Antitrust Outline

Professor Hay
Fall 2006

I. INTRODUCTION AND BACKGROUND

1. Internationalization : started in U.S. in 1890s; has become a big issue in other
1. countries not too
2. Goals of antitrust: preserve competition so consumers benefit through lower prices, higher
quality products, etc. Flip side: antitrust exists to eliminate anticompetitive monopolies
3. Three types of anticompetitive behavior: buy them up (mergers covered by § 7 Clayton Act,
blow them up (i.e. Sherman Act § 2 monopolization), let’s make a deal (i.e. illegal cartels
covered by Sherman Act § 1)
4. Players: DOJ Antitrust Division, FTC, States, Private enforcement (90% of cases are private
enforcement actions, especially given provision for treble damages
5. States and foreign countries cannot be sued under the antitrust laws
6. D has to pay P’s legal fees if P wins the suit
7. Expediting Act: From 1904 to 1974 appeals by government on civil cases went directly from
District Courts to SCOTUS because Congress though Antitrust cases were very important
8. Antitrust Standing: In antitrust you must be principal victim of cartel (injury not enough);
Hypo: Suppose cartel among airlines to fix price of commercial carriers; Suppose as a result of
higher prices and lower demand, many pilots and flight attendants laid off: Pilots and
attendants would NOT have standing (too remote); here people who paid higher prices =
victims (for more, see below)
9. SC writes antitrust opinions with the fact that a lay jury and general purpose district judge will
be implementing its rules in mind  lots of mechanisms to dismiss things as a matter of “law”
even they appear somewhat factual
10. Federal Trade Commission: Technically enforces § 5 of the FTC Act: prohibits “unfair
methods of competition”; anything which violates § 1 or §2 of Sherman Act also violates § 5
of FTC Act: FTC Act is complete equivalent of Sherman Act. FTC has a staff that reports to
the Commission (5 commissioners appointed by President; no more than 3 can be member of
any one political party). President cannot fire commissioner. Staff investigates and
recommends Commission file a complaint; they vote; 3 of 5  complaint; If complaint is filed
it goes before an administrative law judge who in theory hears only antitrust cases (appointed
for life). ALJ writes initial opinion; loser whether it is the staff of FTC or D can appeal back to
the Commission; Commission is initially prosecutor deciding whether to issue a complaint;
then FTC becomes kind of an appellate court and they write a final opinion. Then, if FTC
finds for D, no more case; then, if FTC votes in favor of the staff (most cases)  Federal
Court of Appeals  SCOTUS. Merger cases are slightly different; they go directly to Federal
District Court because commission is asking for preliminary injunction to block the merger. As
general matter, FTC enforces same statutes as DOJ but FTC cannot bring case as criminal
matter (so cannot seek fines or jail)

II. HORIZONTAL RESTRAINTS

1. PRICE FIXING AND RELATED CONDUCT
1. Covered by § 1 of the Sherman Act: “every contract, combination, or conspiracy in
restraint of trade is unlawful” = “every agreement in restraint of trade is unlawful”
2. However, not ALL agreements in restraint of trade are unlawful only NAKED
agreements in restraint of trade (common law held this, Sherman Act was not written
on a clean slate but with common law in mind)
3. COMMON LAW BACKGROUND, FIRST CARTEL CASES & PER SE RULE

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1. Mitchell v. Reynolds (KB 1711)
i. English case: King’s Bench 1711: involved sale of a business with an
agreement not to compete after sale. The court upheld the contract as
valid (if agreement was in “restraint of trade” K would be void) because
the agreement in restraint was ANCILLARY to contract for sale (i.e. it
was incidental and there was consideration given for it). This case is
seen as the origin of the naked v. ancillary test for unlawful agreements
ii. Hypo based on case: Renee’s in Ithaca (French Restaurant closes),
Claude comes along and wants to buy restaurant but only agrees to do so
if Renee will not open a French restaurant in Ithaca for the next five
years. A couple of years later Renee changes her mind and opens bistro.
Claude sues under K. Renee defends and says that the K is not
enforceable because it violates common law restraint of trade. Law
should allow Claude to enforce his K. Allowing such provisions are
important to allow sales of good will, etc.
1. These covenants are OK so long as they are limited in time,
place, and scope
2. Usually one can show that the ancillary agreement will have
some beneficial effect on public / consumers
iii. New hypo: Dominos and Pizza Hut enter into an agreement. Dominos
says we will not deliver to Ithaca College, Pizza Hut says we won’t
deliver Pizza to Cornell. One year. Limited in time, place, and scope
(only applies to pizza, only Ithaca, only one year). This is ILLEGAL. It
is a NAKED restraint on trade. Other than agreeing not to compete there
is no other beneficial agreement there
iv. Similar Hypo: Lawyers in Ithaca form a partnership (one says I’ll won’t
do family law and you agree not to do criminal law). This is ancillary to
the partnership (will be reasonable); if all lawyers got together and did
this that raises problems because of scope and might be unreasonable
even if this is ancillary
2. United States v. Trans-Missouri Freight Association (1897)
i. Very early Sherman Act case: Railroad cartel: railroads are fixing /
agreeing on rates; Railroads set rates jointly, meet and discuss the rates,
and agree not to deviate under certain circumstances
ii. Quick note on economics of the cartel: had unenforceable provisions
requiring members to give notice before raising prices as mechanism to
prevent cheating
iii. Railroad tries to advance a reasonableness defense: this restraint would
have been valid at common law because it is only a reasonable restraint
of trade (i.e. the rates weren’t that high)
iv. SC per Peckam rejects this saying that reasonableness is not a defense
because ALL restraints of trade are illegal by the literal language of the
Sherman Act (this view of the statute did not survive, see below). This
would have overridden restraints that were legal at common law such as
the one at issue in Mitchell v. Reynolds (the decision is overinclusive
from a policy perspective in this regard)
1. Peckam retreats from his literal interpretation a few years later in
U.S. v. Joint Traffic Association by recognizing that some
restraints might be OK
3. Also shows historical concern for cartels on small businesses
4. United States v. Addyston Pipe & Steel (1898)

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 i. Opinion of Taft, J. Sixth Circuit affirmed by SCOTUS: Garden variety
price fixing cartel with fairly complicated background facts; agreement
to fix the price of steel pipe
ii. Mechanics of cartel: Cannot simultaneously jack up price above
competitive levels and let people sell as much as they want. Any cartel
therefore needs to find a way to restrict the overall output; the Addyston
D had clever way of restricting this: auction off the right to be the
winning bidder would be on each project (person with lowest cost will
submit the highest bid) and then they distribute the winning bid to
everyone else to stop infighting
iii. Again, D argues for a reasonableness defense: first argues that it does
not have market power to have big impact because only have 30% of
market, that its purpose was reasonable (prevent cutthroat competition),
and that the effect of its agreement (prices) were reasonable
iv. Taft has a choice: adopt DOJ/Trans-Missouri strict approach that throws
out all restraints on trade, even legitimate ones OR adopt D’s approach,
get his hands dirty and evaluate whether restraint was reasonable
v. Taft REJECTS all of these arguments and takes the middle ground. Goes
back to Mitchell v. Reynolds and Naked v. Ancillary distinction. Naked
restrains on trade are per se unlawful, don’t need to “set sail on a sea of
doubt” / get your hands dirty with Rule of Reason analysis. There is no
reasonableness defense. This case is the origin of the per se rule. Price
Fixing is a naked restraint on trade and is per se unlawful
5. Standard Oil (1911)
i. Primarily a § 2 case: White, C.J. officially rejects the strict interpretation
of Trans-Missouri that every restraint is unlawful more fully than Justice
Taft: he says that the basic rule is the “Rule of Reason” and then he says
that there are some agreements (e.g. price fixing) which are “inherently
unreasonable” (will be unreasonably as a matter of law)
ii. This lays out much of the law as we know it: Naked agreements such as
price fixing are inherently unreasonable; however, other naked
agreements might not be unreasonable per se, might be evaluated under
the Rule of Reason (distinct from Taft here); All ancillary agreements
evaluated under Rule of Reason
iii. Hypo: Suppose the supermarkets in Ithaca, Wegman’s and Tops, say that
we’ve been competing in overtime and hours of operation; lets agree
that we’ll close at the same time – 10 PM on Sundays. This is an naked
agreement in restraint of trade (Taft) and is therefore unlawful. But
White would say that it’s not price-fixing, and therefore may not be
unlawful.
6. Chicago Board of Trade v. United States (1918)
i. Goes to SCOTUS via Expediting Act. The Chicago Board of Trade set
price of grain sales as the price when the trading floor closed. Higher
bids could not be considered from closing until the next day. Rule
allowed trading after 3pm but locked price ceiling at the 3pm price to
regulate trading hours. Case goes to court on evidentiary ruling. D wants
to be able to amend their answer about the purpose of their agreement.
Judge wouldn’t let them because thought agreement was a naked
restraint of trade that was per se unlawful, so purpose was irrelevant.
DOJ convinced judge it was price fixing.
ii. Despite the DOJ’s pigeon hole: Price is not like Trans-Missouri price

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 fixing: still set by the market (not made up); will be variable day to day
depending on where the market closes at 3 pm (will be the result of
competitive forces)
iii. SC per Brandeis, overrules the District Judge: “Every agreement
concerning trade, every regulation of trade, restrains. To bind, to
restrain, is of their very essence. 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.” Even though it was a naked restraint of trade, it is
allowed
iv. Arguably, another way this defense could be packaged is to call this an
“ancillary” restraint: this is part of / in assistance of creation of
commodities exchange (this is a big joint venture), not how case went
off though
7. Appalachian Coals v. United States (1933)
i. Seen as a big defeat for DOJ: Depression-era case allows a full scale
reasonableness defense for a garden variety cartel (i.e. purpose and
effect of cartel was to raise prices by eliminating competition)
ii. Rejects Taft: “general standard should be one of reasonableness”
iii. Case was in large part due to Depression-era hostility to competition:
some people thought competition was actually to blame for the bad
economy. This case is probably an oddity of that time period
8. United States v. Soconoy Vacuum (1940)
i. This is not a hotel room cartel: Oil companies agree to buy up the excess
oil to reduce supply and drive prices up. Most gas sold by long term K
but price set by excess oil in the spot market. Buying oil and raising
price there would raises prices overall including for long-term K. SC per
Douglas, J. decides that this is price fixing.
ii. District Court charged the jury that it was “immaterial how reasonable
or unreasonable prices were, whether they were effected by the
combination.” Court of Appeals called this reversible error because it
was based on an illegal per se theory and Sherman Act only barred
unreasonable restraints of trade
iii. Case resolves the tension between Appalachian Coals and
Addyston/Standard Oil: states the modern per se rule
iv. Statement of modern per se rule: Under the Sherman Act, 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.
v. No reasonableness defense is allowed in a price fixing case:
“elimination of so-called competitive evils is no legal justification . . . ”
(PURPOSE defense won’t fly because general purpose District Court
judge cannot evaluate it); Reasonableness of price cannot be a defense
(“has no constancy”): administrative problem: price could be reasonable
at time of trial and constantly changed (EFFECT defense thrown out);
(No POWER defense: “even though in no position to control the
market . . . ” to the extent that they raise prices, guilty)
vi. Price fixing is illegal: no exceptions
vii. AGREEMENTS to fix prices are illegal even if they do not
result in a successful scheme; statute makes the agreement unlawful (Fn
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 viii. Policy behind per se rule: institutional competence: would rather
be overinclusive than underinclusive and we don’t trust juries to get it
right: don’t want to “set sail on a sea of doubt”
ix. View that competition = bad has faded by the time Socony is decided
4. THE PER SE RULE: EXTENSIONS, APPLICATIONS, EXCEPTIONS
1. Goldfarb v. Virginia State Bar (The Profession Exception?)
i. Class action headed by former FTC lawyer. VA state law requires title
exam; writes letters to 37 different firms asking how much would charge
for search (1% price of house); All attorneys agree because of VA bar’s
“fee schedule.” P argues that this is price fixing and therefore per se
unlawful
ii. Lawyer’s best defense: “We’re a profession.” -“The fact that a restraint
operates on a profession is relevant” (this seems to pick up the idea from
Chicago Board of Trade); ethical norms and self-regulation might
actually promote competition (Court picks this up in FN 17) but rejects
it. Even lawyers can be found guilty of price fixing. There is no blanket
exception to per se rule for professionals engaged in price fixing.
iii. Lawyer’s next defense: fee schedule was just advisory and non-binding:
court dismisses this because failing to comply could lead to discipline /
disbarment
1. Related hypo: Three grocery chains in upstate NY (Top’s,
Wegman’s, PNC): Suppose that managers in each store have
pricing discretion (not set on chain-wide basis). Suppose
Presidents of the stores meet and agree on suggested prices for
principal items sold in stores (i.e. gallon of milk for $3). We will
distribute these to store managers and these are merely advisory
but we agree to distribute the uniform fee schedule. This doesn’t
matter. The statute can reach it because it is an agreement
intended to stabilize prices
iv. Lawyers’ final defense: State action required this: problem is that statute
authorized enforcement of ethics rules, it did not mandate a fee
schedule. The state action did not compel the lawyers to pass the fee
schedule
v. Side issue: does “interstate commerce” qualification in the Sherman Act
carry any weight (e.g. what if the whole episode takes place in one
state?). Answer: no, its just a de minimus requirement
2. United States v. Professional Engineers (The Profession Exception Redux)
i. Engineers had an agreement that if someone bids on new building they
would not discuss pricing until after selection of the engineer. Engineers
did not meet in hotel rooms to agree on prices (contra. Goldfarb).
ii. DOJ claimed that this had the same consequence of price fixing: it will
be expensive for customer to go from one firm to another and will have
no idea how much they’ll pay (economically this has same consequence
as price fixing because firm has free reign on what to charge)
iii. Engineers argue that this is not garden variety price fixing so this should
be evaluated under the rule of reason. They try to invoke FN 17 of
Goldfarb: We’re a profession trying to self-regulate and promote
competition
iv. Engineers make their fatal mistake explaining why their conduct is
reasonable under the Rule of Reason: they say that allowing discussions
of price will lead to competition that will produce bad results;

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 competition on price will produce shoddy work, flouting of safety
hazards, etc. Core of defense: in this context, competition is not in
public interest. PROBLEM: The whole idea behind antitrust policy and
the rule of reason are designed to determine whether restraints promote
or retard competition. They do not have different ends. If you admit that
this retards competition, you lose automatically!
v. Case shows that Rule of Reason and Per se rule have the same goal:
separate practices which are anticompetitive from those that are pro-
competitive. When the Engineers admit their anti-competitiveness, they
lose. There is no “public interest” exception unlike EU or Australia
3. Profession Exception: Putting Goldfarb and Professional Engineers
Together: D can argue: 1) This activity is not price fixing, 2) we’re a profession
and this activity is designed to self-regulate and thereby promote competition
(this approach should  Rule of Reason analysis of the case)
4. Broadcast Music Incorp. v. CBS (“Quick Look” Doctrine triggered by new
product)
i. BMI and ASCAP are groups of musicians / recording artists that sell
blanket licenses to establishments that want to use music. The license
eliminates the transaction costs of having to negotiate with each
individual artist every time you want to play a song. This way “Rick’s
Bar” in IL doesn’t have to call up Bono every time a U2 song gets
played: instead he pays a single annual for a license from BMI and they
distribute profits to the artists in exchange for right to play music
covered by license any time he wants. License cost varies depending on
size / needs of purchaser (i.e. a big TV network like CBS pays a lot
more than Rick). CBS pays a ridiculous amount to BMI (probably
biggest part of budget); it filed the suit as a negotiating tool
ii. Because BMI’s justification is compelling, CBS is trying to get this
treated under the per se rule: says that BMI is price fixing. CBS
succeeds in the Court of Appeals which says this is per se illegal price
fixing because BMI and ASCAP set one price for each license
iii. SC upholds the blanket license: In order to decide whether this is the
kind of price fixing that ought to be held illegal per se it is required
court must take a quick look at the arrangement. This opinion made
plaintiff’s lawyers very unhappy. Looks like it blows apart the per se
ban on price fixing by allowing for a “quick look.” “Easy labels don’t
often provide ready solutions” (Case is a defendant’s dream)
iv. Alternate Rationale (not what the court did): SCOTUS could have
upheld the blanket license in a much more straightforward fashion: it is
ANCILLARY to a legitimate joint venture to create a new product: the
artists are coming together to market a new product, the blanket license.
They need the power to price that product if the joint venture is to
succeed. This would lead to Rule of Reason analysis
v. Related Hypo: Suppose 4 Ithaca lawyers: Tax, Divorce, Personal Injury,
Criminal Law. Why don’t we get together and offer pre-paid legal
services for $100 / month and in return they are guaranteed legal work
free if it falls into any category. This is essentially a blanket license.
Obviously they have to agree on what price will be. They are in a joint
venture. Providing this package only for those that want this. This is
exactly what is happening in BMI.
5. Arizona v. Maricopa County Med. Soc. (Slight retreat from BMI)

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 i. Physicians set maximum prices that they will charge for services from
HMOs. Basically the doctors are meeting in hotel room before AETNA
comes into town and forces each to bid on becoming part of the plan and
play one off another. Doctors are agreeing in advance what their
maximum bid will be and presenting a united front. So court is right in
saying that AETNA should agree with each doctor, not each doctor in
advance agreeing
ii. Try to invoke BMI “quick look” language to get around per se ban on
price fixing. SC fires warning shot saying not to read BMI too broadly.
Cannot meet to agree on price  per se unlawful under § 1
iii. Hay thinks this case just means: don’t read BMI beyond its facts
6. NCAA v. Board of Regents (The League Exception triggering Quick Look)
i. NCAA rule stated only that one network could carry college football
games. After selected as network, TV has right to pick which game it
wants with some limits (no team could be on more than 4 times; some
weeks network had to show regional games); BUT NCAA dictated a flat
fee. TV networks could not negotiate. NCAA fee ($600,000) was an
artificially high price it could charge because it limited the number of
games. Individual schools could not negotiate their own prices or
contracts (e.g. no Notre Dame on NBC). Oklahoma and Georgia file suit
to enjoin NCAA rule.
ii. Court characterizes this arrangement as price fixing but does NOT apply
per se rule. Because the NCAA is a league the court applies the Quick
Look Rule of Reason: League is essentially a joint venture of members
that need to agree on certain things in order to exist (i.e. amateur league,
# of teams, size of field, rules for play, rules for recruiting, etc.). This is
what causes SC to take position it does: “this is a league and
fundamental characteristic of a league is that it has to agree on certain
things to exist.” So we don’t want to automatically apply the per se rule.
iii. Only question the court asks: IS PRICE FIXING NECESSARY FOR
LEAGUE TO EXIST? Court says it is NOT
iv. NCAA argues it wanted to preserve live audiences, this is bullshit
7. Putting BMI, Maricopa, and NCAA together, the court may apply a quick
look if D can point to something special (i.e. a new product, league, etc.) that
needs to establish special arrangements. Quick look question: does that entity
need to fix prices to exist
8. FTC v. Indiana Federation of Dentists (More quick look)
i. Dentists got together and agreed not to submit x-rays to insurance
companies. (not typical price fixing). This is more like a boycott. We
agree to not send you information.
ii. Doctors try to get around the per se rule by saying that they are a
profession and that this is not price fixing. Court analogizes this to price
fixing because boycott is aimed at competitors you cannot get HMO
coverage without x-rays
iii. Case technically brought by the FTC under § 5 of the FTC Act: prohibits
“unfair methods of competition” (see above)
iv. Case is kind of a quick look case because FTC only has to prove attempt
to boycott (Agreement is the illegality) to win and trigger per se
treatment. Case does not say that doctors have to provide the requested
information, it just means that they cannot agree to withhold it
v. Hypo: Usual boycott: doctors at Tompkins County Hospital say they

