Antitrust 24k Gavil 04

Antitrust, Spring 04 Professor Gavil Page 1 of 63
CHAPTER 1: COMPETITION POLICY FOR A GLOBAL ECONOMY A. Two Introductory Case Studies (skipped) B. Identifying the Core Questions of Antitrust Law 1. What are the purposes of competition law systems? a. What economic purposes can they serve? The primary concern of antitrust is to prevent the acquisition or exercise of market power, as the term is used in microeconomics. Firms exercise market power by raising price and reducing output. Price increases, however, also are natural phenomena that result from the normal lawful operation of the market for that producte.g. supply and demand. b. What non-economic purposes can they serve? Antitrust laws seek, ultimately it seems, to advance or protect the public interest by protecting consumers from being exploited by firms. In addition, they seek to promote equity among competitors by advancing fairness, protection of small businesses, social justice, and political stabilityi.e. non-economic goals. The idea is that lack of competition and choice for consumers will be detrimental; the protection of the small businesses and competitors may be seen as a means to achieve the ends of consumer protection. See United States v. Trans-Missouri Freight Assn, 166 U.S. 290, 324 (1897); United States v. Aluminum Co. of America, 148 F.2d 416, 428-29 (2d. Cir. 1945). Modern U.S. antitrust jurisprudence has subordinated non-economic goals to the attainment of economic efficiency. But, non-economic goals are still important considerations. Case: United States v. Brown University, 5 F.3d. 658 (3d Cir. 1993); p. 33 Parties: Petitioner (U.S. government); Respondent (Overlap Group, a collective of Ivy League universities). Facts: The Overlap Group developed a plan in which members attempted to eliminate price considerations from commonly accepted students, those accepted to more than one Overlap member, by ensuring aid packages to such students would be the same. Each university would independently calculate aid packages using the same formula, which included family contributions. The schools only granted need-based aid. Discrepancies in aid $$ still came up so the members would meet once a year to determine the amount the student would be granted. Failure to comply w/ would result in retaliatory sanctions resulting in rare non-compliance that would be quickly remedied. Ph: Antitrust Division of DOJ filed civil suit against Overlap. Only MIT went to trial; the other members signed a consent decree. Issue: Whether Overlap members agreement w/ respect to aid packages is a 1 violation requiring significant procompetitive justifications? Holding/Rationale: MIT/Overlap didnt violate 1 due in large part to the non-economic procompetitive justifications for the plan. This case involves Rule of Reason due to nature of
higher education and procompetitive features of the plane.g. fostering vitality of the mind, free exchange btw. different thoughts, communication among different peoples. MIT didnt dispute Overlaps intention to eliminate price competition for talented students. The plan is facially anticompetitive, so the plan requires competitive justification even in the absence of a detailed market analysis. MITs justifications: 1) plan promotes socioeconomic diversity at member institutions increases quality of education; 2) plan increases consumer choice through need-based focus because the opportunity to go to member universities extended to those who previously couldnt afford it; 3) lack of price competition turns focus to campus life considerations such as curriculum, faculty-student ratio, etc.; and 4) promotion of equal education opportunity. Overlap didnt w/hold desirable services as in NSPE and Indiana Federation of Dentists; rather, choice was extended to those who couldnt attend previously. Agreement should be viewed under rule of reason because its anticompetitive nature is not the type looked down upon by per se rules. 2. What conduct, public or private, can impair the proper functioning of markets? Competitive markets are expected to yield production, allocative and consumption efficienciesi.e. maximum consumer welfare. The structural features of competitive markets include: Enough buyers/sellers to ensure competitive pricing, features, quality and innovation; Undifferentiated products or services (that are of good quality); Easy entry, expansion and exit by firms; and Relatively unhindered information and knowledge about market conditions of buyers and sellers.
Markets are less competitive if any of these features is lacking. Antitrust isnt necessarily concerned w/ all of these factors. It is primarily concerned w/ 2 features of perfect competition: number of buyers/sellers and conditions of entry. The public sector is w/n the scope of antitrust laws but U.S. antitrust law doesnt reach it due to the legislative history of the Sherman Act and constitutional issues related to federalismextensive regulation in public licensing of trades and professions can directly impair the functioning of markets. Private conduct that tries to manipulate the above considerations attracts antitrust scrutiny. a. What do we mean by anticompetitive conduct? Anticompetitive refers to conduct likely to the creation, maintenance, or enhancement of market power, or that involves the actual exercise of market power. Market power refers to the ability of a firm (or firms) to raise price by reducing output, or limiting other dimensions of competition. Typically, market power is associated w/ a departure from the conditions necessary for optimal market (see the above features of competitive market). Case: Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977); p. 41 Parties: Petitioner (Brunswick), 1 of 2 largest manufacturer of bowling equipment; Respondent (Pueblo) bowling alleys competing w/ other alleys acquired by Brunswick.
