Antitrust outline
Statutory summary
1. Sherman Act Section 1
a. concerted action
b. unreasonable restraint of trade
2. Sherman Act Section 2
a. unilateral action
b. monopoly power
c. willfully acquired or maintained (i.e. anticompetitive, exclusionary conduct)
3. Clayton Act Section 3
a. conditioned sale of goods (not services)
b. substantial lessening of competition (largely indistinguishable from unreasonable restraint of trade)
4. Clayton Act Section 7
a. merger or acquisition
b. substantial lessening of competition
Horizontal mergers
a. Structural Presumption (Assignment: Clayton Act §§ 7-16; 431-472)
a. unilateral v. coordinated effects
i. unilateral: the post merger entity will be able to profitably raise prices
ii. coordinated: the post merger market will be conducive to collusion because of the increased concentration
b. “old” economics of mergers
i. market structure and other conditions, like barriers to entry, predict competitive outcomes, prices, profits, etc
1. “Harvard School” Structure-Conduct-Performance Paradigm
c. the “new” economic approach: welfare tradeoffs and efficiencies
d. Clayton Act Section 7
i. No person engaged in commerce shall acquire directly or indirectly
1. the whole or any part of the stock or other share of capital
2. where in any line of commerce or in any activity affecting commerce in any section of the country
3. the effect of such acquisition may be substantially to lessen competition or to tend to create monolpoly
ii. note: mergers may also technically fall within the scope of Sections 1 and 2 of the Sherman Act and FTC Act Section 5 though they are rarely challenged under these statutes as a practical matter
e. The emergence and erosion of the structural paradigm
i. the birth of the structural presumption:
1. Brown Shoe (1962) – facts
a. there was vertical and horizontal integration
b. the court invalidated an acquisition of a shoe retailer by a shoe manufacturer
i. the merger resulted in control of about 7.2 percent of shoe stores and 2.3 percent of the nation’s shoe outlets (and near 5 percent of shoe manufacturing)
c. the shoe market was unconcentrated and neither party to the merger controlled a substantial share
d. still the court emphasized that
i. the shoe industry had exhibited a trend toward concentration in the years preceding the merger
ii. a large national chain was involved in the merger and
iii. it believed that this merger would intensify the existing concentration
2. Brown’s structural presumption: trend toward concentration in a market hurts competition
a. “It is competition, not competitors that the Act protects. But we cannot fail to recognize Congress’ desire to promote competition through small, locally owned businesses. Congress appreciated that occasional higher costs and prices might result from maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization.” Brown Shoe.
b. important factors in judging the validity of a merger: (1) market share data: (2) concentration percentages; (3) industry trends and (4) entry barrier evidence
3. Philadelphia National Bank (1963) – facts
a. merger of two leading local banks that would have produced close to 35 percent market share in commercial banking
b. trend toward concentration: number of banks decreased from 108 to 42 in 16 years, and seven largest banks increased their commercial share of the area’s total commercial bank resources from 61 percent to 90 percent
c. With is large market share, the court presumed an inherently anticompetive tendency that the banks were unable rebut.
4. PNB’s structural presumption
a. a presumption of illegality exists for horizontal mergers when as a result of the merger the resulting firm controls an undue share of the relevant market and market concentration increases significantly
i. 30 percent served as a bench mark for undue share
ii. a merger resulting in less than 30 percent may raise inference of illegality
b. the presumption is rebuttable if the defense introduces evidence that the merger is not anticompetitive
i. the available defenses were not evident
1. enhanced efficiencies, ease of market entry, economies of scale, and increased competition in other markets??
ii. “failing company” defense
5. Von’s Grocery (1966) – facts
a. the court invalidated a merger between the third and sixth largest grocery companies in LA even though there sales accounted for 7.5 percent of the total sales in LA
b. the merger created the second largest grocery store
c. the court noted that the applicable market showed signs of increased concentration
d. the court felt that the increased concentration was sufficient to prevent the merger
i. plus disposed of a substantial competitor
ii. stop concentration before market in the grips of a few hands
6. Von Grocery Rule: any merger between high ranking market share competitors should be invalidated whenever the relevant industry showed signs of concentration or where an aggressive competitor was acquired
a. Problems with rule…
i. prohibiting all mergers tends to result in harm to both consumers and small business owners
1. retiring grocer get less for store or fewer people will enter the industry if cannot sell
2. prevent efficiencies that could lower prices
ii. does not take into account the ease of entry (Posner)
ii. evolution of the structural approach
1. General Dynamics (1974)
a. the first case since Brown Shoe in which the government did not win
b. a merger between two of the top ten coal producers in the United States
i. the merging firms controlled approximately 23 percent of the coal sales in one defined geographic and 11 percent in another market
c. government showed a distinct trend toward increased concentration within the coal production industry
d. the court permitted the merger
i. rel
from the merger because the companies do not compete
ii. the anticompetitive effect will be offset by efficiencies resulting from the merger
iii. the merger is required to provide innovations and thus compete with Gerber
d. the court held that
i. a merger to duolopy will increase the concentration in an already highly concentrated market
ii. the entry barriers in the market make it unlikely that any anticompetitive effects will be avoided
iii. pre-merger competition is vigorous, and post merger competition may be lessened substantially
5. Heinz and Baker Hughes compatible?
a. Heinz court gave concentration evidence substantial weight, while Hughes viewed concentration as a starting point for broader inquiry into competitive effects.
b. Heinz required a specific showing that the cartel problems were so much greater in the baby food industry than in other industries that they rebut the presumption that collusion is likely in a merger to duopoly
i. Baker does not require such a specific showing
c. Heinz seems to strengthen the structural presumption as opposed to the totality-of-circumstances approach adopted in Baker
b. Merger Guidelines Analysis & Market Definition (472-507; FTC/DOJ Merger Guidelines (1997))
a. HSR/Merger Review steps
i. filing with FTC and DOJ
ii. clearance (decide which agency will investigate; if neither then clearance is usually granted)
iii. initial waiting period (30 days)
iv. second request
v. second waiting period (generally 30 more days)
b. analytical steps
i. market definition, market shares, and HHI
ii. competitive effects
1. unilateral or coordinated
2. direct evidence? indirect?
iii. assessing entry
1. timely? likely? sufficient?
iv. efficiencies
1. cognizable (fixed v. marginal costs)? verifiable (speculative)? merger specific (accomplished some other way)?
c. What is a market?
i. a market is defined