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 won’t work there anymore unless hospital does not hire Dr.
Butterfingers. New phenomenon: “doctor specialty hospitals” which
take high paying clients and leave other clients with rest. So non-
specialty hospital says to AETNA: we will not be part of system if you
deal with the new hospital. Indirect way to get out competitor. Use
collective leverage through a third party to eliminate competition. Lots
of cases suggest these cases are per se unlawful
9. FTC v. Superior Court Trial Lawyers (Importance of Classification)
i. Boycott case: trial lawyers refuse to work unless pay goes up. In this
case it also seems like price fixing but couldn’t have been a hotel room
cartel because salary was set by statute: boycott for higher fees
ii. If lawyers try to use the profession defense to say that higher fees
promote quality of representation they will run into the Professional
Engineers problem: the justification of their boycott (quality of lawyers)
does not promote competition. Cannot say anti-competitive action is
better than competition
1. Hypo: What if instead of higher fees the lawyers strike instead
until jail conditions improve? There lawyers had cited a “non-
economic” reason that gave no commercial advantage to the
lawyers that directly serves a social end. Court might be sensitive
to this (Cf. Clairborne Hardware: boycott of hardware stores that
discriminate vs. minorities but consumers aren’t really economic
competitors as the lawyers are); on the other hand, lawyers are
using their combined market power, by acting jointly and
agreeing in restraint of trade, court might still think this is illegal
under the Sherman Act
iii. Lawyers also make a First Amendment defense: we are boycotting to
call attention to a social problem via our right to free expression. Court
says that this doesn’t fly because lawyers can do this in other ways that
do not violate the Sherman Act (i.e. might be different if they engaged in
a limited, symbolic 24 hour strike)
iv. Court of Appeals had said that we don’t want to apply per se rule
because lawyers are nice and no harm in Rule of Reason analysis. SC
reverses this point as well. Per se rule is designed for efficiency of lower
courts (saves courts from reviewing actions that have been barred) but
this does not make it discretionary. Court is bound to apply the per se
rule; cannot fail to in interests of “justice”
10. United States v. Brown University (“Non-profit” Exception?: Third
Cir.)
i. Third Circuit case: Ivy league schools had regular meetings to propose
and discuss financial aid packages for admitted students. By time case
got to court other schools had pled out and only MIT left
ii. MIT tries to argue that it is not engaged in commercial activity but
merely giving charity to students and setting parameters of that. Court
quickly rejects this: schools really agreeing on discounts of price that
will be paid to school. This is price fixing. Agreement is to schools’
advantage. District Court applied “quick look” approach. Third Circuit
opinion here reverses and remands for full Rule of Reason analysis
iii. MIT’s argument to get case under Rule of Reason: 1) we are a non-
profit, 2) we are not engaged in an activity to maximize profits. This is
not necessarily anti-competitive so we need a full Rule of Reason

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 inquiry. MIT then argues that the policy is 1) pro-competitive, and 2)
benefits social welfare
1. MIT says pro-competitive because refusing to provide merit
scholarships allows MIT to spread limited financial aid more
broadly  more diverse student body  this is a better school
(Cf. BMI: creating a better product). This argument is insufficient
though because it justifies MIT’s policy but not its
AGREEMENT with other schools. MIT takes the next step and
argues that agreement is necessary for it to be rational for them
to do this or else Harvard and Yale will take all the smart kids.
Third Circuit thinks given this that competition might indeed be
promoted
2. MIT’s second argument about social benefits not as good: we’ve
seen this before and it gets rejected
iv. Schools first tried to establish blanket immunity for non-profit
organizations but court pretty quickly rejects this
11. Quick Look synthesized: Quick look is somewhere between per se and
Rule of Reason. Restraint which on its face looks like what the court has found
per se unlawful. It’s facially anti-competitive. But it occurs in a context which
suggests a possibility that it might turn out to promote competition. Once quick
look is adopted the burden lies on the defendant to rebut a presumption of
unlawfulness. So what we’re going to do is let the defendant tell a story. The
NCAA then has to persuade the court that the measure is actually pro-
competitive. This differs from a full-scale Rule of Reason, because on its face,
it’s not clear that the restraint would be anticompetitive. In a quick look case,
the defendant has to rebut the presumption that the restraint is anti-competitive.
In a rule of reason case, the defendant does not have this burden.
12. California Dental v. FTC
i. California Dental Association passes rules prohibiting false or
misleading advertising. Problem is that rule was interpreted in a way
that prevented dentists from advertising price discounts
ii. Court of Appeals applied “quick look” to rule and found it
anticompetitive: SC remands for full rule of reason analysis. Cannot
apply “quick look” unless the agreement is anticompetitive on its face.
The rule prohibiting advertising is not facially anticompetitive, it was
merely interpreted that way
iii. Case illustrates the black letter difference between R of R and Quick
Look: Rule of Reason: until the plaintiff proves that the restraint is anti-
competitive, the defendant prevails. Quick Look: the burden falls to the
defendant to demonstrate that, in fact, the alleged restraint is pro-
competitive.
13. NFL v. Maurice Clarett (Lower court: quick look)
i. Example of lower court applying quick look: age discrimination is per
se unlawful but since NFL is a league, could offer pro-competitive
justification. District judge rejected that justification
ii. District opinion rendered moot by C of A which held that deal was
immune from antitrust laws because of collective bargaining agreement
14. Polygram Holdings (Lower court: quick look)
i. Another Court of Appeals opinion: “Three Tenors” case: Two recording
studios (one with rights to 1990 concert and one with rights to 1994
concert); studios get together for 1998 album; legitimate joint venture:

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 agree not to market (advertise / discount) 1990 and 1994 albums before
1998 concert
ii. Another quick look case: They’re in a joint venture to produce the 1998
album. It’s not 100% certain that these types of agreements aren’t
legitimate. There are special circumstances here. So we do a quick look
here and put the burden on the defendants to prove that restricting 1990
and 1994 can actually improve competition.
iii. Court held that agreement was a naked restraint of trade (it was not
necessary to the JV of producing / marketing the new album)
15. United States v. Topco
i. Supermarkets agree to designate which store can sell Topco products in
given geographic locations (not limit on whether store could be there but
on what they could sell)(e.g. Wegmans sells Topco in Ithaca and P&C
sells Topco in Rochester). Government sues and loses in District Court
 SCOTUS via Expediting Act
ii. Trial Court held that no violation of § 1 under Rule of Reason because
restraint is pro-competitive: although it restricts competition with
respect to private-label product it allows small chains to market a
product it wouldn’t be able to otherwise and thereby compete more
effectively against the large chains, from the perspective of consumers,
this is a good thing. It corrects a “free rider” problem that would occur if
all supermarket chains could sell Topco: no one would market it well
iii. SC reverses: “whether or not we would decide the case the same way
under the rule of reason is irrelevant to the issue before us.” This shows
the enormous power of the per se rule: even if the argument is correct, D
still loses. Court per Marshall, J. sees the geographic limitation as
unnecessary to the joint venture, trial court thought it was ancillary to
creating a new product, the “TopCo” brand
iv. Holding of TopCo establishes that even ancillary agreements must be
necessary to the joint venture: there is a substantive requirement for
ancillarity
16. General Leaseways v. National Truck Leasing Association (7th Cir.)
i. Posner applies Topco to similar facts: agreement to allocate territory is
not necessary to the joint venture, even though ancillary (it is not
“genuinely ancillary”)
17. Rothery Storage v. Atlas (DC Cir.)
i. Bork opinion: case has similar facts to Topco and General Leaseways
ii. Court holds that D does not have large enough market share to restrain
trade unlawfully (only 5%). Bork’s core position: first question is not
about genuine ancillarity but if it is facially ancillary, whether or not the
market share is large enough to have an effect (this seems to be Rule of
Reason analysis)
iii. Shows circuit split
18. Copperweld v. Independence Tube
i. Major Holding: § 1 does not apply to two wholly-owned subsidiary
corporations of a single parent (or two divisions of those subsidiaries)
ii. Underlying rationale was based upon fact that application of § 1 turned
on mere structure (calling subs divisions meant § 1 does not apply but
calling them corporations meant it did); rationale: do not want to distort
a parent company’s otherwise efficient choices, choice of corporate form
is at stake

10
 iii. Economically this makes sense because subsidiaries have no incentive
to compete for profits, they just want to maximize overall profits
iv. Copperweld applies so long as parent owns at least 90% of subsidiary,
courts are split if they own less (i.e. 60% is control, 49% is effective so
fewer courts draw the line there)
v. Hypo: Can Copperweld be applied to leagues? No since teams are
individually owned, but in the case of Major League Soccer the league
owns teams, Copperweld may apply there
vi. There has been litigation about timing of pre-merger planning decisions:
what if competitors agree to “restrain trade” before a merger? Litigation
currently about this. FTC wants hard line rule.
19. Dagher v. Saudi Refining
i. Case involved multiple joint ventures. Texaco and Shell merge
downstream operations (refining and marketing of crude oil); each will
own 50% of Equilon and share profits equally; will not market gas as
Equilon but under Texaco and Shell brands. Alleged unlawful agreement
obscured by opinion is that at the time JV was created, Texaco and Shell
agreed that in charter of JV the price of Texaco and Shell would always
be the same; Agreement between parents that took place at the time the
JV was created
ii. P was attempting to sue JV to get rich quick with treble damages (class
action): case file claimed that it was a per se violation or if not, should
be decided under quick look rule of reason; interrogatory says that if
court decides case should be tried under full scale rule of reason, we
concede in advance
iii. D move to dismiss on idea that this is definitely not per se unlawful: in
effect D is saying that JV including the agreement was approved by the
FTC; this doesn’t mean that private parties cannot challenge JV or
agreement, but the agreement is ancillary to JV and must be evaluated
under Rule of Reason
iv. This is where Copperweld comes in: Justice Thomas says that assuming
that JV is lawful agreement means nothing because it is conceded that
under JV Equilon will control pricing of gasoline to maximize overall
pricing of JV; Equilon will not conduct price war between Shell and
Texaco (Cf. Tops and Wegmans hypo. from above)
v. Court holds that § 1 does not apply here because takes P’s pleading
seriously
20. Hatch Waxmann Act cases
i. E.g. - Bayer has patent on Cipro (drug that carries many billion $$$ of
profits); to get U.S. patent isn’t that hard. Hatch-Waxman Act sets up
process to challenge patents. Barr makes generics after patents expires.
Barr tells Bayer that patent is invalid and wants to market generic now
and tells them to file patent infringement suit. This is not a zero-sum
game because if Bayer wins, $4 billion is protected; if Barr wins, no one
gets patent and $4 billion of profits disappear because everyone makes
generics. Not surprisingly Bayer tries to settle: if you agree to admit that
you are infringing our patent, we will pay you $400 million; Barr
agrees: FTC claims that this agreement had effect that we will not know
whether the patent is invalid or not and so agreement is in restraint of
trade and unlawful (issue: when can Bayer settle patent disputes?)
ii. Issue with these cases: can a settlement agreement be “in restraint of

11
 trade”
5. STANDING AND JURISDICTIONAL ISSUES
1. Standing
i. Rule in America: “direct purchaser” rule. Ex: Cartel jacks up price of
milk. Cost of milk in supermarket goes up. You and I buy milk from
supermarket. Because cost to supermarket goes up, they will pass it on
to the consumer; real victims of the cartel are consumers. Originally
case would be brought by supermarkets who complain about higher
prices for milk. SC said to D, you cannot defend vs. price fixing by
saying that supermarkets passing cost on to the consumer . Consumers
sue: SC says that supermarket could sue for full amount of overcharge,
if we allow consumers to sue then cartel is being forced to pay twice. So
SC says no to consumers, only ones allowed to sue are the “direct
purchasers”
ii. This is very unfair. Each state has their own antitrust laws and many
states have passed overrides to this federal law (about ½ states have
done this). As a result, direct purchasers file in federal court and indirect
file in state court (leads to lots of double dipping) (See, e.g., Microsoft
cases)
iii. Overseas standing is based on international law “comity”
1. Hypo: fax paper cartel of foreign corporations in Japan.
Marketed to United States. U.S. consumers are only victims.
Clear that antitrust law should apply because effects U.S.
consumers and no Japanese incentive to prosecute. Harder if
Japan markets all over the world and there are victims
everywhere. Closer call because other authorities would have
interest in prosecuting the cartel. But cartel was intended to and
did have effect on customers in U.S. so U.S. customers can sue
in United States.
2. U.S. Customers can clearly sue foreign companies in U.S. courts
3. Empagram S.A. v. F. Hoffman-LaRoche
1. Sherman Act does not apply to conduct involving trade or
commerce with foreign nations unless it falls within
“domestic injury” exception: needs to have substantial,
reasonably foreseeable, direct effete on domestic
commerce and this effect gives rise to Sherman Act claim
(actual and proximate causation). Case involved vitamin
sellers cartel leading to higher prices in U.S. and around
the world. The FTAIA allows court to reach the action
2. Lysine Cartel Video
i. What’s going on in the video is two different things: (1) they’ve carved
up the world and assigned quotas in the different parts of world. (2)
Behind the scenes, these guys are cheating like crazy on one another.
They don’t trust each other—they’re trying to come up with various
schemes.
ii. This shows what happens when push the price above the competitive
level. Unless you can find some way to limit what the Cartel will sell,
the Cartel is going to collapse.
2. INFORMATION EXCHANGE AND RELATED OLIGOPOLISTIC CONDUCT
1. INFERRING AGREEMENT
1. Hypo #1: Construction project to renovate Hughes Hall. 5 identical bids come

12
 in. Here there is too much of a coincidence, would be unusual for all bids to be
the same; can subpoena travel schedule and phone logs to try to find more
circumstantial evidence
2. Hypo #2: within a week of Hurricane Katrina, gas prices go up 25 cents a
gallon. Katrina wiped out 20% of gas refining capacity. P claims conspiracy.
While it is possible that gas stations conspired it’s unlikely, don’t need that
hypothesis to explain the result; -this one won’t get to jury
3. Hypo #3: Delta announces it will eliminate travel agent commissions. Travel
agents are furious and announce will steer clients from Delta. Other airlines see
what Delta did and follows eliminating commission. Delta’s behavior is hardest
to explain because if you do this they would fear travel agents steering business
to other airlines
4. From these hypos can see two strands of relevant circumstantial evidence:
coincidence (#1) and risk (#3)
5. Interstate Circuit v. United States
i. Government case  SC via Expediting Act. Movie industry released
movies into first-run theaters, they later went into second-run theaters.
The conspiracy involved agreements among appellants to fix admission
prices above a certain level, to prohibit double features of certain
movies, and to impose other restrictions on subsequent-run exhibitors.
Distributor theaters send letters to exhibitor theaters asking them to fix
prices at first and second run theatres and not to show double features.
Key issue: did the eight movie exhibitors actually agree among each
other to have this policy? Jury finds for P.
ii. Circumstantial evidence: Nature of the proposals: involve a radical
change / departure from prior business practice (Coincidence: could not
have happened by coincidence and Risk: no one company would have
done this by itself: if MGM did this without agreeing, other companies
would lower their rates and get all the business)
iii. Case becomes complicated by letter from one of the theaters to directors
of the other theaters. This letter shows that no hotel room agreement was
reached and may show that 7 theaters were coerced by the unilateral
action of one. But all directors were cced on the letters so they knew
about this. Court sees this as showing that an agreement may have
existed
iv. Another theory DOJ uses: “hub and spoke” conspiracy theory:
“acceptance by competitors, without previous agreement, of an
invitation to participate in a plan, the necessary consequence of which, if
carried out, is restraint of interstate commerce, is sufficient to establish
an unlawful conspiracy under the Sherman Act.” Interstate is the hub &
each of the eight circuits are the spokes. For Sherman act purposes, this
counts as a horizontal agreement.
6. Theater Enterprises v. Paramount
i. Similar facts to Interstate Theater: Subruban Baltimore theater asked
distributors for first run movies, each distributor tells them no and gives
movies only to downtown theaters. Court holds that “parallel business
behavior” itself is not sufficient circumstantial evidence to prove a
conspiracy. Need to prove more than “conscious parallelism” because
behavior may be individually rational for each theater (i.e. must prove
something like the “hub and spoke” conspiracy in Interstate Theatre). D
can defend by showing that the action is rational independent of what

13
 other competitors do. However, trial judge should not have kicked the
case out on Summary Judgment.
7. Toys ‘R’ Us v. FTC (7th Cir.)
i. Similar to Interstate Circuit. Toys R US allegedly enters into many
agreements with club sellers to undercut warehouse clubs (i.e. Costco)
including price fixing, tying, etc. FTC attacks the suppliers saying that
this is a horizontal agreement between the producers of toys forced by
Toys R Us. “Hub and Spoke.” It would not make any sense for any
seller to do it independently. An agreement can be inferred here because
this is the sort of thing that they wouldn’t do unless they had no choice
(TOO RISKY). The manufacturers had to know in advance that the
others were going to go ahead with this. Court affirms FTC’s decision.
8. Twombly v. Bell Atlantic (How all of this plays out procedurally)
9. Case is similar to Theater Enterprises. Allegation is that D-telecommunications
providers conspired not to compete against each other in geographic markets for
local phone and high-speed Internet services. D defends by saying that their
decisions were independently rational. D’s language: “[actions are]
independently justifiable, rational and economically efficient.”
i. District Court dismissed complaint on 12(b)(6) because concluded that
allegations of “conscious parallelism” are not enough to prove
conspiracy. Need to point to certain “plus factors” as well to survive a
12(b)(6)
ii. Second Circuit reverses: point of Civil Procedure notice pleading is that
should be able to obtain more information in discovery. P’s complaint
should be enough to get by a 12(b)(6) even though it might not survive
on summary judgment. No heightened pleading is required in antitrust
cases. This case was argued before SCOTUS two weeks ago
10. Putting Together the Rules on Inferring Agreement:
i. P wants to say it is a conspiracy and prove it with circumstantial
evidence referring to “plus factors”
ii. D has two different strategies:
1. Parallel, but independently rational (no harm no foul) (Like
Theatre Enterprises)
2. Parallel, but interdependent (oligopoly)
1. Ex: USAir & Delta run shuttles between NY &
Washington. Assume it costs $100 one-way. USAir and
Delta are both doing badly financially. Suppose the
president of USAir says, I need to make more off these
flights. So he goes USAir’s chief economist and says, can
the shuttle service be more profitable? Economist says,
“I’ve done an elasticity calculus and people would still
fly even if the shuttle price were $150. But the bad news
is that it’ll only be more profitable if both airlines charged
$150.” American’s president cannot call Delta and we’ll
set this up. He can’t do this, but economist says “I’m 99%
certain that if you raise your price to $150 Delta will
follow.” If they’d met in a hotel room, that’s the
monopoly price that they would have reached. Here we
are observing, in contrast to Theatre Enterprises, that this
is monopoly conduct, independently undertaken, which
hurts consumers. Instead of being independently rational,