Facts: Pueblo challenges Brunswicks acquisition of 6 (competing) bowling centers in its market. In violation of 7 Clayton Act, and under 4, wants 3 xs the reasonably expectable profits to be made from the operation of their bowling centers. The acquired bowling centers were struggling before Brunswick bought them; Pueblo wants the profits it would have gotten if the acquired centers just went out of business. Issue: Whether antitrust damages are available where the sole injury alleged is that competitors were continued in business, thereby denying respondents an anticipated increase in market shares? Holding/Rationale: No. Pueblos injury is not the type contemplated by antitrust laws. Antitrust laws are designed to protect competition and not competitors. The injury alleged in this case resulted from increased competition. It alleged that w/out Brunswick, its competitors wouldve shut down and given Pueblo larger market. Increased competition from a larger, perhaps more efficient rival, decreased Pueblos hoped-for profitsthis isnt antitrust injury. Notes:
Collusive effects directly impair markets and typically will involve coordinated action by competitors who collectively possess market power. --emulating the behavior of a monopolist by raising price while restricting output; --analysis of collusive effects seeks to determine whether the conduct will result in exercise of market power. Exclusionary effects confer market power b y raising rivals costs by cutting it off from key inputs to production or limiting access to market by cutting off access to key channel of distribution. --the effects of exclusionary conduct are almost always indirect, regardless of independent or concerted action. --can be either act of single from or concerted action (multiple firms); --this conduct is condemned when a firm or firms establish conditions in which its able to, or is likely to, exercise market power. Antitrust plaintiffs today must articulate a coherent theory of anticompetitive effects and also bears the burden of linking particular conduct to those effects. Antitrust defendants must link the mentioned conduct to neutral/procompetitive effects. *Regardless, both parties must show whether the conduct is collusive or exclusionary and whether intent to incapacitate competition was to do so directly or indirectly.
Note Case: Rothery Storage & Van Co. v. Atlas Van Lines (Wald, J. concurring), 792 F.2d 210 (D.C. Cir. 1986); p. 65 Rothery (petitioner) is an independently owned storage company that operated as part of Atlass (respondent) network of moving and storage. Atlas forbad its affiliates to use its logo while they were doing non-Atlas business, that business they were doing on their own behalf or other companies. Rothery was fired when it refused to follow this policy. Atlas directed its other affiliates not to deal w/ Rothery on Atlas-related jobs. Rothery alleged that Atlass behavior violated 1 Sherman Act.
Court dismissed claim because Atlas only accounted for 6% of all moving and storage sales in U.S. Consequently, it stated Rothery couldnt show that Atlass actions hindered competition in the moving and storage market. **J. Wald wrote concurring opinion stating that S. Ct. hadnt yet decided on the purpose of antitrust laws and until it does, courts shouldnt just disregard the other noncompetitive justifications for enforcing antitrust laws. J. Wald disagreed w/ majoritys use solely of economic factors.
