I. An Introduction to Antitrust 3

A. Goals of Antitrust 3

B. Antitrust Statutes 3

C. Deadweight Loss Triangles and the Harms of Monopoly 4

II. Scrutiny 4

A. Per Se Illegal: 4

B. Quick Look 4

C. Rule of Reason 4

D. Now: California Dental 5

E. Bottom Line: Further Devolution to Rule of Reason 5

III. Horizontal Agreements 5

A. Blanket Licenses and ASCAP/BMI 5

B. All-You-Can-Eat Buffets and Bundling – Songs v Chicken 5

C. Block Booking (Bundling) Examples 5

D. Court’s Analysis in BMI: New Product Analysis 5

IV. VISA – Market Definitions 6

A. Key Idea: Cross-Elasticity 6

B. DuPont’s Cross-Elasticity of Demand 6

C. FTC/DOJ Hypo Monopolist and Concentric Circles 6

D. General Purpose Card Market Definition in VISA 7

E. Network Services Market in VISA 7

F. Generalize to a Two-Step “Functional” approach to market definition: 8

V. VISA – Assessing Competitive Effects 8

A. Analysis: ROR (tons of evidence presented) 8

B. Restrictions at Issue: 8

C. Competitive Harms? 8

D. Competitive Benefits? 8

E. Why strike 8

F. Institutional choice 8

VI. Finding the Agreement 8

A. Economics of IP and Price Discrimination 8

B. Inferring Agreement from Parallel Behavior 9

C. Interstate Circuit (1939) 9

D. Theatre Enterprises (1954) 9

E. High Fructose Corn Syrup: Analysis of Proving Price Fixing Agreements 9

VII. Group Refusals to Deal and Joint Ventures 9

A. CA §3: Inicipiency 9

B. Difference between Group Refusals to Deal and JVs is that JVs will typically have some purpose separate and apart from any possible group boycott 10