14
 this qualifies as interdependently rational. Moral: if you
use market forces to communicate pricing decisions, § 1
cannot reach you.
2. Result of oligopolistic interdependence (like USAir and
Delta Ex.). Most likely to occur in highly concentrated
industry; with homogeneous / fungible products; pricing
is transparent; and transactions not lumpy
3. “Conscious Parallelism is overbroad in a sense because it
allows oligopolies to engage in monopoly pricing without
reaching agreement in concentrated markets. This is the
rule because courts don’t want to determine antitrust
liability based on whether pricing decisions are cost
justified or not.
4. May be able to get at this second action a little through
the facilitation theory (next section)
2. TACIT AGREEMENT AND FACILITATING PRACTICES
1. Theory responds to oligopolistic interdependence: Firms have engaged in
certain actions to facilitate the interdependence.
2. Facilitation theory is based on the “invitation and acceptance” theory of
Interstate Circuit: facilitating action is the “invitation” and compliance is the
“acceptance”
i. Ex: Suppose prices are normally not public and eventually rivals learn
about Firm A’s conduct (contemplating initiating a price increase; this
usually takes some time before the other firms learn of increase).
Suppose A instead publicly announces price increase (this cuts down the
window of rivals finding out about increase); other firms may follow
suit and announce price increases as well. There has been no agreement
between the firms, B just followed A’s lead but action of announcing
prices, making public is a “facilitating practice”
1. Even here, A will have a little exposure and lose business:
suppose instead A announces a price increase, effective in two
weeks (unilateral increase but assumes the competitors will
follow). Two weeks gives time for cartel-like activity of price
matching / stabilization
3. Blomkest Fertilizer v. Potash (8th Cir.)
i. Potash (type of fertilizer) sellers engaged in oligopoly pricing. Charge is
that producers colluded to raise price of potash. Court looks at “plus
factors” to determine whether the parallel action was a conspiracy. P has
burden of proving one or more plus factors. Court holds not enough
were present. Most important “plus factor”: an action taken contrary to
economic self-interest
ii. Held: Reasonable juror conclude more likely than not that there was a
conspiracy. Plaintiff’s evidence must tend to exlclude possibility of
independent action or oligopolistic action.
iii. Plus factors:
1. P really believes these guys met in a hotel room (opportunity to
collude)
2. Designed to fight the we’re bad defense
1. Not homogenous
2. Prices not transparent
3. Lumpy (not smooth)

15
1. GE/Westinghouse
i. 1950s: GE was engaged in big hotel room conspiracy concerning heavy
electrical equipment with Westinghouse and A-C. Billions of dollars in
treble damages were awarded. Conspiracy was pretty unsuccessful
because there were a few firms but the product was not homogeneous;
the price was not transparent; and sales were lumpy: firms cheated. A
few years after the suit all price discounting was eliminated. GE &
Honeywell began matching prices. DOJ thought they must be meeting
again but it was clear there was no meeting. This was very successful in
eliminating price competition without being the perfect oligopoly.
Pricing was suspicious because each machine was tailor-made (not
homogeneous products), prices were no transparent, and sales were very
lumpy (machines bought in waves)
ii. GE began issuing a price book setting out list prices for any model of its
equipment. Also, in order to insure that they wouldn’t cheat on prices,
GE introduces price protection: “if anyone buys generator at list price
and finds I have given discount to anyone else, we’ll retroactively give it
to you”: this basically signals to Westinghouse that GE is not going to
start a price war: ties hands from giving discounts. Seems as if GE does
something unilaterally to facilitate oligopoly pricing. DOJ is waiving a
wand and saying this pattern of practices counts as an unlawful
agreement under § 1 of the Sherman Act
iii. Case settles and consent decree is entered into: standard for judge to
enter consent decree = judge needs to find it in the public interest
2. Ethyl v. FTC
i. FTC legal theory: whatever court would have done with GE under § 1,
we think this is illegal under § 5 of FRC Act. Test case: lead was being
phased out so result didn’t matter and FTC deliberately left the word
“agreement” out of the case.
ii. Things to note: product is homogenous (no complexity there); but here
is complexity: stuff is heavy and 4 manufacturers with customers
(refineries) all over the country. If everyone is charging the same price
f.o.b. (free on board / from the plant door) the competition would not
work out either because shipping costs a lot so close producers will get
more business. Instead they charge a delivery price so there would be
competition across the board. The problem is this means that only need
to agree on one number to achieve consensus in pricing. Each firm
adopts policy of quoting on a uniform delivered price basis; makes
pricing problem simpler (they would also announce price increases in
advance)
iii. 2d Cir. decides against. FTC though lots of people think this case is
wrong.
iv. Ethyl shows possible defenses to facilitating conduct theory:
1. This did not eliminate all competition: still some small firms that
got discounted BUT even cartel does not eliminate all
competition, that would be too much to prove
2. We’re bad: even without agreement there would be no price
competition; you cannot prove that the facilitating practices
made a difference
3. *Business Justification: we announced price increases because
our customers like to know when prices are going up; they like

16
 price protection, etc.
2. INFORMATION EXCHANGE
1. This theory is not based on an agreement on prices or practices to facilitate
oligopoly pricing but based on an agreement to exchange information about
prices
2. P’s options where it has evidence of information exchange:
i. Infer an agreement on price (if we prove this agreement on price via
circumstantial evidence, this will be considered per se unlawful; hard
part here is proving the agreement by inference); here, the exchange of
information may be used as a “plus factor”
ii. Parallel exchange of information is a facilitating practice; don’t know
whether this will constitute an unlawful agreement
iii. Press claim that agreement to exchange information is in and of itself is
unlawful: this agreement is going to be easy to prove (see below)
3. American Column & Lumber Co. v. United States (1921)
i. Manufacturers of hardwood form “American Hardwood Manufacturer’s
Assocation” and designate an “Open Competition Plan” with optional
participation. Plan called for disseminating information about
production and market conditions, including: daily report of all sales
made, daily shipping report, monthly production report, monthly stock
report, price lists, and inspection reports. Plan also called for sending
questionnaires about production.
ii. SCOTUS held that this plan was a “definite agreement” on production
and prices. Part of a kind of Gentleman’s agreement. This was an illegal
agreement in restraint of trade. However, the Court never says that this
is per se illegal. Still, it seems like information exchange itself might
support a cause of action
4. Maple Flooring v. United States (1924)
i. Maple Flooring Association computed and distributed average cost of all
grades, compiled book on shipping rates, gathered information on
prices, stock, etc. In this case D wins. SC says “such information may be
basis of an agreement of concerted action, but in absence of proof of
such an agreement or concerted action having been actually reached, we
can find no basis in gathering and disseminating information . . . ” This
seems to support view that information is a “plus factor” but cannot give
rise to an independent claim
ii. Strong D language in the case: “an agreement to exchange information
does not become illegal merely because it has the effect of stabilizing
prices and limiting production”: court wants to see an actual agreement
to stabilize prices and limit production
iii. Some contend that Maple Flooring is an anomaly of its time and was
overruled by Socony. Hay is not so sure: some of court’s sensitivity may
come from the fact that pricing information is a prerequisite to perfect
competition as well as oligopoly pricing
5. United States v. Container (1969)
i. Case involving an exchange of price information but no agreement to
adhere to a price schedule. Whenever D would call another
manufacturer and ask for quote of most recent charge, D would be told
the price
ii. SC: “the limitation or reduction of price competition brings the case
within the ban, for as we held in United States v. Soconoy, interference

17
 with the setting of price by free market forces is unlawful per se.”
iii. HOWEVER, even Container does not say that the per se rule applies
because Fortas’s concurrence says that it is not a per se violation but can
be under Rule of Reason
iv. There is a circuit split on how to read the case:
1. In Container, the product is homogeneous (easier to agree on
price), and industry is highly concentrated, so we have to worry
about this industry achieving oligopoly result (exchange of
information will allow for the last needed step: transparency):
this makes the exchange alone sufficient to trigger illegality
because it is an important piece of the oligopoly puzzle. This is
the Pro-P interpretation of Douglas’s use of per se language in
container: when industry is structurally conducive to oligopoly
(highly concentrated, inelastic, etc.) then price exchange will be
conducive to price fixing abuse / coordination and this will be
per se unlawful (P must not prove anything further)
2. Pro-D interpretation: P must still prove that prices are super-
competitive: that is that exchange of information had the effect
of leading to high prices
6. United States v. U.S. Gypsum (1978)
i. Brief snippet just reiterates that exchange of price information alone is
not a per se violation. Structure of the industry matters too (cites
Container for this)
7. Todd v. Exxon (2d Cir. 2001)
i. Discusses the cases above if want more information: exchange of
information is not illegal per se but given the market conditions the
court held that P’s claim could survive a 12(b)(6) motion to dismiss
2. GROUP BOYCOTTS AND RELATED CONDUCT
1. CLASSIC BOYCOTTS (make up reading if time)
1. These cases are treated as per se cases (that is undisputed): agreement to
boycott a competitor is per se illegal
2. Fashion Originators’ Guild v. FTC
i. The Fashion Originators’ Guild of America (FOGA) create designs for
clothing. They are trying to keep out competitors who are copying their
designs. So the target of FOGA is the bad manufacturers. They created
an association among themselves with the aim of keeping the copiers
out of certain retail stores. They refuse to deal with retailers who sell the
knock-off goods.
ii. Court rejects reasonableness, effect, and market power defenses asserted
by FOGA: this is per se illegal under § 1
iii. Hypo based on case: Suppose we have Ralph Lauren as a manufacturer-
defendant and Bloomingdales is one of the retailers. P would have to
show that absent an agreement, RL would deal with the retailer. If
you’re the defendant, you say that it is my individual interest to act as I
am acting. Rule only prohibits agreement not the refusal to deal
3. Klor’s v. Broadway Hale
i. Complaint alleges a “hub and spoke” conspiracy. Appellate court
assumes for purposes of appeal that manufacturer agreed among
themselves and with Broadway Hale to exclude Klor’s. This is another
per se case because it is a horizontal agreement to exclude. If P filed the
case as a vertical agreement case between BH and manufacturers, P

18
 would have to show that the vertical agreements are anti-competitive—
that consumers are worse off because these deals are anti-competitive.
This shows why the plaintiff brought the case the way he did. The
advantage of the per se rule is that the plaintiff does not need to show an
adverse effect. We simply assume it.
4. NYNEX v. Discon
i. Agreement by AT&T and NYNEX not to deal with other companies.
Case categorizes FOGA and Klor’s as per se cases. Held that the boycott
rule does not apply because there is no ganging up, no horizontal
agreement here.
2. JOINT VENTURE BOYCOTTS
1. As general rule, joint ventures should be free to refuse to deal (i.e. they should
be treated differently than agreements between competitors). The impetus
behind the per se rule is bar against unlawful agreement; here JVs cannot be
required to make up their own minds because it is a single entity like a league;
decisions on participation have to be made jointly or it is not a JV. JV needs
ability to make collective decisions to exist. JV also needs the ability to only
allow some people to participate: if cannot exclude than it becomes an
“industry-wide” JV
2. United States v. Terminal R.R. (1912)
i. 24 Railroads converge at E and W bank of Mississippi near St. Louis.
Association formed only allowing members to use terminals.
ii. Court picks up this default rule: “in ordinary circumstances the parties
may lawfully combine . . . ”
iii. However, court distinguishes the case because the railroad is an
“essential facility” / natural monopoly: participation is essential for
effective competition here  special rules. Railroad must let anyone in
if willing to comply with the same rules as everyone else, you have to be
admitted. Basically a JV that makes it impossible for others to compete
is unlawful if don’t allow others in on non-discriminatory terms
iv. Terminal Railroad only applies:
1. If there is an essential facility / natural monopoly
2. Does not say everyone must be admitted, but everyone must be
permitted to get in based on reasonable non-discriminatory terms
v. Potential problem: what if companies risk and invest to form the
essential facility? Does or should the case apply?
1. Ex: USAir and NWA sense Ithaca will become Silicon Valley of
East so invest $150 million each to build modern international
airport. They are right and Delta wants to come in citing
Terminal RR argument (“you must admit me on non-
discriminatory terms”). I will pay you $100 million so we all
have equal payment. Not really fair to USAir and NWA because
they gambled / took a risk and won, if it had failed they couldn’t
have sued Delta. No obligation to let the free rider in
3. United States v. Associated Press (1945)
i. Publishers of more than 1200 newspapers are members of the
Associated Press. AP members join JV and get AP news stories to run in
their papers. In exchange, members give stories about their region to the
AP. AP bylaws allow member to block the membership of nonmembers.
ii. Court applies this essential facility doctrine to the AP. The rule that
allows members to veto entry by non-members is no good.

19
 iii. Hypo: if Cornell Daily Sun wants AP news does it say they must be
admitted on non-discriminatory terms? Does it say the CLS Tower
should be? No, rule is that AP wouldn’t allow people in because
members had veto power, this is problematic, but everyone does NOT
have to be admitted but cannot be denied access because competitors
veto / say no.
4. Overview of the law so far:
i. If not JV, boycott is per se unlawful
ii. If JV, generally laissez faire
iii. If JV and essential facility then must be admitted on non-discriminatory
terms
5. Northwest Wholesale v. Pacific Stationary (1985)
i. Very bad opinion: JV expels a member without procedural process.
Holding: P seeking application of per se rule needs to make threshold
determination of “market power.” Basically he is saying that P must
show whether this thing is actually an essential facility: this statement is
weird because market power, purpose, and effect are irrelevant in per se
cases
ii. What does Brennan mean by market power?
1. This does not apply to other cases we have studied, only to
legitimate JV
2. In cases where P wants per se rule, must find market power, if P
doesn’t then Rule of Reason will apply to activities of this
legitimate JV (P can still win if she establishes harm to
competition under R of R). If P does prove market power,
however, will not have to prove any anti-competitive effect
iii. Case does not go further than Terminal Railroad, it just means that ifcan
only kick someone out if they have valid reasons (i.e. if they don’t pay
dues they can be kicked out)
6. SCFC v. Visa (Third Circuit)
i. VISA and Sears /Discover case. In the first case, Sears which had a
Discover card wanted to issue VISA cards (theory was that using
network of Sears stores, they could cover the country with VISA cards).
Government wants to apply per se rule. VISA says that thousands of
banks issue cards, what possible difference could adding one more bank
make for competition? Sears thought they would make a big difference
via achieving economies of scale. Court said no, there are thousands of
competitors, losing one will not matter. Second case, one DOJ won and
AMEX is bringing (both Discover and AMEX wanted some of the big
banks in the VISA system to issue AMEX cards). Up until now, AMEX
issued their own cards. Court said this is basically a boycott: rule that
VISA banks cannot deal with AMEX is essential a JV boycott with
market power
ii. SCFC claims that bylaw 2.06 represents a concerted refusal to deal in
restrain of trade. The bylaw says that visa shall not accept for
membership any applicant bank which issues Discover, Amex, or other
competitor cards. Sears owns a bank which issues a Sears cards. They
want to issue a Visa card. Visa says no.
iii. Rule of Reason says that only arrangements with anticompetitive
consequences exceeding their legitimate business interests are
forbidden.