CHAPTER 2: CONCERTED ACTION AMONG COMPETITIORS (HORIZONTAL AGREEMENTS) A. THE EVOLUTION OF UNREASONABLENESS UNDER 1 OF THE SHERMAN ACT The Sherman Act of 1890 was the first federal antirust statute in U.S. 1 states that [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade is unlawful both civilly and criminally. Two elements of 1: 1) concerted action- A contract, combination or conspiracy; 2) anticompetitive effect- A restraint of trade. Section 2 addresses single firm conduct, usually the activities of actual or would-be monopolists. It places emphasis on the evaluation of the market effects of allegedly anticompetitive conduct. The Court went from a literal application of 1s every contract provision, United States v. Trans-Missouri Freight Assn 166 U.S. 290, 328 (1897), to a more subjective approach early in antitrust law. J. Whites dissent in Trans-Missouri advocated for a reasonability framework, i.e. the rule of reason; his approach was adopted in his majority opinion in Standard Oil Co. v. United States, 221 U.S. 1 (1911). He wrote that the rule of reason was/is based on standard of reason used in the common law before Sherman Act was enacted. The Court has a different role in Sherman Act jurisprudence because Congress wanted the Court to develop antitrust rulescourts have more leeway in antitrust law. Then, in Chicago Bd. Of Trade v. United States, 246 U.S. 231, 238-39 (1918), J. Brandeis writing for the majority reaffirmed the rule of reason stating that to determine whether a restraint is procompetitive or anticompetitive, courts should consider the particular industry before and after the restraint is imposed; the nature and effect of the restraint; as well as looking at the intention of the restraint. These factors should be considered to better understand the facts of the particular case and to predict the consequences of the restraint, thereby condemning those restraints contemplated by the Sherman Act. Id. He recognized that restraints could in fact promote competition, and not always destroy or impair competition. Restraints can be divided into two categories: plainly anticompetitive restraints, and ancillary restraints. Addyston Pipe & Steel Co. v. United States, 85 F. 271 (6th Cir. 1994). The first category had no purpose but to restrain trade/competition and was absolutely condemned in common law (per se). Legality of these restraints depended on their anticompetitive effect. The second category involved restraints ancillary to legitimate business purposese.g. covenants not to compete. These restraints were allowed at common law if they were integral to the legitimate purpose AND were not greater than what was necessary to further the purposelook to geography and time to determine reasonableness. The reasonableness suggested by Taft in Addyston Pipe only applied to ancillary restraints, while that suggested by Brandeis in Chicago Bd. Of Trade advocated a more broad application.
The two approaches to Per Se unlawfulness:
The literal per se rule, every restraint of trade is condemned. Trans-Missouri (irrelevant). The naked restraint per se rule, per se if the restraint isnt related to legitimate purpose and if theres no other purpose other than restraint of trade. Addyston Pipe.
The two approaches to the Rule of Reason:
The unstructured rule of reason, looks to the purpose, nature and effect of restraint. Standard Oil/Chicago Bd. Of Trade. The limited and structured rule of reason, states only ancillary restraints can use reasonableness justification.
B. THE EVOLUTION OF THE PER SE BAN ON PRICE-FIXING BY COMPETITORS The per se rules were justified due to their inherent anticompetitive nature, particularly in areas of price fixing. They were particularly applicable to those firms that had market power and also due to the predictable consequences of exercising market powernamely, restricting output, raising price, and the transfer of wealth from consumers to producers. The per se was extended variants of price fixing agreements: agreements to restrict output, divide markets, and collusive group boycotts.
1. Foundation Cases: Trenton Potteries and Socony-Vacuum Oil

Case: United States v. Trenton Potteries Co., 273 U.S. 392 (1927); p. 85 Parties: Petitioners (government); Respondents twenty-three producers of bathroom fixtures. Facts: Respondents were charged and convicted under 1 for fixing prices on bathroom fixtures. There was no dispute that the producers fixed price through their trade association, and that together, respondents accounted for 82% of bathroom fixture production in the U.S. Defendants argued that the fixed prices were reasonable, relying on the reasonableness language in Standard Oil and Chicago Bd. Of Trade. Issue: Whether the price fixing violates 1 where the fixed price is reasonable? Holding/Rationale: Yes; price fixing, even reasonable prices, is illegal per se. The Court stated that price fixing is inherently anticompetitive and that the reasonableness of the price doesnt make price fixing any more valid. Price fixing involves the exercise of market power, which also erodes competition. What is reasonable today may not be so tomorrow or later in the future; the true pricei.e. market priceof a product is thereby damaged w/ the lack of competition. The result is less control for the consumers. Notes:
Trenton Potteries established the per se unlawfulness of price fixing, also creating an irrebuttable presumption of unreasonableness.
Combined w/ Applalachian Coals, Inc. v. United States, 288 U.S. 344 (1933), these two cases suggest per se unlawfulness applies where the producers, or defendants, have a high market share. Socony Vacuum clarified this suggestion.
