ANTITRUST FALL 2008: WRITE-UP OF SELF-QUIZ #1
(See also Comments/Model Answers to Old Exam Question 2K)
(1) What is the possible significance for defining the market of each of the following facts from the hypothetical?
A. The differences noted between the various hourly billing rates. The differences between the rates of the major Anchorage firms and the other Anchorage practitioners combined with the differences in the kind of law they practice support the notion that there is not a unified market for legal services. As one model answer said, “It appears that even though the prices of the big firms are much higher, the customers don’t leave the big firms to go to small firms. The market is therefore inelastic.”However, the differences in billing rates do not tell you whether the actual markets are based on the type of client or the type of practice area.
The higher billing rate of the Seattle firms might mean that they are part of a separate market for high-end corporate services or it may mean that they are perceived as better lawyers and therefore can charge a premium for the same services.
B. The differences in practice areas among the four largest Anchorage-based firms. The differences suggest that there is not a standard set of services that the clients of these firms require or that the businesses and wealthy individuals who utilize these firms don’t feel the need to bring all their business to the same firm. Either way, this is consistent with the notion that at least some separate practice areas constitute separate markets. It may still be true that there is a core group of business services that must be offeredtogether to be considered a plausible law firm for these clients.
C. The differences in practice areas between the four largest Anchorage-based firms and other Anchorage-based firms. Combined with the price differences, this is consistent either with a client-based or a practice area-based segmentation of the market. As one model answer said, “It appears that in the eyes of the business customers, the services given by the big law firms are not interchangeable with the services given by the small ones. Moreover, according to our facts, the small firms do not provide any services to big business clients.”
D. “As a result of PLATTS, GEMS and SCAM were able to draw litigation business away from both the Seattle firms and from CHAD and DRAG.” Switching strongly suggests that Seattle firms are competing in same market (or some of the same markets) as the large Anchorage firms.
E. “CHAD and DRAG began negotiations to merge in order to compete more effectively with GEMS and SCAM.” Suggests CHAD and DRAG believe the relevant market is limited (perhaps to large Anchorage firms or to those firms plus Seattle firms). If market included all lawyers/law firms practicing in Anchorage, the merger probably would not make that much difference in their ability to compete. Also suggests minimum size needed to compete effectively, which is an entry barrier.
(2) The following facts are not found in the hypothetical. Viewing each new fact independently of the others, if it could be proven, what would be the possible significance for defining the market?
F. A number of large Anchorage businesses divide their legal work among one or two Seattle firms, one or more of the four largest Anchorage-based firms, and one or more of the smaller Anchorage-based firms. The significance of this depends some on how the work is divided. If the Seattle firms do major litigation, the large Anchorage firms handle medium-sized litigation and most corporate matters, and the smaller firms do specialized work (e.g., intellectual property, tax, pension benefits), that would suggest a market segmented by practice area. On the other hand, if the businesses spread alll their work among all these firms, it suggests either a general legal services market or at least a market for legal services for large businesses. (Market Performance)
G. When Anchorage businesses are involved in litigation with more than $10 million at stake, they almost always are represented by one of the Seattle firms. This suggests that the Seattle firms are providing a service not seen as available in Anchorage. They appear to be the only law firms available for major litigation. However, this doesn’t tell you whether or not the Seattle firms compete head-to-head with the Anchorage firms for the provision of some other legal services. (Market Performance)
H. The business plan supporting the proposed merger between CHAD and DRAG makes no mention of the Seattle firms. This suggests C & D do not believe that the Seattle firms are significant players in the market or markets in which they compete. (D actions/beliefs)
I. The website of the Alaska State Bar provides listings of lawyers and law firms that are listed by practice area but not by the size of the firm or by billing rate. This is mild evidence that potential clients view the market for legal services as segmented by practice area. However, the state bar may have other reasons for the division (e.g., not wanting to call attention to disparities in billing rates). Moreover, the phone book lists all restaurants under one heading although that market is probably segmented in several different ways.
J. To try to recapture some of the litigation business lost due to PLATTS, one of the Seattle firms that practices in Anchorage has recently begun merger negotiations with the sixth largest Anchorage-based law firm. The Seattle firm must believe that adding this firm will enable it either to lower costs or increase marketability in ways that will bring it some of PLATTS’s litigation business. One possibility is that this is primarily a cost-driven measure that will allow for more economies of scale; that might not say much about the market except to the extent that practice of the Anchorage firm must not be so different from the Seattle firm that economies of scale will not be created.
Another possibility is that local businesses prefer to use local firms so long as the local firms are large enough to handle the litigation in question. That is a kind of function difference. The Seattle firm is thus mixing its greater resources with enough of a local presence to be credible to Alaskans. The already credible Alaskan firm gains the size to be able to handle large matters (or at least be perceived as able to handle large matters).