20
3. EFFORTS TO INFLUENCE GOVERNMENT ACTION
1. Eastern R.R. v. Noerr (1961)
i. Railroads trying to get the government to ban extra-long trailers because
the trucks pose competition to railroad. P cannot sue states which have
immunity, so P-truckers have to find some private actor to sue. Back up
one step. How did this legislation get passed. Sue the railroads for
seeking this legislation that resulted in the ban (here we have private
action that  action by the state.
ii. Basic problem with suing the railroad for agreeing to lobby = not an
agreement in restraint of trade; this is not the kind of agreement that the
Sherman Act was designed to prevent (statutory construction). An
agreement to lobby is simply not the kind of agreement Sherman was
enacted to prohibit. It should not matter, therefore, that lobbying was
malicious; motives are irrelevant because this kind of act is not covered
by the Sherman Act
iii. Court draws distinction between legitimate PR campaign and sham
campaign to produce this negative effect (i.e. as long as effects are
incidental to genuine effort to achieve government action, they are also
protected)
2. California Motor Transport (1972)
i. Noerr rule applies to attempts to lobby administrative agencies as well:
mere attempt to lobby is protected but here court said that actions not
protected when meant to harass. This was a “sham” so illegal.
ii. Derives from Noerr (417) may be situations in which publicity
campaign is a mere sham directed to hamper business of competitor (i.e.
company lobbies for lower rate but doesn’t care about it, wants to obtain
process / delay and harm competitor through process). California Motor
Transport talks about repetitive baseless claims
3. Allied Tube v. Conduit (1988)
i. Makers of steel tubing lobby the National Fire Protection Association (a
private, voluntary organization) to not include PVC piping / wiring in
the National Electrical Code. PVC is the largest competitor of steel
tubing. P is arguing agreement to lobby is unlawful agreement in
restraint of trade. D argues that this is the form of lobbying protected by
Noerr. P claims intent to be anti-competitive, fraudulent and deceitful
conduct, attempt to influence legislature; D says Noerr covers all of
these.
ii. P wins even though this looks like Noerr should apply because action
here seems to be more commercial than political. D are trying to lobby
to enact a code that they hope the legislature will adopt; this seems to be
look more like a COMMERCIAL BOYCOTT. The Association is not
officially the government and may have some commercial / economic
interest involved here too.
4. Massachusetts School of Law at Andover v. ABA (3d Cir. 1997)
i. Modern application of Noerr: ABA is active in persuading states to
accept accreditation requirements to decide who sits for the bar. Mass
School of Law gets fewer application because not accredited. Can they
sue? NO because harm they are seeking to remedy is harm that is direct
result of state action
ii. Harm of stigma (i.e. they can take the bar but no one will hire
graduates)? This is a completely incidental effect to the state action

21
 5. Professional Real Estate v. Columbia Pictures (The Modern Sham
Exception)
i. This addresses two questions: 1) Can the filing of a single law suit
constitute a sham? Yes, this can be inferred from the fact that Justice
Thomas never mentions this. 2) What constitutes a sham? What is our
definition?
1. Hypo of executive going to patent lawyer to file the infringement
case and lawyer says, I don’t think you have a good case,
probably won’t win and executive doesn’t care. What happens?
Subjective intent is second prong. This is not enough to be a
sham. Concept of sham suggests it should be based upon
subjective intent, but Thomas says this is not the only
requirement
2. First prong of test = objective: litigation must be objectively
baseless (this hot document will not be enough)
1. Flew in the face of a lot of lower court opinions (i.e.
Posner who applied a cost-benefit test to whether P would
sue otherwise): Could mean merely that P is unsuccessful
(clearly that cannot be enough), could mean that P loses
on motion for summary judgment, could mean that P
loses on motion to dismiss. Thomas: means lawyers have
probable cause or reason to believe that there was a
chance the case would win (no reasonable litigant could
possibly expect success on the merits); in effect, would
the lawyer who filed the case be open to sanctions under
Rule 11 for filing a frivolous law suit (sounds like a D
friendly test a la Rule 11)
3. Thomas has in mind a two-part test: objective reasonableness is
only the first prong; Prong 2: suit must ALSO be subjectively
baseless (need the hot document as well)
6. Columbia v. Omni Advertising (Limitation on the Fraud Exception)
i. P tries to advance a “conspiracy exception” (i.e. didn’t lie, they
conspired with the government). Scalia says no, there is no conspiracy
exception. Scalia’s reasoning in part is one of causation: legislature goes
into session and out comes legislation (how do you really know what
caused that outcome? Would they have passed the same law even if they
weren’t bribed?)
ii. Question left unresolved: does the no conspiracy exception apply
broadly or just to the legislature? What if you bribe a judge or an
agency?
iii. Unlike sham exception, in fraud exception, parties genuinely want the
government to act. But to get the government to act, they need to use
fraud and deceit in lobbying the legislature
iv. Noerr said that fraud and deception in persuading Congress to act, did
not change the outcome (logic, Sherman Act not there to regulate
Capitol Hill)
II. VERTICAL RESTRAINTS
1. Vertical agreements generally: manufacturer / dealer, etc.
2. INTRABRAND RESTRAINTS
1. RESALE PRICE MAINTENANCE
1. Most scrutinized form of vertical agreement (involves price) (i.e. SONY says to

22
 Best Buy, if you want to sell my TV, cannot sell it for less than $400 =
maximum RPM)
2. Economics of RPM
i. Economics dictates that Per se rules should not be applied to vertical
agreements on price: manufacturers and dealers have legitimate business
reasons to agree; also there is no aggregation of market power with a
vertical restraint.
ii. Unfortunately the court does not follow this approach. This is because of
history. When you get to end of these cases will see that no P will ever
succeed on vertical price fixing claim. But this is not because they undid
the per se rule but because of evidentiary reasons
iii. Second general observation: in the absence of any legal prohibition, we
would expect many horizontal agreements on price (competitors do
better in cartels) but not vertical ones: no economic incentive to engage
in RPM
1. Illustration: General Mills makes Rice Krispies and wholesale
price is $2 per box. Retail market is reasonably competitive. This
means that retail - $3 box. Suppose dealers come to you and say
you give us an RPM for $4 so we can make more money.
General Mills would not agree because this might reduce
demand compared to other cereals (more charge, less people
buy), this won’t increase # sales and might reduce it; nothing in it
for manufacturer
2. Only way GM agrees to this is if they think that happy dealers 
more sales: economist goes to buy bed at store but goes to
catalog and orders it from there this might be an argument for
RPM: reward the store that engages in activities that  demand
for product but for this to work: boost to sales has to be so large
that it overcomes higher retail margin
iv. How RPM can hurt consumers
1. Scenario #1: Dealers gang up on manufacturers and each refuse
to deal / try to coerce manufacturer to impose RPM to fix prices;
this is anticompetitive but shouldn’t need a separate policing rule
because threatened boycott would be itself unlawful under § 1
2. Scenario #2: Suppose Sony and Samsung decide to form a cartel.
They meet in a hotel and decide to fix price at $300 and this will
result usually in retail price of $400. But Sony and Samsung both
worry about cheating and undercutting cartel. To ensure against
cheating, Sony and Samsung also agree to impose RPM on
dealers so that they cannot charge less than $400 on retail. This
prevents cartel members because they have no incentive to
secretly cut prices since retailer cannot pass on cost to consumers
so won’t be sales boost
3. Dr. Miles v. John Park
i. Tortious interference with K action brought by Miles vs. Park for going
to legitimate wholesalers and buying Miles’ products and then selling
them to discount retailers who sell at lower price. Miles is pissed
because he had K with wholesalers saying that if you sell my products
you cannot sell them to discount retailers. Park’s defends saying that
Miles’s K are invalid because it violates § 1 of antitrust laws.
ii. Main holding: Court talks about a couple basic principles but the words

23
 per se do not appear in the opinion; however, it has all the hallmarks of a
per se case (no discussion of market power, Miles’s reasons for setting
price, etc.)
iii. Big rationale: ancient doctrine of restraint on alienation (i.e. once pass
title, cannot impose conditions on resale / alienation of new owner; even
under common law, these were invalid)
iv. Rationale #2: This is just like a dealer’s cartel. No question that when
dealers engage in cartel to fix retail price, conduct is per se illegal. Court
is saying: we are getting the same result we would get in hotel room,
since economic effects are the same, the law ought to be the same as
well (should be per se illegal for manufacturer to dictate from above).
But this is just wrong economically
4. United States v. Colgate
i. Colgate has mandatory retail price: will not sell to dealers who charge <
$2 tube. Evidence is that most or all dealers felt they didn’t have any
choice so they followed this policy
ii. If Colgate had announced a policy and others follow the $2 price is
probably a contract but lawyer did not allege an agreement in the
complaint: court says that there is no agreement so it cannot be under §
1, D wins. Some people interpret Colgate as being a technicality
iii. But there seems to be a substantive issue lurking as well: “The Act does
not restrict the long-recognized right of trader or manufacturer engaged
in an entirely private business, freely to extend his own independent
discretion as to parties with whom he will deal; and, of course, he may
announce in advance the circumstances under which he will refuse to
sell”
iv. Result exhibits a tension between K approach and long-standing right of
manufacturer
v. Think about the difficulty of reading Dr. Miles counseling in light of
Colgate: there is a per se rule against RPM but Colgate seems to say that
you can refuse to deal with discount drug stores and announce it: Rule
seems to be: can have a policy, can announce it, if you terminate the one
or two dealers that don’t comply, that is OK but problems start creeping
up (most likely P in RPM case will be a terminated dealer who sues for
treble damages when they may have been terminated for other reasons)
vi. Say do my tour of duty and observe a dealer charging $1.95 which is
under the $2 policy. Don’t really want to terminate dealer. Go and
explain to dealer what policy is and make sure they understand it. What
is your worst fear? Eckerd says we “Agree”; there is a practical
consideration, this agreement may take you out of Colgate and into Dr.
Miles (longstanding right now becomes a felony)
vii. Another oddity in light of Colgate: starting in 1937 Congress
takes action and passes a bizarre law which says that RPM is still per se
unlawful under federal antitrust law, but if an individual state wants to
allow RPM in its state, it can pass “Fair Trade” legislation; and if a state
authorizes RPM in its state, this preempts federal antitrust law. Most
states sign on: so from 1937-1974, there was a lot of RPM. In 1974,
Congress repeals enabling acts and now RPM is now unlawful; repealed
because of inflation
5. Albrecht v. Herald
i. Case involved maximum RPM instead of minimum RPM. Narrow

24
 interpretation of Colgate: court finds agreement. Newspaper told
independent distributors, each with an exclusive territory, that they
would be terminated if their delivered prices for the paper exceeded a
suggested maximum. When the maximum was exceeded, the newspaper
informed subscribers that it would provide the paper directly itself for
less.
ii. Hypo based on Albrecht: NY Times comes to Ithaca and appoints
Newspaper Delivery Service the only distributor in Ithaca. If NYT does
this, it has to worry about NDS jacking up the price because they have a
monopoly. One way to handle this is give them exclusive distributorship
but capping retail price. This could not possibly be bad for consumers
(fixing maximum to hold down)
iii. The court has per se on its brain and so court in Albrecht says that
maximum RPM like minimum is restraint on alienation and is also per
se unlawful (court has changed its stance on this.
2. NONPRICE VERTICAL RESTRAINTS
1. Most common non-price vertical restraints = exclusive territories. These make
sense for some products like cars (only need one dealer) but won’t for other
things (i.e. toothpaste) Reason: no intrabrand competition
2. *Like RPM: exclusive territories = designed to eliminate intrabrand
competition. Purpose is trying to avoid free rider problem: product will be
better-promoted if one dealer knows he’ll get all the benefits of promotion
3. Early cases:
i. White Motor (1963): Government brings case seeking a per se rule: SC
says no, we don’t know enough about these restraints to say that they are
always anti-competitive; Justice Douglas talked about potential of the
free rider problem as a justification. Justice Clark dissented and said that
doctrine of restraint on alienation should govern here, so per se rule
should apply
ii. Schwinn (1967): (1) Consignment is OK; (2) Sale is per se unlawful;
Posner argued this in SC for DOJ and case comes up with a bizarre
analysis and conclusion. Some bicycles were sold on consignment and
some were sold to the dealers. Bizarrely the court talks about good
economic reasons for not wanting a per se rule, but to allow freedom
where manufacturer has parted title, would violate ancient rule against
restraints on alienation (result: no intrabrand competition)
1. Case  Bizarre rule: if bicycles sold on consignment, restraints
are OK; if title parted, than these are unlawful (we would like to
be flexible but we are bound by this ancient doctrine not to be)
4. Continental v. GTE Sylvania (reversal of swin)
i. Sylvania does not involve exclusive territories but a location clause:
“We will give you license to sell our product in this one store. There
could be other dealers in the same location, but we’re giving you license
to sell TVs in this one store.” This is more innocuous economically, but
it is still a restraint on alienation and the doctrine of Schwinn would
apply
ii. D game plan: mount a defense saying that exclusive territories unlawful
when no consignment, but these vertical restraints don’t involve
exclusive territories: these are different and should get rule of reason
treatment
iii. Strange things happen: go into courtroom to see who is going to be trial

25
 judge and former justice Tom Clark (Mr. restraint on alienation himself).
Unsurprisingly he says that these things are per se unlawful
iv. En Banc court of appeals reverses picking up the theme of the defense
that these are more innocuous
v. SC gets case and takes an interesting approach: Court says not
persuaded that location clauses and exclusive territories are
economically different (that is just wrong). Court says this case is no
different if restraint of alienation governs
vi. Court ultimatey says that we have to get rid of the consignment / resale
distinction: either we will say that these should always be per se
unlawful, or allow them to analyze them under the rule of reason (goes
through some of economices of chicargo school)
vii. On remand under rule of reason the court said that because D
had < 5% of market there is no way this could have an anti-competitive
effect (Cf. Bork in Rothery) Even if it is anticompetitive, if the market
share is too small, it cant hurt consumers. On the other hand, it solves
the free-rider-problem. (chicargo-school) (that means: restrictions make
the market more competative, because the dealers do a better job and
consumers have advantages)
But: Where is the limit of a “low market share”? Less than 20% or less
than 5%?
viii. NOTE: this case does not effect RPM and Dr. Miles: vertical
price restraints are per se unlawful even if non-vertical restraints are not
despite economics
Post 1977
RPM Non-Price Vertical restraints
Per se unlawful (but turned over in 2001) Per se legal

3. MODERN CASES
1. Monsanto v. Spray-Rite
i. Case brought by terminated dealer under § 1. Alleged illegal agreement
is between Monsanto and other distributors to set resale prices. “If you
sell at price X, you can be ad dealer, if not you’re terminated.” P alleges
price agreement to get per se treatment. Case comes to SC on D’s
motion for directed verdict: bizarre thing that is that P wins the case but
every time it is cited in the future, it will be by D
ii. Problem: Was there a RPM agreement? Case is about evidence
necessary to support agreement. P argues that evidence of 1) complaints
about low prices and 2) proof of termination following competitor
complaints should be sufficient to support an inference of concerted
action. But court does not adopt this it proves Monsanto’s conduct but
this does NOT prove that other dealers agreed with Monsanto to prices
and under Colgate a unilateral policy alone is legal. The court says that
it would expect good dealers to complain about price cutters, it would
expect Monsanto to terminate them: this could be Monsanto carrying out
its own stated policy (elevates Colgate to new heights).
iii. Court holds that agreement means showing that distributor
communicated its acquiescence and that this was sought by the
manufacturer.

26
 iv. Defense lawyer likes Monsanto: can set policy, can get complaints from
other dealers and act on them you just cannot get verbal agreement; not
that hard to do: this is why P doesn’t win in RPM cases any more after
Monsanto
2. Business Electronics v. Sharp
i. Sharp takes Monsanto one step further: there is clear evidence of
agreement to terminate from manufacturer. But this doesn’t work
because still doesn’t show that good dealers agreed to be good dealers:
they might have done it for fear of termination. Scalia holds that P must
show direct effect of the agreement on specific prices to win
3. State Oil v. Khan
i. Involves maximum RPM (already read Albrecht which said that max
RPM is per se unlawful under restraint on alienation theory)
ii. Court reverses Albrecht in Khan: economics tells us this cannot be bad
for consumers; especially not per se bad for consumers (i.e. not always
or nearly always bad for consumers)
iii. Maximum RPM will be pretty rare; especially because manufacturer
will usually not have enough outlets to overcharge consumers
iv. Technically court only says maximum RPM is subject to Rule of Reason
not that it is per se unlawful
3. INTERBRAND RESTRAINTS
1. EXCLUSIVE DEALING ARRANGEMENTS
1. Different from intrabrand restraints
i. Intrabrand restraints (i.e. Sylvania telling its dealers where it can
distribute its televisions) effect directly only the dealers of a particular
brand. This restricts intrabrand competition but purpose of manufacturer
is promote interbrand competition (i.e. make Sylvania better in
consumers’ minds relative to other TVs)
ii. Exclusive dealing similarly imposes restrictions on dealers (or
purchasers) (i.e. we will sell you planes but you will not buy or carry the
products of any competitors).
iii. Economics: Exclusive dealing eliminates freedom of dealers. This may
affect competition because consumers will not have the full panoply of
options, especially if suppliers make deals with other stores in the area.
This is why interbrand competition is hampered
iv. Whether this is harmful depends on market share and “the degree of
foreclosure,” to what extent are other dealers locked up. P also wants to
define smaller markets: in certain cities all dealers are locked up
2. Standard Fashion v. Magrane Hudson
i. Standard Fashion is locking up a lot of the dealers: this will make it very
difficult for competing manufacturers to have outlets for their goods.
This case technically is brought under § 3 of Clayton Act; for most
cases, § 3 of Clayton Act is coextensive with § 1 of Sherman Act and
claim can be brought under either provision
ii. Court suggests that 40% of dealerships in country are locked up. This
might be a sufficient “degree of foreclosure”
iii. Hypo: Hay is a competing manufacturer of patterns. Suppose that in a
given area all of the dealers have exclusive dealing arrangements.
Nationwide 90% have exclusive dealing arrangements. Need to explain
that vertical integration is impractical: expensive to open up own store;
stores also carry retail goods. Also could justify activity based on

27
 competition for the contracts
iv. In short Standard Fashions opinion are reference to a lot of business
options that need to be addressed before mounting this sort of claim
3. Tampa Electric v. Nashville Coal
i. Exclusive purchasing agreement as opposed to exclusive dealership
because TE is going to use coal not sell it
ii. Court does not and never has adopted per se rule here because not a
restraint on alienation
iii. How should court figure out whether these arrangements are
anticompetitive or not? Court wants to know something about the
percentage of market foreclosed. Suppose TE is the dominant power
company in Florida. TE accounts for 100% of all coal that will be
consumed in FL. This is not enough for market definition because
suppliers sell to customers in other areas (alleged victim of this
arrangement is the supplier)
iv. P is TE suing to enforce K. D-Nashville Coal wants to get out of it
because it is a bad deal (long-term sale K and price has gone up) and is
using antitrust to try to weasel out
v. Principle victims would be other suppliers to coal: this is analogous to
Standard Fashion (denies other coal manufacturers an outlet for their
coal)
4. FTC v. Brown Shoe
i. Brown Shoe (D) bought Kinney Shoe. D’s retail locations are
“franchises” not owned by D. Both were manufacturers and retailers of
shoes. D was the fourth largest manufacturer (4%) Kinnery was twelfth
largest (.5%). D was the third largest retailer (6%); Kinney was eighth
(2%). The government (P) sought to enjoin the acquisition. District
Court finds trends towards mergers in the industry – fewer and fewer
manufacturers. District Court finds that the merger violates section 7 of
the Clayton Act.
ii. Issues: Do men’s, women’s, and children’s shoes constitute relevant
product markets? YES
iii. Did this acquisition tend to substantially lessen competition in the
retail product markets because of the supply relationship between the
parties? Yes.
iv. Case is more relevant to merger context below
v. Small point: § 5 of FTC goes beyond §§ 1-2 of Sherman Act (may not
have to show adverse effect on competition under § 5 where you would
have to under Sherman); Relevance is limited: no private right of action
under FTC Act (only matters if FTC is P)
5. U.S. Healthcare v. Healthsource (1st Cir.)
i. HMOs signed doctors (Primary care Physicians): PCPs recommend
specialists (PCPs = very important players in system). HMO signed
doctors to K where gave them higher payment per month for exclusive
dealing (more money if you do not sign with other HMOs).
ii. Court holds that exclusive dealing K not per se unlawful, have to take
shortcuts to decide whether unreasonable. Court goes with percentages.
Court says that 25% of PCPs foreclosed and this leaves 75% of
physicians available to rest of HMOs. You probably cannot look at the
number in isolation. Requires a little more analysis than the significance.
iii. Court also emphasizes competition for the contract. Court says: even if