Case: United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); p. 91 Parties: Petitioners (government); Respondents (major oil companies) Facts: This case resulted from Great Depression. Gas production involved 4 steps: 1) exploration and drilling; 2) refining; 3) distribution; and 4) retail sale. The major companies that were fully integrated were the only firms capable of performing all four functions. Independents also refined but sold their output to jobbers, who were distributors supplying appx. 50% of retail gas stations in Midwest. Independents sold to jobbers @ spot market prices that fluctuated. Big companies also sold to jobbers, but w/ long-term ks that also took spot market sales into account. Independents increased overall supply of oil, which pushed spot market prices downward (high supply = lower price) which, in turn, decreased overall wholesale prices of oil. Respondents agreed amongst each other to select 1 or more independents to buy the surplus oil from and would hold that surplus off of the market, storing it their storage facilities. This helped raise spot market prices by decreasing supply of the oil, which resulted in higher prices. The agreements stabilized prices and raised spot prices. Evidence suggested that respondents had significant share of market. Respondents argued that their actions didnt unreasonably restrain trade because they took evil surplus oil that was depressing the price of oil off the market. Ph: District court charged that corporations and those w/ market power cannot conspire to fix prices and that the reasonableness of the price is immaterial. Circuit Court of Appeals reversed stating that price fixing is not unlawful unless it is an unreasonable restraint on trade. Issue: Whether Appellate Court erred by looking to the reasonableness of the price fixing on trade? Holding/Rationale: Yes, the appellate court erred in reversing. Uniform price fixing has long been held to violate the Sherman Act, despite its reasonableness. The evidence suggested that respondents reached an agreement amongst themselves and that the agreement was meant to raise price; furthermore, the agreement caused or contributed to an increase in the price of oil. The elimination of competitive evilsi.e. the surplus oilisnt a valid justification because price fixing is always unlawful. Considering the reasonableness of all price fixing schemes would emasculate the Sherman Act; indeed, the reasonableness of price fixing is immaterial. **Monopoly power isnt all that 1 prohibits; the conspiracy in this case can be viewed as behavior of a monopolist: respondents collectively had market power and exercised that power by restricting output resulting in raised prices. Notes:
Socony Vacuum established once and for all that price fixing is per se unlawful and that the reasonableness should not be considered. Once a per se agreemente.g. price fixingis established, then anticompetitive effect is presumed. All defenses and attempts to provide procompetitive justifications are precluded.
Per se unlawfulness applies to conduct that is so blatantly anticompetitive that a searching inquirynamely a rule of reason analysisis unnecessary because chances are the agreement will be found an unlawful restraint of trade. **REMEMBER: Per se establishes an irrebuttable presumption of unreasonableness!!! 2. Rule of Reason or Per Se: Tensions emerge in the modern treatment of price-fixing.
After Socony Vacuum, the only hope defendants had of defeating antitrust challenges to their behavior is to themselves challenge the classification of their conduct from price fixing, or other per se categories, to non-per se categories. Defendants goal is to reclassify literal price fixing as something else. Their successes in reclassification challenges create tension between per se precedent, which is still good law, and rule of reason analysis.
Case: Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979); p. 99 Parties: Petitioners (BMI & ASCAP), the original defendants, are organizations allowing musical copyright owners to authorize performances of their works; Respondents (CBS), original plaintiffs, tv network that makes use of copyrighted music for tv programs it supplies to affiliate stations. Facts: Petitioners were formed to make it easier for composers/copyright owners to negotiate with others for performers of the formers music as well as make it easy for the composers to detect unauthorized performances of their music. Members give petitioners the nonexclusive right to license performances of their works, receiving royalties to copyright owners based on a fee schedule (arrangement) that reflects the nature of the performances and amount of their music used. BMI has 1 million copyrighted pieces of music, and ASCAP has 3 million; petitioners account for almost