C. Q = What is this nominal JV creating? 10

D. Questions to Ask 10

E. Compare: FOGA and Klor’s – no separate purpose 10

F. Associated Press 11

G. To: Radiant Burners and Northwest – quality assurance 11

H. Switch from per se analysis to Northwest Wholesale holding 11

VIII Noerr-Pennington Doctrine 12

A. Noerr Doctrine 12

B. BUT, Allied Tube 12

C. Parker v. Brown 13

D. Actual and Active Supervision 13

IX. Vertical Restraints 14

A. Important Distinction Between Price & Nonprice Restraints 14

B. Historical Cases 14

C. Double Marginalization 14

D. Sylvania (1977) 15

E. Sharp Electronics Corp. 15

F. Maximum Retail Price Maintenance 16

G. How Vertical Contracts Can Harm 16

H. Contractual foreclosure 16

I. Toys-R-Us: Monopoly Under § 2 16

J. Standard Fashion (1922) 17

X. Monopolization & SA §2 17

A. Alcoa (1945) 17

B. Strategic Entry Deterrence 18

C. Market Shares and Monopoly 18

D. Monopoly “Plus” 19

XI. Tying 19

A. Traditional Economics of Tying: Metering/Price Discrimination 19

B. Jefferson Parish (1984) 19

C. Tying Tests 20

D. Kodak (1992) § 1 violation; § 2 alleged?? 20

E. Xerox ISOs and Patents 22

XII. Individ Refusals to Deal/ Attempted Monop 22

A. Section 2 of the Sherman Act 22

B. Lorain Journal (1951) 22

C. Aspen Skiing (1985) 23

D. Spectrum Sports (1993) – current test for attempted monopolization 23

XIIIPredatory Pricing 23

A. Brooke Group Test – Two Steps 23

B. Problems with finding Predatory Pricing 24

C. Measuring Costs 24

D. American Airlines 24

XIV. Mergers 25

A. CA §7 25

B. FTCA §13(b) 25

C. The Key Merger Tradeoff 25

D. Ex-Ante Filtering vs. Ex-Post Filtering 25

E. Market Power Proxies 25

F. Merger Scrutiny using HHI 25

G. 1992 Merger Guidelines – 5 steps 26

H. Successes, Problems and Solutions in Divestitures 26

I. Staples/Office Depot 27

J. Beech Nut/FTC v. Heinz 28

K. Vertical Mergers 28

XV. Robinson-Patman & Price Discrimination 28

A. Robinson-Patman: CA §2 28

B. Economics of Price Discrimination 28

XVI. Standing, Enforcement and Injury 29

A. Relevant Statutes 29

B. Q of Whether Injury = AT Injury 29

C. Brunswick (1977) - Injury 29

D. Utilicorp United (1990) - Standing 30

E. Glaxo – Remedies 30

XVII. Consent Decrees & The Tunney Act 31

A. Tunney Act §16(e) 31

B. OS Economics 31

C. Original Consent Decree: 1984 31

D. The Public Interest Standard in the Tunney Act 32

XVIII Antitrust and IP 32

A. Microsoft II 32

B. Microsoft III 32

C. Four-Step Test of D.C. Cir for Evaluating Monopolization 33

D. Monopoly Maintenance Claims 33

E. Attempted Monopolization of Browser Market 34

F. Tying Claims: § 1 Violation Alleged 35

G. Remedy? 35

XIX. Antitrust and the Boundaries of Regulation 35

A. Telco Act History 35

B. 1996 Telco Act 36

C. Intersecting Antitrust and the 1996 Telco Act 36

XX. International 37

A. Extraterritorial Application of US Law 37

B. FTAIA 37

C. GE – Honeywell 38

I. An Introduction to Antitrust

A. Goals of Antitrust

1) US antitrust cares about competition but not competitors; and social WLF

2) US characterized frequently as consumer-oriented but mixed record on this

3) EU described as more producer oriented (see GE – Honeywell at end)

4) How should we decide?

(1) E.g. a cartel of large producers pushes prices down – good for consumers, but bad for small producers. Prices up – vice versa.

B. Antitrust Statutes

1) Core statutes say very little

(a) FTC Act §5 outlaws “unfair methods of competition,” but does not define that any more precisely

2) Results in common law subject

3) 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.”

4)

(a) initial literalism of Trans-Missouri (1897)

(i) first SC case interpreting SA §1 -- 19th century railroads had a lot of trouble recovering fixed costs, formed (basically) a cartel to fix prices.

(ii) This may not be an unreasonable restraint of trade, but the statute does not distinguish between reasonable and unreasonable.

(b) rejected for use of some form of reason in Standard Oil (1911)

(i) applies “the standard of reason which had been applied at common law.”

(ii) Odd situation to apply this principle – Rockefeller had basically merged the oil business to monopoly, and the court breaks it up.

(iii) So, didn’t require a new approach – if they wanted to break Std Oil up, they could have done it under old doctrine.

5) 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.”

6)

(a) need to separate monopoly from monopolize, as ALCOA does

(i) 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.

(ii) §2 violation requires “monopoly plus”

(2) 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.

C. Deadweight Loss Triangles and the Harms of Monopoly

1) Central harm of monopoly is reduced output

2) 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

3) Monopoly also causes distributional changes relative to competitive model, pushing value from consumers to producers: How should we evaluate this?

II. Scrutiny

A. Per Se Illegal:

1) “Known” to Be Bad; Strike Down On Sight – Shrinking Category

2) 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.”

3) Still mostly Per Se Illegal:

(1) Price Fixing

(2) Market Division

(3) Retail Price Maintenance

(4) Tying (but only sort of)

B. Quick Look

1) “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”

2) Think of quick look as effort to define new left-end boundary, where former left-end—per se illegal—is a dying category

3) Prior Cases Where Quick Look Worked

(1) NCAA v. Oklahoma (1984): limited number of college football games that could be televised and fixed minimum price

(2) Nat’l Soc of Prof. Engineers (1978): absolute ban on competitive bidding

(3) Indiana Federation of Dentists (1986): horizontal agreement to withhold a particular service

C. Rule of Reason

1) Need to understand whether parties have market power

2) Are practices net anti-competitive or pro-competitive?

3) Chicago Board of Trade (1918)

(1) “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.”

(2) “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.”

(3) “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.”

D. Now: California Dental

1) §10 of the CDA code of ethics:

(1) purports to restrict only false or misleading advertising

(2) 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.

(3) should we be more suspicious of this type of restriction when it’s created by competitors than when it’s created by the government?