28
 it is 75%, they are all terminable on short notice. Why can’t P come into
NH, go to physicians under K and say “I’m new guy, I see you have K
but it is terminable on 30 days notice, so give notice now that you want
to go non-exclusive”
iv. Case illustrates chicken and egg problem: until newcomer has a lot of
subscribers, trying to compete for K will be very difficult (don’t have
much to offer); exclusive dealing K sort of reinforces the incumbent’s
market power
6. Paddock Publications v. Chicago Tribune (7th Cir.)
i. Easterbrook: newspapers need syndication in order to compete. Small
newspaper is claiming disadvantage because it does not get to carry
certain comics, columns, etc. which go to larger paper. Easterbrook
reasoning: these are short-term K, why not compete for K? This doesn’t
seem like a viable option for the smaller paper (circulation smaller, etc.)
and only way to compete effectively is to share
ii. But now you can sort of see why no per se ban on exclusive distributor
contracts, more competition if compete over K, etc.
iii. There are many reasons why we don’t want per se rule against exclusive
dealing. There may be pro-competitive justifications. This puts courts in
awkward position of trying to figure out how to separate reasonable
restraints from unreasonable ones.
7. Hay’s attempt to clean up exclusive dealing law: Ask first, can other parties
really compete for the K? If not, then how “essential” is the distributed product
2. TYING ARRANGEMENTS
1. Definition: Have 2 products X and Y: X is tying product and Y is tied product.
Idea: If you want to buy my X, you must also buy Y from me
i. In US words FROM ME are important: only tying if require buying the
product from the same entity; no tie if K directs to buy the product from
another source
1. Ex: if want to take out ad in morning paper, must also take out ad
in evening paper, must get gravestone with plot, can get condo
but must sign maintenance agreement with me, ’ll license
Windows but must take IE as well, NFL season tickets and pre-
season games as well, etc.
ii. In principle these are all agreements so § 1 of Sherman Act and § 3
Clayton Act cover; also often covered by § 2 (Microsoft case); No
legitimate purpose
2. Economic theory of tying (important)
i. Hypo: Apartments in Collegetown. Assume that apartments are
essentially fungible and assume that this is a highly competitive market.
Suppose that going market price is $1000 / 1br apartment. One of
owners (Jason Fane). Fane is not only landlord but has relative in
apartment cleaning business. He says, my apartment is as good as
anyone else’s but if you want to rent you must subscribe to my brother’s
cleaning service for $200 / month. Competitive price is $100 / month. If
buy apartment from Fane, then pay an extra $100 for cleaning service.
Court says that consumers wind up overpaying because tie-in is being
used to extract a monopoly profit. But this won’t work. People won’t
rent from Fane because now you pay $1200 for package when you could
get the same value for $1100 elsewhere. Jason Fane says, OK I
understand this but I really want to keep my brother employed. Can

29
 make this work by dropping rent to $900.
ii. Moral of the story: if you do not have market power in the tying product
(i.e. if the tying product is competitive than a tie-in cannot be used to
extract monopoly profits in tied product). So consumers cannot be
victims if no market power. Victims are only a small part of cleaning
service that is locked out
iii. New hypo: now Fane is a monopolist. Only landlord in Ithaca. He
charges a monopoly price $1500 (profit-maximizing monopoly price for
1 bedroom profit in Ithaca). Assume cleaning business is still
competitive. Even if he charges $200 for cleaning service he cannot earn
monopoly profits on both. A consumer is now paying $1700 for
package. Without tie-in would pay $1600. Enough people will obtain
substitute goods that this will not be a profitable strategy
1. Important proposition: even when you have a monopoly, the tie-
in cannot be used to earn additional monopoly profits
2. So the real victims of ties are other competitors
3. International Salt v. United States
i. International salt says: if you want to use / rent my salt machinery, you
must buy your sale from me. IS has patents on many salt machines and
also produces salt.
ii. There is no danger that IS can use monopoly on machines to achieve a
monopoly in salt so tie-ins won’t be tried under § 2, usually will be § 1
cases
iii. Court deals with the tying arrangement as PRICE FIXING and grants SJ
for the government: “No genuine issue. Price fixing is unreasonable per
se and unreasonable to foreclose competitors from any substantial
market” (per se language used by the court)
iv. Court is saying that competitors did not have fair shot at $500k of salt
that International Salt sold. They were foreclosed from competing here.
v. Three criteria for unlawful tie-ins: 1) Market power in tying product, 2)
Two separate products, 3) Substantial dollar foreclosure in tied market
1. If these criteria are met, most courts say that tie-ins are per se
unlawful.
2. Rationale: Patent gives license to earn monopoly profits on not
only machine but tied product. Can charge whatever you want to
charge for tied product but charging more for tying product gets
undeserved monopoly prices (this theory is economically
suspect, see above)
vi. Per se rule applied despite fact that IS might have legitimate business
reason: People were leasing their machines. Crappy rock salt could
screw up the machines
1. Similar Hypo: Mercedes Benz says if you put in any spark plugs,
must use factory authorized spark plugs. MB might do this if it’s
their car because under warranty or because it has reputation for
quality to maintain (people will blame Mercedes for break down)
but these business justifications don’t fly once we saying tying is
per se illegal
vii. Market power is a condition but P does not have to prove an
anticompetitive effect
4. Requirements for a tie:
i. Two separate(!) products (ex: a pair of shoes)

30
 ii. Market power in tying product
1. May be established by a patent (International Salt)
2. May be established by Fact of Time
iii. Not insubstantial dollar volume foreclosed in commerce in tied product
market (This last requirement is trivial: once some volume foreclosed =
substantial)
→ These requirements are changing during some cases:
5. Jefferson Parish Hospital v. Hyde
i. Hospital is selling surgical services and basically saying: if you want to
have surgery here, need to buy anesthesia from my anesthesia
department. P convinces court that this is a tie
ii. Court cares about how the monopoly product is exploited: “Thus law
draws distinction between exploiting monopoly power on tying product
and restraining competition on the tied product”
iii. First reaction might be: why are there two products? Everyone who has
surgery has anesthesia, isn’t this one product? One product or two?
Court says two because consumers may have option of picking own
anesthesiologist. This is the test: flows from concern about foreclosing
competitors. It is two products if in the absence of the tie-in a substantial
number of people would want to buy the anesthesia from someone else
iv. Prong #2: Market Power
1. Hypo: Tompkins County Hospital is the only hospital in
Tompkins County. Assume that 90% of patients in Tompkins
County hospital reside in Tompkins County. This does not show
monopoly, just that just shows their clientele is primarily from
Tompkins (Little in from Outside) (LIFO). Need LOFI: Little
Out from Inside to show market power (do people who live in
Tompkins County all go to Tompkins County hospital?). This is
the situation in Jefferson Parish: Court holds that if Jefferson
Parish has < or = to 30% of clientele, they do not have market
power; the 30% number will be used a lot
v. Since the criteria are satisfied the tie is per se unlawful
vi. Facially this is really an exclusive purchasing contract: hospital agrees
with Roux and we will have you be our only anesthesiologist but P
labels this as a tying arrangement to get per se treatment
vii. Could make out exclusive dealing argument: Victims =
competing anesthesiologists. Market would be defined by medical
school graduates with anesthesiology specialty, they can go anywhere.
Here they are only being kept out of one hospital. This case is a loser
6. Illinois Tool Works
i. Case went up to SC on very limited proposition that a patent creates a
presumption of market power. Course says this is not so.
ii. Test for market power: as a result of this patent am I in a position to
charge substantially higher prices; Court says no presumption: P must
prove that patent confers significant market power
7. Microsoft (DC Cir.) (The Tying Issue)
i. Case brought under § 1 and § 2 (= (1) Is there a monopoly position; (2)
monopolized) but involved same basic conduct: Microsoft trying to kill
off Netscape. At one time Netscape had 90% of usage of browsers.
Microsoft tried to suppress Netscape because Netscape was threat to its
dominance in Operating System

31
 ii. District Judge, Judge Jackson issues an opinion almost entirely
favorable to government including tying issue (Microsoft tied Internet
Explorer to Windows)
iii. DC Circuit hears the case en banc instead of 3 judge panel.
iv. Tie: Tying of Windows OS to Internet Explorer: if you want to use my
operating system, must take IE. Not a traditional tying arrangement.
Some Ks with OEMs (i.e. Dell) to install the program and leave it in,
Microsoft also was engaged in a technological tie. OS is integrated into
a single package and if you try to take IE out, the system will crash.
System works better with IE vs. Netscape. Also, most computer
manufacturers will not support two browsers (i.e. Dell’s help desk will
not give assistance if the new browser doesn’t work)
v. As a result, Netscape’s market share drops from 90% to almost nothing
vi. DC Circuit: a company can defend based on efficiencies of a tie under
Jefferson Parish test under the two-products prong of the test: the
efficiencies are so great that no rational consumer will want to buy the
products separately
vii. Court also proposes using the Rule of Reason because
efficiencies are not allowed under per se rule and test is backward
looking, should instead ask about what will happen in the future. Per se
rule is inappropriate in software cases
viii. Case also shows that antitrust may not work in high tech industry
because remedy may be dead by time case is decided

IV.MONOPOLY
1. § 2: “it is illegal to monopolize and to attempt to monopolize”
2. MARKET DEFINITION AND THE CONCEPT OF MONOPOLOZING CONDUCT

– Restraints of market through transaction cost (tarifs; transportation cost etc.) → In

reality international competitors are only of marginal importance (regional restraints of
markets) → local markets are very important
– that leads to the determination of a market share on this market: Is 90% sufficient?
The other competitors of 10% can only with high efforts raise their output (other realistic
restraints are although relevant); so the relative market share can be very important; This effect
is stronger for high market shares. Its unlikly to do so much harm (ex: not given for market
shares of 40%)

1. United States v. Alcoa

1. This is by the Second Circuit Court of Appeals and yet it is treated like a
Supreme Court case because 4 of 9 SCOTUS justices recuse themselves and 6
ordinarily required for a quorum, Congress sent to 2d Cir. Opinion written by
Learned Hand: “litigant’s wishing well” into which anyone can peer and find
propositions they like
2. Two issues: 1) Does Alcoa have monopoly power? 2) Has Alcoa illegally
monopolized?
i. Part of this opinion wants to hold these out as two separate questions:
market structure component and a conduct component, but other parts of
the opinion seem to collapse these into one and make it a status thing
(monopoly power = illegal)
3. Monopoly Power: literally a “single seller”; means power to sell at any price
you want to. To do this must define the market. Means asking 1) Are there other

32
 sellers of the identical or nearly identical products? Alcoa is the only producer
of virgin aluminum. 2) Are there other alternatives for the consumer which are
close substitutes? Candidates in Alcoa: secondary / recycled aluminum,
importers of virgin aluminum.
i. Hypo: Suppose West is only publisher of textbooks. In a given year 50%
of students buy secondhand textbooks instead of from West. Should this
be considered in determining whether West has monopoly power if only
sell 50% of books in a given year (monopoly power usually defined
around 70% or 80%). This is not a trivial question but you can imagine
these will usually be excluded because monopolist can still manipulate
this market
ii. The issue of the foreign aluminum: Foreign aluminum inherently will
have importing / transportation costs (i.e. cement), characteristics (could
be different in kind), and could be more expensive because of trade
barriers and tariffs / quotas BUT we don’t need to ask these questions
because we DO COMPETE with foreign stuff (whatever these barriers
or costs are we know that producers overcome them because 10% of
aluminum is imported). This is especially true in Alcoa where aluminum
is homogeneous. The foreign producer will have more capacity despite
the fact that it is only selling a small market share to U.S., it has
potential to produce more and grow; German guy is probably already
making more than 10% of U.S. market share and is just selling it
elsewhere. He can shift this to U.S. almost overnight if he wants to
(Hand recognizes this). This case may be the exception to the rule: this
may be where Alcoa has 90% of market they will be “drowned in a
sea” of foreign aluminum
iii. How much power is monopoly power: Alcoa’s share is 90%; P wants to
say that this is close enough; almost as good as having it all. Intuition is
this is good enough but where should line be drawn? Normal case:
Alcoa has 90% and other domestic manufacturers have 10% of market.
90% is enough because monopoly power is power to impose
unreasonably high prices.
iv. We know whether they have that power by asking counterfactual: can
Alcoa profitably raise prices given its market share.
All underlying this monopoly thing is the idea that if my competitors are
pretty small today, they’re not going to get huge tomorrow
v. Ability to raise prices above current levels cannot be only inquiry
because what if current levels are substantially above competitive levels:
they already have taken advantage of monopoly power? So court must
also look at Alcoa’s profits and see if they are getting monopoly profits
now. Alcoa is getting 10% return on equity: that is nothing
vi. So Alcoa cannot raise prices any further or would be drowned in a sea of
imports but current pricing does not reflect huge profits. This tells us
that Alcoa does NOT have monopoly power. Hand should have found
this but drops the ball on the final economic step and says they have
monopoly power.
4. Has Alcoa illegally monopolized?
i. To economist the evil of monopoly is that charge a monopoly premium
and harm the consumer. History suggests other concerns behind
Sherman Act as well (E.g.: Standard Oil: using great strength to crush
smaller competitors: antitrust laws motivated by big companies crushing

33
 smaller competitors). 1930s/40s new concern: role of big industrial
corporations in Germany / Japan (might threaten democracy)/ If
concerns about monopoly are sociopolitical as well as concerns about
consumers, maybe monopoly should be a status offense: “bigness is
bad.” Hand is in the middle of this cycle of competing thoughts about
what our country should look like.
1. This is why Hand says things like non-abuse of monopoly power
is not a defense to having monopoly power and “Congress did
not condone good and bad trust; not economic motives alone but
also because of its indirect social or moral effect”
Defenses: ii. Contemplated defenses: D “May not have achieved monopoly,
monopoly may have been thrust upon it”
iii. May have achieved monopoly by “Superior Skill, foresight, and
industry”: Bill Gates defense: my product is so good everyone wants to
buy from me
iv. Alcoa’s real sin: anticipate demand and made sure they met capacity of
supply and demand (this is sensible). If you wade through all this
bullshit, that is what Alcoa did. Alcoa seems to quaify for superior skill,
foresight, and industry. This is nuts. The social-political philosopher in
Hand is clearly winning out here
v. The crime of alcoa is to build capacity. Hand wants smaller producers....
2. United States v. E.I. Du Pont (definition of market is very important)
1. Same monopoly power issue as in Alcoa. SC now gets it wrong for same
reason. Court concludes that Du Pont does not have monopoly power when
probably do
2. If Court defines relevant market as cellophane, Du Pont has 100%, if wrapping
materials, Du Pont has 100%. DOJ argument: we shouldn’t use the broader
market because the products are not fungible (i.e. they have different
characteristics and different prices)
3. D puts on an economist. Economists have developed a way to address this
question:

cross-elasticity of demand = % change in quantity of other materials sold / %

change in price of cellophane. If ratio is a positive number then it tells us that
they are pretty good substitutes.

Economist comes in and says I’ve calculated cross-elasticity and it is very high.
If Du Pont raises prices of cellophane above current prices, the sales of other
wrapping materials would skyrocket. Therefore they do not have monopoly
power. (weakness of the concept: at a given price of any product there is a
substitution; that could suggest, that there is no monopoly, although there is one
= Cellophene trap)
4. Problem here is that this is only half of the formula. Same inquiry as in Alcoa:
are current prices already monopoly prices with the other stuff already factored
in? How much are they making now? Du Pont is making 35% profit! This is
way above the average (Du Pont has a monopoly).
3. The Monopoly Power inquiry synthesized:
1. Can monopolist raise prices above current levels? (define relevant market,
answer is likely no)
2. Is current price at a monopoly level? (look at D’s profits) 32% is usually
monopoly: average of all industries in DuPont was about 15%

34
 4. Eastman Kodak v. Image Technical Services
1. Kodak refuses to sell spare parts to ISO (independent service organizations).
Instead, those who buy their copier have to get service from Kodak or licensed
service to get parts.
2. P chooses to frame this as a tying case to obtain the advantages of the per se
rule (this is kind of a de facto tie, not a literal tie; see to tying above): no K, but
if want the parts from me, have to take service from me because won’t sell it to
ISOs
3. Framing it as a tying case, issues = 1) Are copy machine parts and service two
products? Test: In absence of tie is there significant consumer demand to buy
these things separately (YES here); 2) Has a substantial $ volume been
foreclosed? YES; 3) Does Kodak have sufficient market power in tying product
to use the tie *this is the crucial inquiry
4. P’s argument: Kodak has market power because if you have a broken Kodak
copier, there are no substitutes for the Kodak parts (Parts = relevant market).
Kodak’s market share is 100% and there is no possibility of new entry because
of IP protection
5. Kodak wins on SJ in District Court because court holds that monopoly power =
ability to profitably increase prices above the competitive level. Kodak does not
have this power because if it raises service costs then people won’t buy the
Kodak copier / equipment in the first place since copier costs more over time
6. SC REVERSES this for two reasons:
i. This doesn’t mean current price is not unfair.
ii. Information costs: Kodak’s argument depends on assumption that
consumers do lifestyle pricing and think about cost of parts when buying
the equipment (Court says that it is not prepared to assume that this is
necessarily the case, this is a jury issue so no SJ) This is no case only as
a matter of law. A jury has to find the evidence reasonable...
7. Important: Court did not say Kodak’s argument is wrong, just wrong as a
matter of law so this argument is available and can make this lifecycle pricing
argument in court
8. Where does this argument work? If mc donalds says, if you wanna do
franchising, you have to buy the hamburgers from me. (lock in-effect) The
franchisee does think about the additional cost (life cycle cost), so the argument
is applicable.
2. PREDATORY PRICING AND OTHER MONOPOLIZING CONDUCT
1. This builds off of Hand’s second inquiry in Alcoa: has the firm taken advantage of its
monopoly power.
2. PREDATORY PRICING (“Price war”) ← Very important for exam
i. Economics of Predatory Pricing
1. Hypo: Suppose AA charges charging $1000 / ticket & route. Low
cost carrier charges $400. Dominant firm undercuts to $200.
Other firm leaves and price goes back up to $1000 and stays
there for a long time.
2. There is no question that while the $200 price benefited
consumers for a brief time, on balance it is bad for consumers
because it destroyed the competition that had initially existed.
3. This works because of AA’s reputation for being a predator: if
AA succeeds in predatory pricing in one market, then airlines
will stay away from AA in other markets and not try to compete
ii. What should be rule for PP case?