all domestic copyrighted composition. Blanket licenses, petitioners main method of operation, give the licensees the right to perform any and all compositions owned by the members or affiliates as often as the licensees want for a stated term. Fees for blanket license = % of total revenues OR dollar amount. Fees dont depend on the amount or type of music used. Radio and tv broadcasters are primary users of blanket licenses. Respondents allege that: petitioners are unlawful monopolists; the blanket licenses are illegal price fixing; blanket licenses are unlawful tying arrangements; concerted refusals to deal; and petitioners misuse copyrights. Ph: Trial court rejected the claim that blanket licenses are price fixing and per se 1 violations, stating that negotiations w/ copyright holders is feasible and, therefore, theres no undue restraint of trade. The Court of Appeals held that blanket licenses were per se Sherman Trust violations, but agreed w/ lower courts fact-finding and legal conclusions on the other issues. Issue: Whether the blanket licenses issued by petitioners to tv/radio stations are a form of price fixing in violation of 1? Holding/Rationale: No, blanket licenses are not per se unlawful. The Court of Appeals apparently used a literal interpretation of price fixing in finding a per se violation, which is too simplistic an approach. Copyright laws protect copyright owners ability to control their
copyright. Marketing arrangements, such as blanket licenses, that are reasonably necessary to advance the rights of the copyright owners arent expected to violate the Sherman Act. Petitioners are only granted nonexclusive rights to license copyrights, meaning the copyright owners can authorize others to, or themselves, negotiate performances of their music. Petitioners arent allowed to insist on blanket licenses and are required to offer the applicant a genuine economic choice between the per-program license and the more common blanket license. Per se unlawfulness means that the agreement is plainly anticompetitive and likely w/out redeeming virtue. The agreements at issue do not have the effects contemplated by the Sherman Act. Blanket licenses allow copyright owners to more easily negotiate and track performances of their music, w/out giving up any of their rights to their copyrights. Therefore, there is no antitrust violation. Notes: Note Case: Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980) Facts: Beer wholesalers colluded to stop providing credit w/ interest for 30-42 days. There wasnt evidence that they agreed to a price. Plaintiffs alleged that prior to the agreement, wholesalers vigorously competed on terms of credit; retailers considered this as a form of discounts. The agreements made retailers pay in advance or on delivery. Holding/Rationale: The Court held that wholesalers violated 1 by eliminating competition concerning one component of price and tended to stabilize prices. The Court also emphasized that the machinery employed by a combination for price-fixing is immaterial (quoting Socony Vacuum), finding that there was no difference between price fixing and a collective refusal to compete on credit terms. Note: Catalano is a reminder that price is comprised of many components. The Courts prior rejection of reasonableness defenses in Trenton Potteries and other cases precluded the argument that eliminating competition of price components isnt the same as fixing price. Case: Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982); p. 107 Parties: Petitioners (government); Respondents (Maricopa), nonprofit corporation of licensed doctors in private practice (1750 doctors, 70% of practitioners in Maricopa County). Facts: Maricopa was formed to provide a competitive alternative to existing health insurance programs. It promotes fee-for-service medicine by: 1) establishing maximum fee schedule that members must accept as full payment for services performed for patients insured under approved plans; 2) reviewing medical necessity and propriety of treatment provided by members to (insured) patients; and 3) its authorized to draw checks on insurance company accounts to pay doctors for services performed on (insured) patients. Insurance plans receive approval if they agree to pay the doctors charges up to the scheduled amounts in exchange for the doctors acceptance of $ as full payment. Doctors may charge more to uninsured patients, and may charge less to insured patients. Insured patients may go to non-member doctors but must pay difference, if any, of non-member bill. Arizona Dept. of Insurance considers Maricopa an insurance administrator. Arizona alleges that the fee schedules periodic upward revisions stabilize and enhance the level of actual charges by doctors. The increase in fees results in an increase in insurance premiums.
