not invidvidually rational to stick to agreement as Cartels are inherently unstable.
·         Cournot Theory Best Reply Functions.
·         Decompose Incentives and Predict Behavior: What are the effects of this on the situation at hand.
·         What do you need for a Cartel or Agreement to Succeed:
o   Exclusivity arrangement (no cheating)
o   Coercive Power (punish cheaters)
2.                  Modern Price Fixing:
·         No Ruinuse Competition.
·         Literal Approach to price fixing gone
o   Some agreements that fix price are legal,
o   Some that don’t fix price are illegal per se
o   Rule depends on nature of the industry
·         Per Se Rule relies on other factors.
B.                 Meaning and Scope of the Rule of Reason:
1.                  National Society of Professional Engineers (1978):
·         Issue: Can the prohibition of competitive bidding be justified under the Sherman Act.
·         Facts: Society of Engineers adopts a policy of not allowing members to negotiate or discuss fees until after a client select

Maricaopa County Medical Society:
a)                  Doctors arrange in a group to set a maximum price ceiling. Patient was free to choose doctor. If he chose doctor from list, then there would be a max price. Doctors were free to make other arrangements. WIDELY CRITICIZED DECISION, would probably not be made illegal today.                                    
b)                  Dissent:  Should we condemn using the Sherman Act a law to benefit consumers. NO  
(1)                The arrangement does not foreclose competition.
(2)                Insurer is paying here. He is the one that is driven by this decision.
(3)                Price fixing is not to be applied as a “talisman to every arrangement that involves a literal fixing of prices.” THE EFFECT OF PRICE FIXING MATTERS.
5.                  National Collegiate Athletic Ass’N v. Board of Regents (1982):  NCAA restricts the number of football games on TV; establishes a recommended fee for payment to each school. THIS IS A MUDDY DISTINCTION BETWEEN RULE OF REASON AND PER SE.
a)                  Which Rule to Apply:
(1)               Rule of reason, not because of inexperience but because some degree of restraint is inevitable.
(2)               No bright line rule separting Per Se and Rule of reason.
b)                  Using Rule of Reason:
(1)               Look at Market Structure,
(a)               Raises Price and Restricts Output
(2)               Look at Market Power/Power over Price
(a)               Is unresponsive to Market Demand
(b)               Limits market to large boradcasters
(3)               Efficiency defense?
(a)               Is not tailored to needs of intercollegiate athletics.
(4)               Oversaturation of the market is no defense.