35
 1. Option #1: a price cut is unlawful when it is temporary, has
consequence of eliminating competition, and allows dominant
firm to restore the monopoly price (Result-based test)
1. Problem is this is a play in 3 or 4 acts: low prices, entrant
disappears, prices restored; practical problem with the
test: though this is a play in three acts, courts have to
decide the case after Act 1 (ex ante) (P is going to bring
the case after low prices implemented): only evidence
will be the low price
2. Another practical problem: Potential D-Airline needs
some guidance as to what they can do: can they drop
prices to meet competition? How far can they drop them?
D will be discouraged from ever lowering prices
2. Option #2: Use “hot documents” that evince an attempt to PP.
Easterbrook talks about these documents in AA Poultry:
selectivity problem, P will find 5 or 6 out of 100,000 + pages that
might say something else)
3. Option #3: Is D’s price below its cost or not? (Cost-based test)
1. Merit of this as a test: if D is pricing below cost, D is
losing money ($100) on every ticket sold this cannot
possibly be rational behavior unless this is a scheme to
get rid of competitor and recoup costs in long-run
2. This test is a relatively conservative test in the sense that
it is underinclusive. Suppose that cost to D is really only
$150 so D is not going below its own cost, but at $200
my competitor can’t survive. I could make more profit,
but I am foregoing it to get my competitor out. So even a
price above cost might be irrational and not profit-
maximizing, but this test won’t catch it
3. Big issue here: what constitutes “cost” for purpose of this
test?
1. Hypo: Cars: Two kinds of costs: variable costs:
labor, raw materials, energy (suppose this is $10k
Rational Yes per car). Also are fixed costs: taxes,
30.000 administration, depreciation (these do not vary
Predatory Yes directly with the number of cars produced)
(suppose fixed costs averaged $10k per car). So
Average total cost is $20k per car: $10k variable,
Rational No $10k fixed
10.000 2. Suppose accountant comes in and says market is
Predatory Yes dried up. We are in a recession. At $20k, won’t
sell any more cars. Economist says, “good news”
(example based on variable cost of 20.000 and fixe cost if we sell $12k per car we can use our full
of 20.000; Its rational to set price to 30.000 in order to capacity. If choice is $20k or $12k. The lawyer
reduce the loss to 10.000) might object: if price below cost and you are a
dominant firm, you are violating antitrust laws,
but Business person would say that is the furthest
thing from my mind. At $12k I sell more cars.
Let’s say total overhead costs are $1 million. If
charge $20k though save variable costs, still have
to pay $1 million in fixed costs. If instead charge

36
 $12k, not only cover variable costs but have $2k
leftover to contribute to fixed costs. The loss will
be a lot lower selling at $12k and producing a lot
of cars than suing at $20k and selling no cars. If
the rule is that you cannot price below cost, half
companies in country would be violating the law.
If you lose money, you have to price below cost.
3. Suppose instead price is $9k. Now the red light
goes off. Now the economist ought to say, you
shouldn’t be doing that because at $9k per car you
aren’t even covering variable cost. Losing more
money with each cost you sell. You will be better
off shutting the doors  Areeda/Turner
4. Areeda / Turner Rule: Predatory pricing is
pricing below average variable costs (AVC). This
gave courts a way to get rid of a lot of cases on
pleadings or on SJ if P doesn’t allege prices below
AVC (predatory prices are only condamned if we
are sure that its not rational → court has to be
convinced its intent is to get a monopoly (but its a
very conservative test))
4. Option #4: No regulation needed
1. Economists say that even if we had no antitrust law
dealing with predatory pricing, pricing below cost to
eliminate competition won’t happen very much because it
won’t be an effective strategy because 1) You need really
deep pockets: you are bleeding lots of money on every
sale (more than victim is); 2) if you drive victim out of
market and raise prices again, nothing prevents victim
from coming back. Predatory pricing won’t be very
workable because in order for it to be effective there must
be a period of payback and this won’t happen very often
2. SC picked this up in Matshushita case: claim that
Japanese producers dumped TVs in the U.S. market to
gain larger market share in the U.S. Court did a little math
and said that flooding for twenty years to get market then
would be irrational once discounted to present value
2. United States v. AMR American Airlines (not mentioned in class)
i. Allegation: American Airlines is dominant in hub and starts out with
high prices. A new low-cost carrier enters. AA responds by cutting
prices dramatically and increasing capacity. This blows the business
model for new enterer who goes bankrupt or pulls out. Then dominant
firm jacks up prices again. If this theory is right, this shows that low
prices have not benefited consumers over the long run. P alleges pricing
below AVC.
ii. Issue: How do you measure “average variable cost” for an airline to
apply Areeda/Turner test?
iii. How can you possibly measure this? 300 seats already on airline, what
are variable cost of one more passenger? Peanuts? 1/20 of flight
attendant? Plane by plane?
iv. Who is going to deal with this complex question: general purpose

37
 District Court judge and a jury of idiots, even dumber than us. Hay goes
crazy and draws curves. Courts now trying to get out of this test.
3. A.A. Poultry v. Roseacre Farms (7th Cir.) (not mentioned in class)
i. P alleges predation because D sells older eggs below cost.
ii. This case is very stupid: of course eggs sold below cost because they
were old. Now have to sell at a loss for whatever you can get. D has
trivial market share; there is no way D will get an egg monopoly. Case is
popular because of Easterbrook’s analysis which is ahead of its time
iii. Points Easterbrook makes:
1. Low prices are very good for consumers as a general matter and
should not be discouraged
2. Shouldn’t look at intent doctrines (chicken farmers’ hot
documents)
3. Shouldn’t start with Areeda / Turner test (price < average
variable cost); test isn’t bad but this should not be the first step.
First step should be recoupment: only if P passes this test do we
look at AVC test. Recoupment test: What is likelihood that D will
eventually be able to recoup its first term losses? If it is unlikely,
P loses as a matter of law. Recoupment matters because antitrust
requires injury to consumers matters under antitrust laws. If no
recoupment then no injury to consumers because pay low price
in short run and never pay higher prices
4. Likelihood of recoupment can be shown by 1) Big Market Share,
2) Most / All Competitors Eliminated by the scheme; 3) Barriers
to Entry
4. Brooke Group v. Brown & Williamson
i. Case brought under Robinson-Patman Act as a price discrimination
claim. Theory: Brown & Williamson is charging low price for cigarettes
to some wholesalers and high price to others. (protect profits of branded
cigarrets by trying to raise prices of generical cigarrets by this action)
This is unlawful so long as this substantially lessens competition and
creates a monopoly. Since entire focus is on low prices and not
difference, as a practical matter this is a Sherman Act § 2 predatory
pricing case
ii. Case goes to jury. Jury comes back with big verdict for P and then trial
judge throws it out on JNOV after verdict (judge throws it out because
no rational jury could find recoupment)
iii. Case is an affirmation of Areeda – Turner rule: court says for prices to
be predatory they must be below some measure of cost (price-cost test is
one of the appropriate tests)
iv. Court holds that in predatory pricing case must show a serious
likelihood of recoupment.
v. Brown & Williamson not in a monopoly position even though this is a
monopolization case (has only 12% of the market). Brown &
Williamson has no hope at getting these big players out of the market,
they are just trying to bully Ligett into raising its own prices of generic
cigarettes; this is not like a big firm trying to squash competition to
charge monopoly prices
vi. This is stupid application of § 2, but court does it and adopts recoupment
test: Have to show that scheme will be successful in allowing D to
recoup in long-run what it loses in short-run

38

5. Confederated Tribes v. Weyerhauser (9th Cir.)
Seller view: a group of sellers
have market power too, as well as
buyers.
Method: Buying a lot for a short
while → Price goes up,
competitors drops out of market;
once they are gone, the
monopsonists sell less for cheap
price
Its no legitimation to say, that the
group of sellers has only formed
for resisting power on the demand
side.
vii. On these facts, even if B & W scares off Ligett, a price war has
broken out with all players involve and everyone lowers prices. This
scheme also requires others cooperating in future by not pricing generics
aggressively and if pricing structure for branded cigarettes remains in
effect; no evidence of conspiracy here, this looks like perfect oligopoly
but judge says that I think this will continue. Price war will go on and
keep prices lower
i. Oral argument before SC two weeks ago
ii. Case involves predatory buying instead of predatory seller. Claim: D is a
buyer of lumber. D is buying more lumber than really makes sense and
paying more for it so that other buyers drop out. Then when
Weyerhaeuser is the only buyer in town, we’ll pay less for the lumber
when we are a monopsony
iii. Certiorari issue: Should the Court have applied the Brooke recoupment
test: does Brooke apply to cases of predatory buying? Hay thinks court
will reverse
iv. Economics of PB: Weyerhauser is not paying more than they need to.
They are saying that if I limit myself to acquiring 60% of the lumber, I
would only pay $100 / ton. If I really want to buy all the logs so that
they have no input, I have to pay $500 / ton. Then I can outbid my
competitors. So Weyerhauser is buying more than they can justify
recouping from sale of the lumber
v. Critical mistakes made by the Court of Appeals in Weyerhauser (Hay):
1. D says that right now, I am offering $500 for timber, the sellers
of timber are happy because they are getting a benefit, more
money. C of A says, who cares about sellers of timber, why do
we care if they get a good deal? They should care a little, the fact
that they benefit in the short-run is a good thing
2. Court also said that when they overpay for timber, there is no
benefit to consumers (unlike predatory pricing where there is a
short-run benefit to consumers). Court gets it wrong here. If
Weyerhauser is buying a lot of logs, it will be selling a lot of
lumber. This will benefit consumers because W will not be able
to sell timber at covering price. Will sell at a loss and consumers
will get a benefit. Supply will go up at same time as you’re
trying to soak it up. More trees will be cut down should to supply
more logs

3. EXCLUSIVE DEALING AND PURCHASING ARRANGEMENTS

1. Cf. How courts deal with this conduct under § 1 above (Tampa Electric,
Standard Fashion)
2. § 2 law on exclusive dealing is similar to § 1 law though not identical
3. Ticketmaster v. Tickets.Com (District Court Opinion)(not mentioned in lecture)
i. Customers = arenas who buy the services of Ticketmaster and agents.
Claim is that Ticketmaster monopolized the contract by signing the
dealers to long-term, exclusive dealing contracts. Claim is that long-
term K allow Ticketmaster to monopolize the market and prevents
competition from smaller firms like P and also others
ii. There is something fundamentally wrong with this picture. Madison
Square Garden (MSG) signs a long-term exclusive K because it is

39
 cheaper than others. So the claim has to be kind of analogous to a
predatory pricing claim. MSG is doing this because it is a good deal for
them, but once TicketMaster has all clients signed up on long-term
deals, then others go out of business and TM becomes the only game in
town. Pay-off doesn’t come now but later.
iii. But Court says there will be competition for the K because there are no
barriers. The next time someone offers K, they will come back.
4. United States v. Dentsply (not mentioned in lecture)
i. One of relatively few monopolization cases brought by government
during the Bush Administration
ii. D starts off with 80% of market in false teeth. Now D says to its
distributors: if you want to deal with me, you have to do it on an
exclusive basis. There is no active competition: Dentsply starts off with
80% of market, distributor needs Dentsply, so they are coerced into
accepting the exclusivity
iii. Dentsply’s market power also shows how Dentsply is leveraging that
position to get whatever market power they don’t already have
iv. Fight was about: there may not be other ways to get to distributor, but
there are other ways for false teeth to get to the dentist (i.e. deal directly
with the dentist) and this is what the other competitors do. As long as
there are other ways of getting to market, Dentsply cannot really use its
exclusive dealing to get a monopoly. Mistake: Trial Court admitted that
these other ways were far less efficient and more costly than using the
distributor but still held for D.
5. LePage’s v. 3M (Third Circuit & Bundled Discounts) (2008)
i. Seen as a terrible opinion
ii. Procedurally P succeeds at trial, reversed by original Court of Appeals
panel (Justice Alito was on that panel). Jury verdict reinstated by Court
of Appeals sitting en banc
iii. Issue: was there evidence in the record to support the jury’s verdict?
iv. Some market definition issues: market = transparent tape / Scotch tape.
D has 90% of market for transparent tape. But overall market is more
complex: Branded tape: D has 100% and private label tape, P has 80%
of that segment (very small part of overall market). D sees sales of
private label tape as eating into branded tape so it offers bundled
discounts
v. Hypo: You are 3M and you want to expand your sales of private label
tape. What are ways you could do this?
1. Lower price of private label tape (this could lead to predatory
pricing claim)
2. If you want to buy my scotch tape, must also by my private label
tape (This could be possibly an unlawful Tying arrangement)
3. If you want to buy supplies from me, you must buy from me
exclusively (this could be an exclusive dealing arrangement)
vi. P wants tying case; D wants either predatory pricing or if not, exclusive
dealing
vii. Hypo: suppose ten products and that each customer needs only 1
unit of each product. For 9 of 10 products, 3M has a monopoly, but on
the 10th, private label tape, can buy from 3M or someone else. Suppose
we know that typical customer might prefer to buy the tenth product
from LePages. D says, “If you buy 9 of 10 from me you pay $1 each =

40
 $9. If you buy the tenth product from LePages who charges $1, total bill
will be $10. If you buy all ten from me, I’ll give you a 5 cent discount
on each product $0.95 each. Now your total bill is $9.50. This
arrangement forces LePage’s to lower its tape prices to $0.50 or lower to
compete. On the one hand, this looks like a tie-in: calling it a tie-in
makes it per se unlawful but there is no actual tie or condition. You
don’t have to buy all its just a discount if you do
viii. Could think of it as an exclusive dealing arrangement, but this is
not quite as good from P’s perspective because the per se rule does not
apply there. Also no requirement of exclusive dealing
ix. Could be PP case (not as good for P): What they are really doing / the
effective price after buying the first 9 items is $9 so the effective price of
the tape is really only 50 cents and that might be below AVC.
x. P in LePage’s argues to the court that this is a new form of § 2 violation.
Bundled discounts are unlawful if they have this anti-competitive effect.
This case might be overbroad though and it makes commentators
nervous. Bundled discounts are common. Are they all unlawful? This
leaves things very open-ended
xi. Court also clearly erroneously says that Brooke price-cost test applies
only when D has a smaller market share but this is not true at all
4. United States v. Microsoft (DC Circuit: same case as above)
1. Microsoft has monopoly in OS for Intel-based computers. Court says that
Microsoft monopoly is being kept alive by Application Software (the chicken-
egg problem: software writers won’t write software for OS with small market
share and OS marketers won’t sell unless there is software). One possible threat
to Microsoft dominance = NetScape (could be application software that plugs
into browser that then plugs into Windows or Linux instead of directly into OS).
P alleges that Microsoft tried to kill Netscape via technical tying, Ks with OEM,
etc.
2. Trial was phenomenally fast-tracked: six years from complaint to appellate
decision is too long for high-tech industry; There is now a commission:
Antitrust Modernization Commission: deciding whether § 2 needs to be
changed to adapt to the high-tech industry
3. Court endorses idea that market share is a good proxy for market power
4. Exclusionary conduct has to hurt consumers: if it only hurts competitors that is
not good enough for it to be unlawful (economics oriented)
5. Useful script for § 2 case: P introduces anticompetitive effect then D must point
to pro-competitive justification
6. Design change as way to disadvantage competitors: court says should be
skeptical about § 2 claims based only on technological design changes

1. D appeals vs. Jackson’s remedy (break Microsoft up) based on bias and fact that
he didn’t hold a remedial hearing: C of A sides with Microsoft on both of these
2. REFUSAL TO DEAL
1. I.e. Decisions by a single firm not to deal with another. Recall Colgate: as general
matter a firm has complete discretion to choose the parties as to with which they’ll deal
EXCEPT where purpose is to create or maintain a monopoly.
2. Are there circumstances in which a monopolist has a duty to deal? What are the terms
of this duty if it exists?
1. Hypo: Suppose Alcoa has monopoly on aluminum ingot and sheet and sells it to
fabricators and auto companies. Suppose Alcoa decides it doesn’t want to sell to

41
 automobile companies. Interpreting Colgate literally, this does not violate § 2:
they have a monopoly on aluminum but this does not help them create or
maintain their monopoly (they’re no in downsteam market)
2. Suppose there are 2 auto companies: GM and Ford and Alcoa is only
manufacturer of aluminum. What if Alcoa says, I only want to sell to Ford. If
Alcoa does this, Ford will wind up with monopoly. Alcoa has not violated § 2
because it is doing nothing to create or maintain a monopoly. Create or maintain
a monopoly means “for yourself”
3. Only applies to monopoly who is monopolist in upstream market and is trying
to create a monopoly in some downstream market
3. Otter Tail v. United States
1. Otter Tail has monopoly of generation and transfer of power in Midwest (this is
happening again in California right now). Otter Tail was also retailer of power
as well. Wisconsin wanted to take over retailing. Wanted to condemn Otter Tail
at next election and take over facilities and then retail using OT wires and poles.
OT basically says, we cannot stop this condemnation process, but we won’t sell
them retail power. Government sues and says that you are using monopoly
power on wholesale power to maintain monopoly in retail power. Because state
wants to run plants, this case is really just competition for who gets the
monopoly
2. Otter Tail cannot do this. Monopolist cannot leverage their monopoly power in
an upstream market to obtain a monopoly in a downstream market. Otter Tail
must sell power to those in downstream market.
3. Problem for later courts is that Otter Tail and later cases came in interesting
circumstances. What price should power be sold at? Doesn’t matter here
because Federal Power Commission regulates rates of wholesale power. But
what happens when a case like this comes up outside the regulatory context?
How does D who has to deal choose the price? D will want to charge a crapload
4. Hypo: So let’s change the facts. Suppose Alcoa has monopoly in ingot and there
is downstream fabrication. Alcoa won’t sell ingot to anyone but itself so it will
achieve a monopoly in fabrication. SC gets wind of this and tells Alcoa it has a
duty to deal. Is this going to solve the problem? Suppose cost of producing
upstream product / ingot is $10 / ton. Barriers to entry are high so monopoly is
permanent. Suppose cost of fabrication (aluminum sheet) is $5 per unit plus
cost of ingot. For Alcoa, cost will be $15 because ingot costs $10 to them plus
the $5. Suppose that Alcoa has monopoly in downstream market and their
monopoly price is $25. So their monopoly profits would be $10 per unit. Now
SC comes along and breaks up this scheme, requiring sale of ingot at wholesale
to anyone who wants to participate. At what price does Alcoa have to sell ingot
to comply with SC rule? Suppose Alcoa says let’s charge $100? No one can buy
at this price and compete vs. Alcoa successfully. So judge might call this a
“constructive refusal to deal” that violates terms of order. But what if Alcoa
charges $20 for ingot? Competition of downstream market is feasible because
competitors will enter the downstream market to turn a small profit at $25
which is the market price. So judge here will be happy because he will observe
competitors entering downstream market. But Alcoa is also happy because still
get their monopoly price and make a profit of $10 / ton. They are making
exactly the profit margin they made before. Doesn’t matter what their market
share is, they’re still making $10 on every ton sold
i. This illustrates an important theorem in antitrust: If monopolist has
monopoly at any one point in a vertical chain, monopolist can suck all