Maricopa argues that the plan imposes a meaningful limit on physicians prices that allows insurance companies to more efficiently limit and calculate risks, which has saved patients millions. Maricopa argues that the per se rule doesnt apply because: 1) the agreements are horizontal and fix maximum prices; 2) are among members of a profession; 3) are in an industry antitrust laws have little experience in; and 4) have procompetitive justifications. Issue: Whether agreements among competing physicians to set maximum fees they may claim for services provided to policyholders of specific insurance plans violates 1? Ph: The 9th Cir. held that the issue couldnt be answered w/out evaluating the purpose and effect of the agreement at a full trial. Holding/Rationale: Yes, the plan violates 1. Price fixing is simply per se unlawful. (Addressing Maricopas defenses) First, horizontal agreements to set maximum prices are on same economic and legal level as agreements to set minimum or uniform prices. The current restraint gives all doctors, regardless of individual skill, experience, training, or willingness to employ innovative/difficult procedure in individual casesdoctors dont need to be better than each other to get patients. Second, there is no distinction between professionals and nonprofessionals in antitrust. Maricopas claim that the fee schedule makes it easier for patients to pay bills, making the plan itself more attractive (than other insurance plans) seems like an attempt at a reasonableness fefense for the price fixing. Precedent has rejected this defense. Thirdly, the judiciary doesnt have to have experience in the medical industry w/ respect to enforcing antitrust laws; it has PLENTI-O experience in antitrust to detect and invalidate per se unlawful price-fixing schemes. Finally, procompetitive justifications dont matter when dealing w/ price fixing because anticompetitive potential of per se categories cannot be rebutted. Per se rules suggest that procompetitive justifications are so unlikely to prove significant in any particular case that they are disregarded. The Courts adherence to the per se rule is based on economic prediction (high probability of anticompetitive effect), judicial convenience (no need to conduct searching inquiry), business certainty and to its role to develop the parameters of the Sherman Act. Ancillary Restraint Analysis Non-compete clauses are permissible as long as they are reasonable ******************SEE ALSO DISTINGUISHING BMI AND DISSENT**************** Like BMI, the plan was not an exclusive method of business practice There is the argument that a uniform fee schedule was necessary for insurance reasons C. MARKET DIVISION BY COMPETITORS Competitors try to emulate a monopolist through collusive agreements aimed at restricting output and raising price. Competitors may also agree to divide the relevant market amongst them
to limit competition as a whole, not just price competitionthey are agreeing to create minimonopolies for themselves. They may divide markets by agreeing not to compete in a defined geographic, dividing up and assigning customers or customer categories, agreeing not to solicit each others customers, or by agreeing to divide product lines. Division of markets, unlike pricecompetion, forecloses all forms of competition in the relevant market, price and non-price. The competitors must collectively have market power in order to be able to divide the market in such a manner as to behave as a monopolisti.e. exercise market powerbecause they will face competition from competitors not party to the agreement. Note Case: Timken Roller Bearing Co. v. United States, 374 U.S. 593 (1951) (p. 117), Facts: Defendants were the main manufacturers of antifriction bearings who, over 40 yrs., had agreed to divide the world markets territorially. The division included allocating trade territories, fixing the price of products of an affiliate that were sold in anothers territory, cooperating to hinder new entry, and restricting imports and exports form the U.S. Holding/Rationale: The Court viewed the defendants as a cartel and their agreements as another way to fix price. In doing so, the Court implied that division of markets by competitors needed per se treatment. Case: United States v. Topco Associates, Inc., 405 U.S. 596 (1972); p. 118 Parties: Petitioner (government); Respondent (Topco) is a cooperative of 25 small to medium sized regional supermarkets. Facts: Topco was created to help smaller supermarkets compete w/ the larger national supermarket chains. Member stores are independently operated. Topco purchases and distributes 1,000+ food/nonfood items, most of which are Topco-Brand products, to members. Members individual market shares ranged from 1.5% to 16%, but collectively through Topco totaled the fourth largest sales amount in 1967 behind only three national grocers. Members rely on Topco brand products for substantial profits and increase ability to compete w/ other supermarkets. Topcos agreement: membership must be approved by the board of directors and then by 75% of the members. Actual members w/n the same geographic market as a potential member (w/n 100 miles) can object, thereby raising the requisite approval by members to 85%. Also, members cant sell products wholesale w/out the associations permission, which is rarely given. Exclusivity provisions insulate members from competition for Topco-brand goods. The government alleges 1 