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Antitrust
University of San Diego School of Law
Mogin, Daniel Jay

An Introduction to Antitrust
Goals of Antitrust
US antitrust cares about competition but not competitors; and social WLF
US characterized frequently as consumer-oriented but mixed record on this
EU described as more producer oriented (see GE – Honeywell at end)
How should we decide?
E.g. a cartel of large producers pushes prices down – good for consumers, but bad for small producers. Prices up – vice versa.
Antitrust Statutes
Core statutes say very little
FTC Act §5 outlaws “unfair methods of competition,” but does not define that any more precisely
Results in common law subject
As to SA §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 declared to be illegal.”

initial literalism of Trans-Missouri (1897)
first SC case interpreting SA §1 — 19th century railroads had a lot of trouble recovering fixed costs, formed (basically) a cartel to fix prices.
This may not be an unreasonable restraint of trade, but the statute does not distinguish between reasonable and unreasonable.
rejected for use of some form of reason in Standard Oil (1911)
applies “the standard of reason which had been applied at common law.”
Odd situation to apply this principle – Rockefeller had basically merged the oil business to monopoly, and the court breaks it up.
So, didn’t require a new approach – if they wanted to break Std Oil up, they could have done it under old doctrine.
As to SA §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 . . . shall be deemed guilty of a felony.”

need to separate monopoly from monopolize, as ALCOA does
Learned Hand says that merely having a monopoly is not sufficient, how you got it is key – may be thrust upon you; may be the sole surviving competitor just by virtue of your skill.
§2 violation requires “monopoly plus”
Think about Controlling Entry as an organizing principle in §2 cases: Alcoa with large plants; Lorraine Journal with the “us or them” contract; American Airline’s response to LCC entry.
Deadweight Loss Triangles and the Harms of Monopoly
Central harm of monopoly is reduced output
Beneficial transactions that could take place won’t
(1) Consumers are willing to pay more than the cost of creating the next unit
(2) In “simple” straight-line cost and demand models, this creates triangle of lost consumer surplus
Monopoly also causes distributional changes relative to competitive model, pushing value from consumers to producers: How should we evaluate this?
Scrutiny
Per Se Illegal:
“Known” to Be Bad; Strike Down On Sight – Shrinking Category
Socony-Vacuum Oil (1940): “A combination formed for the purpose and with the effect of raising, depressing, fixing, pegging or stabilizing the price of a commodity in interstate or foreign commerce is illegal per se.”
Still mostly Per Se Illegal:
Price Fixing
Market Division
Retail Price Maintenance
Tying (but only sort of)
Quick Look
“an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effects on customers and markets”
Think of quick look as effort to define new left-end boundary, where former left-end—per se illegal—is a dying category
Prior Cases Where Quick Look Worked
NCAA v. Oklahoma (1984): limited number of college football games that could be televised and fixed minimum price
Nat’l Soc of Prof. Engineers (1978): absolute ban on competitive bidding
Indiana Federation of Dentists (1986): horizontal agreement to withhold a particular service
Rule of Reason
Need to understand whether parties have market power
Are practices net anti-competitive or pro-competitive?
Chicago Board of Trade (1918)
“The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.”
“To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable.”
“The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts.”
Now: California Dental
§10 of the CDA code of ethics:
purports to restrict only false or misleading advertising
implementation restricts all price discount or quality advertising, on the grounds that it’s too hard to verify these claims – dentistry is complex and in many ways subjective.
should we be more suspicious of this type of restriction when it’s created by competitors than when it’s created by the government?
Yes, since the federal government will not be using ad restrictions to restrict new entrants, but a professional society may very well be
Example of erosion of new left-end boundary – 9th Circuit did quick look and Sup Ct rejects, saying it’s not implausible that the CDA might be seen as making trade off: yes, restrict some ads, but get better discount advertising

Majority Test: “As the circumstances here demonstrate, there is generally no categorical line to be drawn between restraints that give rise to an intuitively obvious inference of anticompetitive effect and those that call for more detailed treatment.”
“What is required, rather, is an enquiry meet for the case, looking to the circumstances, details, and logic of a restraint.”
(a) Also, if ROR of similar situations is constantly identical, QL might be OK
Bottom Line: Further Devolution to Rule of Reason
Horizontal Agreements
Blanket Licenses and ASCAP/BMI
ASCAP/BMI blanket license gives access to entire catalogue of music for price that does not depend on number of songs used or which songs used
(b) blanket license emerged from ½ century of antitrust litigation & CD

: firms that could enter quickly without sinking substantial costs
Market share –
current sales?
McD has 100% of the Quarter Pounder market, but if you want beef on a bun, you can go elsewhere – maybe McD has 25%, and if fast food is the market maybe McD has 15% market share.
So, are we capturing anything meaningful where the market share depends so highly on the definition of the market – empirical question.
Possible production capacity?
Using the Evidence
Detailed economic evidence may be difficult
Less thick example of consumer or retailer behavior or testimony
Internal documents
Problem is that the data itself might be affected by monopolistic behavior

General Purpose Card Market Definition in VISA
Barrier to market here = getting merchants to take your cards
Consumer card user’s perspective on transaction mechanisms
Katz offers an estimate that a 5% price increase would have to reduce output by 16% to make it unprofitable. BUT, it’s impossible to measure because of the multiplicity of factors involved in consumers’ choice of card.
Moral – it’s very hard to implement this test
Maybe look at smaller market groups:
VISA+MC
evidence shows that as they increase the merchant fee, no change in number of merchants accepting
Compare Credit vs. Non-Credit transactions:
Alternatives & How many of each?
cheques, cash, proprietary credit cards, debit cards, (barter)
What Attributes differentiate?
Security (card fraud, counterfeit cash, bouncing cheques)
Transaction costs to merchant
Card acceptance (chicken-egg problem impt for market entry)
Information and anonymity
Other benefits & services
Merchants seemed very unwilling to expand the market definition beyond the four credit cards to cash, checks, or debit cards. Ultimately, the court agrees.
Network Services Market in VISA
General purpose NS market: card issuer perspective, w Visa et all as suppliers of services to issuers (p. 31 of opinion)
networks (Amex, VISA, Mastercard, Discover) are intermediaries between the banks (which have the customer relationships) and the merchants
While all the networks basically have relationships with all the merchants, they don’t each have relationships with all the banks
Other potential networks:
ATM networks (Cirrus, Plus),
general internet,
PayPal/MoneyGram
What Attributes differentiate?
Acceptance by Merchants
cost of network services
popularity with customers