42
 monopoly profits out of the system
ii. Curious result: if this is how we interpret SC order in Otter Tail then
consumer gets no benefit
5. Some might say this interpretation is too narrow. Maybe SC meant sell at a
reasonable price, not at any price. But this could make us nervous too because
say Alcoa sells ingot at cost for $10. All aluminum is $15. This would be great
for consumers. The problem is that this requires a federal district judge to
decide what a “reasonable price” for ingot should be. Another problem: the one
thing a monopolist with a lawful monopoly is allowed to do is set monopoly
prices (so this would produce an inconsistency with black letter law dealing
with monopoly)
4. United States v. AT&T
1. Through the 1980s, AT&T controlled all of the telephone industry in the United
States. Controlled all local service by regulatory fiat (regulated monopoly by
the FCC). Also had monopoly on long distance until mid-1960s (also by
regulatory fiat). Also had monopoly on telephone equipment
2. In 1960s, FCC authorized other firms to get into the long distance market on an
experimental basis. First company in = MCI (Microwave Communications).
Wanted to build microwave towers across the country. Problem MCI had, once
got to each city (LA, NYC), had to plug their wires / cables into the AT&T local
network AT&T found ways to refuse to cooperate even though FCC had
authorized competition. This is in the Otter Tail mold: AT&T has unquestioned
monopoly in local lines and was using it to prevent competition in long distance
market which was authorized
3. DOJ investigated and said that the only way to solve this problem was to
threaten divestiture from either long distance or local business. Practically, DOJ
says can keep local monopoly and give up long distance or visa versa.
4. AT&T had assumed they were immune from antitrust because they were a
regulated entity. When government goes after hot documents in discovery and
to trial, AT&T realizes it will lose and settled. We will keep long distance but
spin-off our local operating companies. This worked because when MCI went
to plug in to local companies they got a cut and allowed it
5. Skiing v. Aspen Highlands
1. Up until Aspen, refusal to deal cases have involved monopoly in upstream
market leveraging power to get a monopoly in downstream market. Unusual
relationship with monopolist and victim: victim is customer of monopolist but
also is competitor in downstream market. This is duty to deal with competitor in
the same market: downhill skiing in Aspen. Claim: D is refusing to cooperate
with P to get / restore monopoly in that market
2. Court says product market is downhill skiing at destination ski resorts and
geographic market is Aspen: D is close to having a market in skiing in Aspen.
Court probably got the market definition wrong: labeled it “destination skiing.”
Talking about people who come from other places. So lots of other
“destinations” probably compete with Aspen. D accepted the market definition
question for purposes of this appeal but the market definition issue seems
important for D
3. Hypo: Suppose four mountains in Salt Lake City. You own three. The fourth
mountain Snow Bird comes to you and says that in many parts of country, ski
companies cooperate and have All-Mountain passes where people can fly in and
go for all four. If they propose this to you, do you have to work with them?
Company can refuse to cooperate IF there is a legitimate business reason for the

43
 refusal. BUT what counts as a legitimate business reason? Aspen leaves this
unresolved: conduct was so over the top that they had no legitimate business
reason
4. Spectrum of business reasons:
i. Extreme #1: after discovery, document is found that says, “in short-run
dealing with Snow Bird will increase our revenues. But, if we refuse,
Snow Bird will go bankrupt and our revenues will go up 35% due to
monopoly.” P wins it is clear that this wouldn’t make any sense accept
for fact that it will allow you to acquire a monopoly and raise prices
(this is NOT a legitimate business reason)
ii. Extreme #2: Snow Bird wants 75% of revenues from All Mountain pass
for having 1 of 4 mountains. This seems like a legitimate business
reason to refuse: asking price is too high
iii. Hard case: Research says that four mountain pass will be popular and
more people will ski here. But I’ve done the math, we get 100% of
revenues from three mountain pass. If we cooperate we only get 75%
from all four. The 100% is bigger number then just the 3 mountain pass.
This has nothing to do with higher prices or them going bankrupt.
Question court doesn’t answer: does this count as a legitimate business
reason. Can you simply say that cooperating is NOT AS PROFITABLE
for the business? Unclear
5. Though the Court probably did not get it wrong on Aspen facts, because
behavior was egregious
6. A few courts have urged a narrow reading of Aspen Skiing: some have said that
it is significant that D in Aspen withdrew from prior scheme of operation: these
cases suggest it might be different situation if P says no the first time. Others
including Posner say that this is an awkward standard because will discourage
cooperation in the first instance
6. More notes on Refusal to Deal
1. Refusal to deal is only unlawful when victim is competitor of monopolist
2. Not enough that monopolist uses monopoly upstream to gain an advantage
downstream: there at least needs to be a serious risk that monopoly will be
gained downstream as well
i. Characterization of conduct is important: difference between tie-in and
refusal to deal: refusal to deal, only violate § 2 if will get a monopoly in
that market, tie-in violates § 1 if uses monopoly up top to buy service
below. Tie-in leads to much more P-friendly standard
3. “Essential facilities” doctrine : idea: if I control some “essential facility,” I have
some obligation to deal with others in that facility. Hay doesn’t think this exists
as a free-standing doctrine.
i. Hypo: Suppose Hay owns the only suitable football stadium in D.C.
Barriers to entry are high and no one can build a new one. Stadium is an
essential facility to run a football team. Stadium is leased to Redskins.
Along comes another potential team that wants to lease the stadium on
the alternate Sundays when ‘Skins don’t use it. Stadium owner says,
“No! I refuse to deal with you.” Is antitrust liability triggered by fact that
stadium is an essential facility. Does owner have right to refuse or does
he need to defend decision with legitimate business reason. Does it
matter that owner has piece of Redskins? If antitrust liability is only
triggered by owner owning the team as well, then nothing is new here
and this is Otter Tail (use of monopoly upstream to preserve monopoly

44
 downstream). If owning the team doesn’t matter and owner still has an
obligation to deal reasonably, then this would be new and essential
facilities doctrine would matter. But most cases say that it is triggered
only when owner controls upstream, but this is just Otter Tail. SC has
never endorsed essential facilities doctrine but has never gotten rid of it
either. Some think court was going to say this in Otter Tail but the facts
were bad.
7. Image Technical Services v. Eastman Kodak (9th Cir.)
1. Back again on remand. This time in the Ninth Circuit as a § 2 case. We saw this
case in the SC before. In its earlier life, this case was a § 1 tying case. Tying
parts to service. When it goes back to trial court P drops the tying claim and
turns it into a § 2 monopolization claim. Crime is not tie-in but is § 2 refusal to
deal. Jury finds for P and then gets appealed to the Ninth Circuit.
2. Does not violate § 2 to using monopoly upstream to gain an advantage
downstream “monopoly leveraging” theory. Only violate by using monopoly to
gain a new monopoly
3. Key issue: Does Kodak which has a monopoly in parts have a duty to deal?
Kodak’s conduct may not be actionable if supported by a legitimate business
justification (nothing new this comes from Aspen); even monopolist does not
have blanket duty to deal. Kodak’s defense: protection of our patented and
copyrighted parts = legitimate business justification. What the hell does this
mean? How is Kodak protecting its patented and copyrighted parts? ISOs will
not break the parts
4. Court compounds the confusion by adopting a modified version of rebuttable
presumption: while in theory Kodak does not get blanket immunity due to its
intellectual property / patent, we give them a rebuttable presumption of a
legitimate business reason. So this is different from Aspen: a monopolist’s
desire to exclude other from patented product is a legitimate business
justification but this is tautological: not selling it to others clearly evinces an
intent to exclude others
5. It says Kodak’s reason is pretext so justification doesn’t fly and Kodak loses
6. Hypo: Suppose there are no ISOs to this point. Cost to Kodak of part is $10 and
labor is $5. Charges monopoly price of $25. Profit is $10. Suppose ISO comes
along and asks Kodak to sell parts. Kodak could say no or Kodak could say yes,
I’ll sell for $20. Kodak can still extract monopoly profits inherent in parts
monopoly by setting a high price for parts. If this is defensible, then what is left
of the so-called duty? This seems to be what the court means: Kodak has
legitimate monopoly in parts. If this is true, then they could exploit it by taking
monopoly profits out in price of parts.
7. Kodak: are you trying to extract legitimate monopoly profits in parts or are you
engaged in some vicious scheme to monopolize service? (this is distinction
though it may not have any meaning)
8. In Re Independent Service v. Xerox (Federal Circuit)
1. Absolute identical case to this. Difference: Xerox case goes to Federal Circuit
because it is a patent case. Federal Circuit approach is dramatically different
from Ninth Circuits.
2. Approach: Right to exclude is not without limits but exceptions are largely
cases where there is no legitimate patent or engaging in tying We are not even
going to inquire into D’s motive. As long as D has legitimate monopoly in parts,
if D says, “I refuse to sell those parts” then D has a legitimate business
justification. Complete immunity for refusal to deal if patent is valid and not

45
 engaged in a tie-in.
9. Verizon Wireless v. Trinko

Problems of the case:

a) Standing (not every competitor that suffers injury is protected under antitrust law)
b) Jurisdiction (FCC is primary regulatory party)

Core Case:
1. Verizon, has a local monopoly in New York. It is the incumbent LEC. AT&T,
which under the decree become a long distance company only, they are now
knocking at the door and they want to provide local telephone service. AT&T
wants to compete against Verizon. So what we want to do is build a piece of the
network and maybe rent access to a lot of verizon’s network. AT&T is aided by
the Telecommunications Act of 1996. The Act says that we do want to create
competition in local exchange service. And the Act requires Verizon to give
AT&T access to their local network. And the FCC is supposed to monitor
everything to make sure that everyone is holding up their end of the bargain.
(primary regulatory party; whats with the courts? Should there be a second
regulatory party?)
2. Claim is that, even though Verizon is reeled in by the statute, they are doing
everything in their power not to deal with AT&T. So just like the AT&T case,
you’re not doing what the statute and the antitrust laws tell you to do.
3. The one thing that a monopolist is allowed to do is charge monopolist prices. A
monopolist in the US, assuming he got the monopoly lawfully, can charge
whatever the hell he wants. (= important incentive to earn future monopoly
prices) In antitrust law, its not sufficient to have a monopoly-position, the
monopolist needs to monopolize, too.
4. Scalia misquotes Colgate: Of course you have an absolute right to refuse to
deal, except where you are trying to create or maintain a monopoly (Scalia
leaves this language out – error in use of law); (2) his comments about Aspen
skiing, that it is on the outer-bounds of antitrust law. (dissing Aspen)
5. The key to Aspen was that they pulled out of a relationship that they were
already in. Is Scaling suggesting a black-letter law that if you don’t cooperate in
the first place you are worry free? It would seem so.
6. Trinko kind of guts the refusal to deal cases
7. Scalia would like to send it to the FCC, but the statute, nothing in this act is
intended to suspend antitrust laws.
8. Essential facilities doctrine: Court has never endorsed the essential facilities
doctrine. Is the refusal of the deal aimed to gain a monopoly? Trinko has
completely undermined the monopolization claim. No courts have ever decided,
whats a profit maximizing monopoly price. Its impossible to prove, if a
monopolist is violating Section 2 antitrust laws.
10. AT&T
1. Seems to be a completely rejection of Trinko;
2. Does AT&T in the moment, the competitor buys the essential facilities, has any
monopoly power? If not, section 2 of sherman act istn't applicable anymore.
(argument: price is too high)
3. Bus assuming they do: Mention predatory prices; The retail price is too low.
But we have to prove that the price is too low. (argument: price is too low)
4. Next step: price sqeeze claim: mixture between the 2 and 3: Even if the
competitor is good in his business, he cant compete, because the price is too

46
 low. Its no predatory price, but its ok for AT&T
11. Sprectrum Sprot case:
1. Section 2 is supposed to protect against anticompetitive conduct. Its not allowed
to monopolize or attemt to monopolize..
2. Pepsi has only 25% market share and tries to squeeze out 7up, that has only
10% market share. No monopolization is given, buts its clearly anti
competitive....
3. No violation of sectio 2; Plaintiff fails to prove the claim of section 2.
3. ATTEMPT TO MONOPOLIZE
1. To succeed on an attempted monopolization claim must show: “a dangerous probability
of success.” Most courts will throw case out if market share is not > 40%. Microsoft
has good discussion of this.
2. Lorain Journal v. United States
1. Lorain Journal has a newspaper monopoly in a town of 50,000. 99% of the
population subscribe to the paper. A radio station sets up shop eight miles away.
D refuses to allow advertising in its paper by companies that advertise on the
radio. D monitors radio programs to enforce its policy. This qualifies as
Attempted Monopolization. (essential facilities doctrine?)
3. Spectrum Sport v. McQuillan (Ninth Circuit)
1. P is the exclusive dealer of a patented product. D selected P as a regional
distributor of the product. Later, D insists that P cease distributing the patented
product as a condition for retaining the right to distribute other items.
2. Mere proof of unfair or predatory conduct alone does not make out an offense
of attempted monopolization. You have to show dangerous probability of doing
so.

V. MERGERS
1. BACKGROUND AND THE BASIC PARADIGM
§ 7 of Clayton Act = intents to prevent mergers that may underminde competition; The
idea is to stop a trend to lower competition before it gets a real problem. anti-merger
statuteprohibits mergers that may substantially lessen competition or create a monopoly
(This is an incipiency statute designed to nip the problem in the bud; could make the
market more oligopolistic; That is negative, because its easier to esteblish a collusion;
reventing mergers are an efficient tool to prevent oligopoly)
1. Mergers can be categorized into three categories:
1. Horizontal mergers (competitor firms in a market)
2. Vertical merger (firms with buyer-seller relationship: Bridgestone tires and
GM)
3. Conglomerate mergers (anything else: Pepsi and GM; completely different
sectors)
2. Clear from congressional history that Congress intended antitrust laws to deal with
conglomerate mergers, but as antitrust law is written, it does not right now (not a big
problem for economists)
3. Economics of Horizontal Mergers: aggregating market share tends toward monopoly
power and monopoly prices; getting large enough allows a firm to charge monopoly
prices without worrying about cooperation from other competitors. The More highly
concentrated the market is, the easier it is for firms to collude (i.e. both § 1 violations
and oligopoly pricing)
4. History
1. Original statute Covered only acquisitions of stock and not acquisitions of
assets. In 1950, Congress gets around to fixing this problem and the Celler

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 Amendment to the Clayton Act begins the modern law of mergers: fixes the
technical loophole and allows acquisition assets as well as stock and says it
applies to vertical mergers and conglomerate mergers
2. FTC v. Brown Shoe
i. Court lists the many concerns that prompted the amendment, among
them: loss of local control, protection of small business (getting back to
Jeffersonian principles here), Congress intended act to apply to vertical
and horizontal mergers, wanted threat to be addressed at incipiency
ii. Hypo: Suppose 4 firms with 20% of market and 2 firms with 10 each
and latter two plan to merge  5 firms each with 20%. Scenario two: 20
firms of 5% each and two plan to merge  18 firms with 5% and 1 with
10%
1. Economists would be clearly be more concerned with scenario
#1 because this is an oligopoly
2. Court seems to suggest that former situation is more permissible
and Court is worried about latter situation: first “allows the
merged firm to compete more competitively with its larger
competitors.” Latter bad because gives bigger market share even
though not close to monopoly power
iii. “Antitrust law is concerned with competition, not competitors” but
every aspect of Brown Shoe seems to address protecting smaller
competitors
3. From Brown Shoe up until 1976, there was no pre-merger notification
i. Prior to 1976: DOJ would read about mergers in WSJ and would have to
go in and unscramble the merger after the fact: consummate the deal
before DOJ finds out (ex post control)
ii. Only way to undo merger = file a law suit  lots of suits, lots of
litigation and kitchen sink opinions (one Justice said that in this period
1960-1980 only commonality in these cases is that government always
won)
1. Pabst (merger led to 4.49% of beer market)
2. Von’s: Supermarkets crop up and take business from small
grocers. This merger = 4.7% share + 4.2% share. Court says this
merger is bad because economies of scale will threaten mom and
pop; There was no consistency in all cases; “The only
consistency is, that the government always wins.”; Bu Mergers
were and are very expensive processes: There is a need to know,
if the merger is lawful or not. So there is a need to define better
standards.
5. United State v. Philadelphia National Bank (Important case)
1. Steps to a more applicable rule:
a) defining a market
b) define concentration of the market
c) dominent share of the market (would the merger result in a firm, that is on
top of the market?)
=> that creates a prima facie case
Important: If there is proved, that in the defined market the competition will be
reduced, there is no opportunity to defend by referring on the improvement in
any market (ex: bad for NY market, but good for the market all over the US =
difference to other jurisdictions)

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 2. Court defines the relevant market / banking market: “Commercial banks” 
larger banks. Court defines geographic area as Greater Philadelphia
3. To set out prima facie case: government must define market and define
concentration (what are market shares of top 4 firms  published by Census
bureau). After merger, top four would have 78% of market. Leading firm would
have 36% of market. This is an oligopolistic situation. So government puts
forward statistical case and gets presumption. D must rebut this by saying that
these statistics do not tell the whole story
4. Why change merger law from in-depth look at every industry worried about
small firms to this statistical story? Bok article: unless businessmen can assess
legal consequences, sound business planning is retarded
5. PNB defenses:
i. PNB says that assume we have diminished competition in Philadelphia,
we can compete in NYC market.
1. Court doesn’t let them play that game: cannot balance loss of competition in one market with
increased competition in another
i. Philadelphia needs larger bank to stimulate economic development
2. Court says this isn’t allowed: shouldn’t be surprising this is similar to Professional Engineers:
cannot justify anti-competitive conduct with economic benefits (different in other countries);
in US if merger is anti-competitive the game is over
1. Not much merger litigation after PNB:
i. Almost no private litigation over mergers (due to standing requirements)
ii. First set of guidelines put out by DOJ to explain to business community
the criteria that DOJ will use to challenge merger
1. These original guidelines looked at Concentration ratio of market: if ratio of top 4 firms < 75%
or > 75% (they follow PNB)
2. DOJ said that if concentration is <75% then won’t challenge if share of both firms > 5%
3. If concentration was > 75% lower standard
4. This is background, don’t worry about these old guidelines
5. These guidelines were more generous than the case law
6. Explains why there is little litigation: if you follow guidelines we won’t sue, if you don’t we
will sue and we’ll probably win
i. 1976: procedural issue: pre-merger notification required by Hart-Scott-
Rudino Act
1. Details of pre-merger notification could be a course in and of
itself. Basic doctrine says: as long as merger is above a certain
dollar threshold in terms of assets of the two companies, DOJ has
to be notified. Threshold is quite small. Called the “first request.”
Form requires you to identify all lines of business merging
parties are engaged in as well as total size of business. DOJ
matches up volume of business in each sector and evaluates for
problems. DOJ or FTC usually gets 30 days to process papers
during which merger cannot be consummated. Eve of 30th day
usually leads to second request. If nothing happens after thirtieth
day, can consummate the merger but nothing prevents
government from challenging it later. Second Request: send us
tons of documents. You can take as long as you want to fulfill the
request, but cannot consummate until 30 days after the
paperwork comes in. The notification system leads to little
litigation because either DOJ says go ahead and we won’t sue
you, or they say we will sue you and parties cave