violation through members agreements to not compete against each other in same territory. Topco defense states: 1) territorial divisions are necessary to compete w/ larger chains; 2) exclusivity of divisions is the only way the cooperative can exist; and 3) the restriction of Topco-brand competition increases overall (interbrand) competition by allowing members to successfully compete w/ larger chains. Issue: Whether competitors division of markets provided sufficient procompetitive justifications to make it consistent w/ antitrust laws? Holding/Rationale: Division of markets by competitors is a per se violation of 1. Topcos defense that restricting competition in one area, Topco brand products, helps overall competition is misplaced. Destruction of competition in one sector to promote competition in another is an important rationale to maintain per se rules. Also, Topcos territorial restrictions on wholesaling =
customer restraints that limit members ability to interact w/ potential customers. This is a horizontal agreement among competitors, namely Topco members (independently operated). Similar vertical agreements may be justified as reducing intrabrand competition to increase interbrand competition, but horizontal arrangements are per se invalid. **Dissent (Burger, C.J.): The agreements between Topco members is ancillary to a legitimate business purpose: to help smaller businesses to compete w/ national chains by making economically feasible quality control, large quantity purchases at bulk prices, development of attractively printed labels, and the ability to offer different lines of trademarked products. Ancillary restraints must not restrain more than what is necessary to achieve a legit business purpose, which is what Topco does. Topco created the market for Topco brand product just as national chains create markets for their own private brandse.g. Giant spaghetti, Cub Foods bread. National chains are allowed to limit access to their private labels because they created them; Topco should be allowed to do the same because Topco-brand products only exist because the cooperative exists. Case: Palmer v. BRG of Georgia, 498 U.S. 46 (1990); p. 125 Parties: Petitioner (Palmer) law students signed up for Bar/Bri bar prep courses; Respondent (BRG) bar prep review organizers in Georgia Facts: HBJ (Bar/Bri) and BRG had intense competition between them for bar review courses in Georgia in late 1970s. In 1980, they agreed that BRG would get exclusive license to use HBJs trade name in Georgia; BRG wouldnt compete w/ HBJ outside of Georgia and wouldnt face competition in Georgia. HBJ received kick back for students BRG recruited. Price for bar courses immediately increased from $150 to $400. Ph: The district court held agreement was lawful. Eleventh Circuit Court of Appeals agreed stating that a horizontal price fixing scheme required an explicit agreement on price or agreement that the other party would be consulted on the first partys prices. Also, the Court held that allegations of per se geographic market division theory required respondents to agree to subdivide a market in which they had previously competed. Issue: Whether the lower courts erred in the application of per se rules on the price fixing scheme and allocation of geographic territory? Holding/Rationale: Yes, the lower courts erred. First, relying on Socony Vacuum, the Court held that agreements made to raise, depress, or stabilize price is per se unlawful. Here, respondents intended to raise the price of bar review courses as evidenced by the dramatic increase in price after the agreement was formed; therefore, respondents agreement is per se unlawful. Second, relying on Topco, the Court held that agreements among competitors to allocate territories to minimize competition are illegal. Here, respondents had previously competed against each other Georgia but after the agreement HBJ left that market while BRG left all markets outside of Georgia. Reserving markets for individual competitors is no different than dividing markets; therefore, respondents territorial allocations are per se unlawful. Case is remanded. D. GROUP BOYCOTTS HAVING COLLUSIVE EFFECTS
Group boycotts are also termed concerted refusals to deal. There are two types of group boycotts, or concerted refusals to deal: collusive group boycotts and exclusionary group boycotts. Collusive group boycotts refer to concerted refusals with suppliers that result in collusive effects, i.e. those that directly restrict output or raise pricee.g. competitors agree to boycott a supplier to get lower prices, or competitors boycott a purchaser to get him to accept a higher price. Boycotters are attempting to directly impact output and price, just as all collusive anticompetitive effect. Proof of the boycott will be the ability of the boycotter to attain his demanded price; justifications will not likely be accepted. Exclusionary group boycotts refer to concerted refusals directed at rivals of the colluding firm. Price is affected indirectly. Indirect power over price can be achieved by raising rivals costs, limiting rivals access to necessary sources of supply or to customers, or otherwise hinder rivals ability to enter or expand a market. By limiting the number of rivals, overall output of the relevant market is restricted and price goes up. The evidence must also show that in addition to excluding a rival that the excluding firm(s) possessed the necessary power to raise price.