(a) Yes, since the federal government will not be using ad restrictions to restrict new entrants, but a professional society may very well be

2) 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

3)

4) 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.”

5) “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

E. Bottom Line: Further Devolution to Rule of Reason

III. Horizontal Agreements

A. Blanket Licenses and ASCAP/BMI

1) 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

(a) blanket license emerged from ½ century of antitrust litigation & CD

2) Good News: Use of song has marginal social cost of zero, and this pricing does the same

3) Bad News: Need to figure out consequences of licensing scheme

(1) Tend to have many different licenses for different types of establishments

4) Also offered per-program licensing set at reasonable fee by court if necessary (this = CD remnant)

B. All-You-Can-Eat Buffets and Bundling – Songs v Chicken

1) Eaters don’t internalize waste at the buffet (take more than they end up eating), which imposes social cost

2) Not so at ASCAP: use of songs = public good/non-rivalrous, unlike chicken (rivalrous), so no overuse is possible.

C. Block Booking (Bundling) Examples

1) Each assumes monopolist; question is how the power will be exercised

2) No necessary relationship between bundling and social welfare

3) 1st example: no SWF consequences (but distributional consequences)

4) 2nd example: SWF increases from bundling as do profits

5) 3rd example: SWF drops from bundling but monop profits rise

D. Court’s Analysis in BMI: New Product Analysis

1) The market is basically split between these 2 players

2) General activities of ASCAP, BMI should not be per se illegal, because it does make the marginal price equal the marginal cost (both zero)

3) Real question almost always is to separate out beneficial activities from harmful activities, to see whether they are necessarily linked, and if so, what the net benefit or harm is to competition

4) Not obvious that common policing requires common pricing

(1) Shared policing function allows gains by economy of scale (because indivs enforcing individual copyrights would be expensive & difficult)

5) Easier to talk about separate pricing today as web reduces transaction costs

6) New Product Analysis

(1) GET THIS

(2) Made possible because dealing with nonexcl. arrangements;  “in addition to,” rather than “substitute for”

IV. VISA – Market Definitions

A. Key Idea: Cross-Elasticity

1) How much does ↑ in price of one good change the quantity consumed of the second good

2) Substitution, Both on Demand Side and Supply Side

3) How Many? How easy to substitute/enter?

B. DuPont’s Cross-Elasticity of Demand

1) “The market is composed of products that have reasonable interchangeability for the purposes for which they are produced--price, use and qualities considered.”

(1) % change in Q/% change in Price = Elasticity

(a) Flat DCs = elastic; steep = inelastic (e.g. medicine, if raise price, same demand)

(2) Visa example: does airplane travel = a good substitute for car/train/bus or is it a distinct market?

2) Example – Increase the price of McDonald’s hamburger, now how many more

(1) Burger King burgers

(2) KFC chicken

(3) Meals at Charlie Trotter’s

(4) Pairs of shoes

3) Note that internal defintion of competitors as to what’s a substitute can be persuasive but not determinative

4) ways to gather cross-elasticity data:

(1) historical data

(2) survey data

5) Problems with this test

(1) Supply response – look at potential entry on the supply side

(a)

(2) Price determines scope of substitution – the higher the price, the wider scope of goods that are considered substitutes

(a) e.g. champagne really cheap? start washing car with it?

C. FTC/DOJ Hypo Monopolist and Concentric Circles

Market Definition: Demand

1) Product Market: look for the smallest market (product or group of products) where a monopolist could push price up by 5% (“a small but significant amount on a permanent basis”) or more and still make a profit– can perform the same iterative process for geographic markets

2) Demand side - Looking for Alternatives

(1) Coke, Pepsi, Gatorade, Water
(2) Amex, Visa, Checks, Debit, Cash
(3) Network Services, ?

3) Market Definition: Supply side

(1) Identify:

(a) Current sellers

(b) Uncommitted entrants: firms that could enter quickly without sinking substantial costs

(2) Market share –

(a) current sales?

(i) 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.

(ii) So, are we capturing anything meaningful where the market share depends so highly on the definition of the market – empirical question.

(b) Possible production capacity?

4) Using the Evidence

(1) Detailed economic evidence may be difficult

(2) Less thick example of consumer or retailer behavior or testimony