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 2. HCA v. FTC (7th Cir. 1986) (important case)
1. Posner says that FTC wrote an 110 page opinion they didn’t need to because
(1016) PNB says that nothing has changed since early 1960s. Opinion basically
says that merger law has not changed despite changes in economic thinking
2. Two important points:
a) prima facie assumption is sufficient
b) Government guidelines are ore generous than court rules: The supreme court
has never overturned the rules. There are no cases, just governmental decisions.
3. If there is a cartel with more than 4 participants and with every member more
its getting harder to control the cartel. The cartel needs more market share. So
they decide to merge with a firm outside of the cartel. (merger increases the
market share of the cartel. In effect, the risk is reduced, that the cartel is
undermined by competitors, because the non-members of the cartel have less
capacity to operate with.
4. If Barriers to new Entery in the market are low, its in tendency better for the
competition. (low market frictions promote competition in markets and make
markets more efficient.)
5. If the products offered on a market are very heterogenious, its more unlikely
that the competitors practice collusion, because they have to make more
communication to synchronize their interests.
6. Non profit firms wouldn't behave like profit earning firms. (ex. Some kinds of
hospitals)
2. A MORE REALISTIC APPROACH
1. General Dynamics (most important merger case)
1. Major defeat for DOJ: DOJ takes it to SC under expediting act because of
market definition issue (relevant market) but they make a mistake by taking it
to SC. District Judge defined market as “all energy” but if that were true then
no merger of energy companies would violate antitrust laws.
2. So government does what it is supposed to and follows Philadelphia National
Bank template: General Dynamics has 12.9% of market based on 1967
revenues, United Electric had 8.9% revenues of the market, Top 4 firms have
75%. Government said this squarely fits within PNB and even more clearly
within other cases.
3. Government loses because Market shares examine “revenues”: money that flow
into company in 1967. Revenues v. sales: have 9% of revenue coming in, but
much of that is because of sales made many years earlier (long-term 20 year K),
so lots of coal that was shipped last year was competed over 20 years ago; also
there is a lot of coal in the ground, but they cannot sell it because it was already
sold; For market definition reasons its not sufficient: If a company already sold
all coal, the future maret share is 0, because they havn't any coal to sell in the
future.
=> The point: unlike the rest of antitrust, merger law is about the future, here
there is no guarantee that UE or GD will have substantial market shares in the
future. (if they don't find new coal) → this is the exception of the prima facie
statement.
4. Market shares are used as a proxy. This merger might be anticompetitive
because one more company with decent market share makes collusion harder
5. Question to ask: if this merger does not take place and the big guys in the coal
business decide to collude, how much do they have to worry about UE as a
competitive force in the future? Zero because all coal they own has already
been sold, so the merger is irrelevant

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 6. General Dynamics is a great case for lawyers: says that PNB assumes that
revenues are a good proxy for market share and future conduct, but it may not
represent the company’s competitive strength in the future. This case allows for
an argument that last year’s market share does not represent the competitive
strength of the acquired company
7. Hypo: Suppose Pfizer had 20% sales of beta-blockers last year. If most of sales
of Pfizer’s drugs are based on patents that are about to expire and if they don’t
have any new drugs in their pipeline, then this General Dynamics argument
might work to get the merger through.
2. Syufy Enterprises v. United States (9th Cir. – Movie Title Case)
1. This case is an example to some extent of General Dynamics.
2. Facts: two movie chains want to merge: between them they will have 100% of
market. Court says that this 100% is not representative of their ability to control
the market in the future because there are no barriers to new entry
3. Purported victims were not consumers but movie companies: wouldn’t pay
them very high royalties to show the movies
3. Standing in Merger Cases
1. States often bring cases for treble damages, in a merger case there is no money
available because no one is damaged yet; not high publicity either
2. Consumers are potential victims so they have standing but there are no
damages, only injunctions, so there is no incentive to bring the suit (free-rider
problem)
3. Consumers could sue later after they are paying higher prices but would have
Causation problem: hard to prove new prices come from merger and not other
factors
4. Competitors they have the best incentive to sue but the problem here is standing
i. Hypo: Coors and Anheuser Busch propose a merger. AB has 50% and C
has 10%. Miller wants to block the merger. Miller’s theory is that as a
result of merger the industry will be a tighter oligopoly and prices will
go up. Judge will reject this because that will benefit Miller.
ii. New Hypo: What if Miller says that prices will go down because of
economies of scale. Judge will say under modern standing law, I see
why you don’t like this merger, but that is not antitrust injury. Injury you
complain of: producing lower prices for consumers is not antitrust injury
and you don’t have standing. So either story leaves competitors without
standing
1. One exception: if you can make persuasive case that firm will
engage in predatory pricing after merger, that will qualify as
antitrust injury, but these cases are hard to make out
2. Target of merger rarely has standing either
4. DOJ/FTC Merger Guidelines
1. Guidelines introduced in 1982: Between 1968 and 1982, big change in
economic thinking about mergers. A lot more thought given to possible benefit
of mergers and also rethinking about possible cost of mergers. Other concerns:
antitrust courts sloppy in market definition (no real standards), General
Dynamics problem, etc. Conclusion among many: merger law was in need of
reform. But since merger cases not being litigated, courts could not shape law
as they did in § 1 and § 2 context
2. Broad purposes of guidelines:
i. Make clear what the relevant goals of merger law are
1. Brown Shoe: protect competitors OR protect consumers;

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 guidelines say only consumers matter
ii. Relaxation of standards
iii. Clean up: put principles behind defining market share, market
definition, etc. add analytical tightness
3. General goal of merger policy / law is to protect consumers against higher
prices. All of mechanical aspects (how to define markets, shares, new entry,
etc.) all organized around the risk that the merger will lead to higher prices
4. BIG CHANGES OF GUIDELINES
i. Merger guidelines pervaded by the “what if” question: what would
happen if merger leads firms to try to increase prices. Future-looking
ii. Prior to guidelines, courts had used the four-firm concentration ratio to
measure market concentration. Decide to switch over to the
Hirschmann-Herfindahl formula. (Hay thinks this was the head of the
antitrust division showing off). HHI = sum of square of market shares
1. Complication: technically to apply the formula you need the
market share of every firm in the industry, not just top 4
2. However, this doesn’t matter mathematically because won’t add
much to the HHI. Once firms with below 5% of market or so,
doesn’t really matter
iii. Market Definition: this was the most significant change and this is now
the way it is done all around the world. The “hypothetical monopolist”
test
1. Illustrated If we are worried about widget merger raising prices,
what might foil this plan: Competition from within the widget
industry, substitute goods
2. Hypothetical monopolist test puts aside the intra-widget
competition. Take a worst-case analysis. Assume that the widget
producers cannot effectively protect consumer. If they tried to
raise prices, what would happen? If they would be successful
than widgets are a relevant market (cannot rely on competition
from outside, consumers need competition from within the
market). Then we look at market shares of that market. If they
could not raise prices than widgets are NOT a relevant market.
Need to add in the substitute goods (i.e. gadgets) and see if
widgets + gadgets is the relevant market
3. This method is nice because it separates the market shares from
the market definition question. It also focuses on the future
“what if” question and ignores past and present behavior
4. Hypo: Assume a hypothetical monopolist. Assume monopolist
tries to raise prices by 10%. Two embedded questions here: 1)
percentage of existing customers that would switch to other
products, 2) how many consumers would have to switch to make
a price increase unprofitable
1. Suppose we know that 15% of customers will switch,
then figure out profit margin. Assume price = $10,
variable cost = $5. Gross profits = $5 widget. 100 sold /
week so gross profits = $500 per week. If price is raised
to $11, profits = $6 per widget. Need to sell 83 widgets to
make price increase profitable. So here critical number is
17%. If you lose less than 17% of clientele, you’ll make
money on the price increase.

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 2. So need existing prices, markup over cost and some
benchmark quantity to do this test
3. Shortcut on part 2: if we know that hypothetical
monopolist raises prices 10% and loses 10% of
customers, its total revenues are unchanged by definition
but costs will go down because producing less so it is
profitable. So shortcut, if price increase is > or = to
number of customers lost, then profitable
iv. Measuring Market Shares
1. Suppose Pepsi only makes soft drinks and not beer. Suppose that
if price went up, Pepsi could use their factory to make beer.
Under historical measure, Pepsi doesn’t show up in beer market.
But if price went up 10% it can be shown that Pepsi would make
a lot of beer, they need to be included in the market. “Supply
substitution”
2. Inverse of this = United Electric and General Dynamics defense.
Will not have market share in future so doesn’t go in.
3. Market shares are measured prospectively / forward looking.
Historical market share may not be a relevant indicator of market
share in the future; this leaves a lot of room for creative
lawyering
4. The big elephant in the room: foreign forms. This is where the
Alcoa case was very forward looking. They need to be included
in the market shares as well based on what if? What if price went
up 10%. What would foreign firms do then. This will really drive
market shares down
v. Guidelines and New Entry
1. Earlier versions of guidelines admitted that entry can be a
complete defense to a merger. In theory, if barriers to entry are
low, a merger cannot hurt competition. A few cases like Syufy
have been won or lost based on barriers to entry
2. The “Paradox” of New Entry
1. Entry becomes important when the HHI is high (market is
highly concentrated), if it isn’t then won’t even get
merger litigation. This also means that there has not
previously been much entry
2. D’s argument is: we haven’t seen much new entry in the
past but merger cases are forward looking. If prices get
pushed up, there would be new entry
3. Paradox of D’s argument: entry will drive prices back
down to nonprofitable prices making the entry
unprofitable
3. Answer to this paradox: two kinds of entries:
1. Committed entrance: entrant that has to invest a
substantial amount of money that cannot recoup if prices
go back down (entrant is probably not going anywhere
that fast): DOJ position is that new entrant will not
“commit” capital to enter without more. So D needs to
show evidence of entry in the past to win.
2. Uncommitted entrance: ex: an airline and a new route. If
they already have the capital and don’t need to invest

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 more, entry is easy. Can come and go with ease and not
lose anything doing it. “Hit and Run” Entry
4. Under Guidelines, if D cannot show prior entry, needs to show
that entry is of kind #2. Entry is still a potential trump card if
argued properly
vi. Guidelines and Efficiencies
1. D must also argue that efficiencies will get passed on to
consumers for this to work
2. Efficiencies more like to benefit consumers if they result in
lower variable costs (this is because fixed costs do not generally
get passed on in the form of lower prices)
3. Should efficiencies achieved by lowering fixed costs count in
evaluating whether the merger should be allowed?
1. Consumers will get no benefit (pay only a trivial amount
more) but shareholders will get enormous benefits by
having the fixed costs lowered
2. This is a debate: should anti-merger law be based on
consumer welfare or on total welfare (political lines are
pretty clearly drawn here)
vii. Guidelines and Presumptions
1. Follows Philadelphia National Bank: if government can show a
prima facie case of concentration, then the merger is presumed
anti-competitive unless D can come up with justification
1. This comes from the theory that oligopolies will lead to
higher prices; over time people have become somewhat
skeptical of oligopoly pricing theory (prices not always
transparent, products not always fungible, etc.)
2. However, DOJ in guidelines has disarmed itself. It says that it
will no longer assume it has set out a prima facie case from the
market structure alone. DOJ also will examine other conditions
of the market and satisfy itself that other conditions of the market
are conducive to oligopoly pricing
3. PNB is still good law, but government is saying that for its own
decision making it will look at oligopolistic coordination and
collusion as well
5. Ansell v. Schmid
3. SOME RECENT CASES
1. FTC v. Staples
1. FTC’s proposed market is “Office Superstores.” This could be the right market
even though every item Staples sells can be purchased somewhere else:
Superstore has the appeal of being a “one stop shopping” place for consumers.
Principle could be: because consumers prefer one stop shopping, they will buy
at Office Superstores even if prices are cheaper somewhere else. Hypo
monopolist could raise prices above current levels because while it will lose
some customers, the consumers will be willing to pay more for the convenience
of one-stop shopping
2. Another theory: Superstores buy in bulk, they get volume discounts and their
prices are cheaper than other stores
3. Two Theories = opposite ends of spectrum: might be willing to pay premium or
prices might be lower
4. If theory is that superstores are cheaper, consumers might still be hurt because

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 superstores will be selling cheaper than non-superstores, but will not sell as
cheaply as if they were met by competition: other stores put a cap on what they
can charge, they have lower costs so they can charge less but if no competition
from other stores than they can sell at higher price and not pass on savings from
buying in bulk
5. Empirical test that won the case for the commission: economic testimony that
said that in cities with all three superstores the prices were lower than when two
were present and an eve greater difference in cities with one superstore
2. In re AOL
1. Horizontal issue is internet access. Time Warner had RoadRunner, dominant
provider of broadband internet access. AOL had largest share of internet access
market with dial-up connections. Court figured out that RoadRunner was going
to be future. Competitive problem was AOL investing in DSL (telephone
connection more like a broadband connection)
2. This case illustrates the “fix it first” policy. Because we have pre-merger
notification, DOJ will alert parties to proposed merger of problem that they will
seek to block. Companies than make deal with FTC so that they can get the
merger through subject to certain understandings. Deal goes through so long as
AOL continues to invest in DSL and Time Warner gives some service to
EarthLink
3. FTC v. H.J. Heinz
1. It is remarkable that this court got to the Court of Appeals at all. Trial judge was
unbelievably stupid. Every supermarket has Gerber and Heinz or Beech Nut but
not both. The judge concludes that therefore they don’t compete. This is very
dumb for two reasons: one, they compete to get into the store and they compete
for consumers for which store they go to
2. C of A reaffirms Philadelphia National Bank and prima facie case presumption
model; recall government doesn’t do this in its own practice, but courts still do
this
3. Useful discussion of efficiencies: although SC has not sanctioned the use of
efficiencies as a defense, the trend among lower courts is to allow it
4. Court of Appeals rejects this defense on the merits for two reasons: 1)
efficiencies are purely speculative (leads to new important job for antitrust
lawyer: work with merging parties to prove that the efficiencies are real, 2)
Efficiencies are not merger-specific (court is basically saying merger is a last
resort. Could get license, contract, etc. . . . other feasible ways to achieve
efficiencies)
4. United States v. Vail Resorts
1. Illustrates Guidelines portion about Lessening of competition through
“Unilateral effects.” This is what the government did in the Vail case.
Government even calculated the price increase with precision
2. This review doctrine exists because of some of the scandalous settlements of
Nixon era. Government and Vail worked out a settlement / consent decree. The
decree has to be filed with federal court and in federal register and allow notice-
and-comment; called a “competitive impact statement”
3. Economics of Oligopoly and Nonfungible Products
i. Background: if you think of mergers for fungible products (i.e. oil, coal,
steel, etc.) the prices in the market place will be identical. That is what
fungible products are. Market will force prices to be equivalent. Prices
can be identical at a supercompetitive level or at a competitive level.
The only way that a merger can effect price is if it facilitates

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 oligopolistic coordination. There is no way that a single company can
effect higher prices on its own.
ii. However, by definition market forces will not drive all market prices to
be identical for nonfungible products
iii. If industry colludes to fix prices it won’t work because beer is not
interchangeable so some will do better. You will need hundreds of
different prices. This is really hard for a cartel. Almost impossible to do
this unless they met in a hotel room. Oligopoly coordination will almost
certainly not work for heterogeneous products
iv. So one would not expect merger cases here because no oligopoly. So
DOJ guidelines basically say that oligopoly problem goes away, but a
different problem arises (Hay thinks this is ingenious) where
nonfungible products are at stake
4. Problem of “Unilateral Effects”
i. Suppose market where AB has 50% of Market, Miller has 25% and
Coors has 10%; Demand curve has some slope (at lower price will sell
more and at higher price less). Job is to figure out the optimal, profit-
maximizing price on the demand curve. Suppose economist works it out
and says $2.50. Say that raising price to $2.60 would cause customers to
switch. Now assume Miller buys Coors. If customers switch to Coors
then Millers doesn’t lose any profits because recaptures some customers.
This has to mean that profit maximizing price is higher, mathematically
ii. This is the unilateral effects theory: without any oligopolistic effects of
coordination from competitors, the merger will be anti-competitive by
allowing Miller to charge a higher profit-maximizing price through
recapturing customers with the company that has just been overtaken
iii. This works with price discrimination, too: self-selection mechanism
because one group of customers show specific behavior (ex. book their
flights in a trip with hotel and so on) If there's a very high HHI, people
will switch to the competitor very lightly. Exactly that competitor will
be overtaken now. So, even if people switch, they are still at the same
effective owner. Then the effective owner can raise prices. (example
mentioned: +4%)
5. United States v. Oracle
1. Bitter loss for the DOJ. They thought that the judge was very biased against
them.
2. DOJ defined the market in a narrow way: human resources software for really
big corporations. In effect this is only 3 firms. DOJ tries to support this market
definition with customer testimony
3. Authors discuss role of competitor testimony: modern courts are skeptical of
this because their incentives to block merger might contradict testimony
4. Judge agrees that there is no reason to think that customer testimony will be
biased, but he says that it is all backward looking, “In the past we have only
looked at these two companies.” Judge says this is the wrong question to ask.
Merger law asks the what if question. What would they do in face of 10% price
increase? Judge says that customers were never asked that question
5. Reinforces concept that modern merger law is about the what if question
4. CONGLOMERATE AND VERTICAL MERGERS
1. Economics of vertical mergers:
1. Hypo: Before merger have 4 manufacturers, A-D who are selling to some
combination of retailers (say 4). After merger, two hook up and have exclusive

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 arrangement. Concern is that a manufacturer who prior to merger might have
sold shoes to a distributor is foreclosed from that distributor, but this shouldn’t
be a problem because by same token other distributors need shoes. There is
really no net foreclosure / availability of shoes, just switching dancing partners.
On balance there is no net dimunition: no one is short shoes or supply
2. The only problem might arise if at one or both levels there is a high
concentration of market power
2. Case in book: Kinney’s retailer, Brown Shoe = manufacturer
1. When case was brought, there were two concerns about vertical aspects of
merger: 1) Merger would produce efficiencies by eliminating the middle man
(no one cares about this anymore), 2) Foreclosure problem: Kinney will now
buy all its shoes from Brown and that will foreclose other manufacturers from
buying from Kinneys and visa versa
2. Foreclosure problem mostly moot
3. Du Pont
1. Most notorious example of vertical merger in this category: DuPont / GM
merger
2. DuPont was biggest manufacturer of automotive paint. Concern was that GM
which was the biggest auto manufacturer would buy all its paint from DuPont
and foreclose everyone else. This would seem to be a problem
3. Merger was in 1917, case filed in 1949, SC ordered divestiture which took
place in 1958
4. Does anything change when there is market power? Poster-child = Time Warner-Turner
merger. Time Warner was dominant in cable. Was and still is the single largest provider
of cable services. Turner has substantial market power in cable programming
(competes vs. ABC, FOX, etc.). Concerns raised by merger: if Time Warner is
dominant it can show only Turner because merger will benefit at expense of ESPN and
others. Economists have raised concern that this is not profitable strategy because
Turner cannot really deny its consumers programming that they want. Concern is goes
the other way too: DirectTV wants Turner programming but if Turner denies
programming than Time Warner benefits. Same question: why would they do this?
DirectTV is offering them money. They would forego hard cash. So even in cases
where there is market power at one or both levels, it is not obvious that this vertical
merger causes a problem

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