1. Foundation Cases: From Eastern States to Klors

Note Case: Eastern States Retail Lumber Dealers Assn v. United States, 234 U.S. 600 (1914) (p.130). Facts: Petitioners (original defendants) were a group of retail lumbers that collectively agreed to refuse purchasing supplies from wholesalers that were dual distributorsselling lumber as both a wholesaler and retailer. As dual distributors, the wholesalers were also petitioners competitors. The wholesalers had a cost advantage over the retailers due to their ability to vertically integrate into retailing. Through their retailers trade association, the retailers blacklisted dual distributors and encouraged members and customers to refuse to deal w/ them. The purpose was to force dual distributors from retailing. Holding/Rationale: The Court struck down the agreement. Relying on Standard Oils per se rule, the Court found that while an individual retailer may independently refuse to deal w/ a supplier or dual distributor, he cannot conspire w/ or induce others to do the same. Doing so obstruct the free course of commerce. Note Case: Fashion Originators Guild of America v. FTC, 312 U.S. 457 (1941)(p. 131). Facts: FOGA was a trade organization for designers and manufacturers of womens high fashion dresses. Some retailing customers would allegedly pirate FOGA members designs, selling the same style dresses at lower prices. Members boycotted the pirating retailers and induced retailers to cooperate w/ the boycott. Half of the retailers agreeing to boycott did so out of fear that members wouldnt sell to those refusing to cooperate. Holding/Rationale: The Court struck down the boycott, rejecting FOGAs defense that it did not reduce quality, limited production (output) or set a fixed price. FOGA also 1) prohibited members form participating in retail advertising; 2) regulated discounts they may allow; 3) prohibited their selling at retail; 4) cooperated w/ local guilds in regulating days on which special sales were held; 5) prohibited members from selling womens garments to persons conducting business in residences, residential quarters, hotels or apartment houses; and 6) denied membership to retailers who participate with dress manufacturers in promoting fashion shows unless the merchandise used is actually purchased and delivered. These factors combined w/ the
boycott had severe anticompetitive effects by limiting outlets to who manufacturers could sell and sources where retailers could buy, subject those not participating in FOGAs plan to a boycott, and suppresses competition from copied dresses. The reasonableness of the boycott is immaterial and action falling into FOGAs defense categories (see above) isnt exhaustive of conduct prohibited by the Sherman Act. Case: Klors, Inc. v. Broadway-Hale Stores, Inc. 359 U.S. 207 (1959); p. 132 Parties: Petitioner (Klors) is an independent appliance store; Respondents (BWH) include national appliance manufacturers. Facts: Klors competes w/ BWH in selling appliances. Its as capable as BWH to sell all appliance brands. Klors alleges that BWH conspired w/ GE, RCA, Zenith, and other wellknown brands to refuse to sell to Klors, causing Klors to lose profits, goodwill, reputation, and prestige. Ph: District Court granted s/j for BWH stating that the claim didnt allege a public wrong proscribed by the Sherman Act. Court of Appeals affirmed because petitioner didnt charge/prove that price, quantity, or quality offered to the public was affected; the public wasnt harmed by the conduct so the Sherman Act doesnt prohibit the conduct. Issue: Whether the Sherman Act prohibits boycotts where the only party affected is an individual competitor and no proof of affect on price, quantity, or quality offered to the public is provided? Holding/Rationale: Yes, under the Sherman Act, group boycotts are per se unlawful. Group boycotts fall into the per se category because they have been held by their nature or character to be unduly restrictive to trade. The combination alleged includes manufacturers, distributors and a retailer, not individual or independent choice to not deal w/ Klors. The boycott has a definite monopolistic tendency that can thrive by eliminating one competitor at a time or a number of competitors. That only one competitor was harmed makes no difference because such conduct is unlawful.
2. Contemporary Treatment of Collusive Group Boycotts

See Charts on pp. 128 & 129 Case: Federal Trade Commission v. Superior Court Trail Lawyers Assn, 493 U.S. 411 (1990); p. 137 Parties: Petitioner (FTC); Respondents (SCTLA) a voluntary organization of DC trial lawyers. Facts: The Criminal Justice Act allowed the court to appoint private attorneys as public defenders for indigents. CJA regulars are approximately 100 lawyers who depend on representing indigents for their entire income. CJA provide $30/hr. for in court time and $20/hr. for out of court time; CJA regulars wanted $35/hr. At a SCTLA meeting, attorneys agreed to strike if they didnt get $55/hr. court time and $45/hr. for out of court time; they signed a petition. After they began their strike, the mayor authorized a pay increase. The FTC filed suit thereafter alleging SCTLA members, who regularly compete against each other for CJA appointments, conspired to raise
price in violation of 1. SCTLAs defenses: 1) the boycott is justified by the public interest in getting better legal representation; 2) the boycott is exempt from antitrust reach because it was a method of petitioning the legislature for change; and 3) the boycott was a form of political expression protected by 1st Am. Ph: ALJ dismissed the complaint because, even though the allegations in the complaint had been proven, district officials accepted the boycotts net positive effects. Court of Appeals affirmed stating that the 1st Am. aspect the boycott was protected, under OBrien, and imposition on these rights isnt justified unless its no greater than is essential to an important governmental interest, which the FTC didnt establish. Issue: Whether SCTLAs conduct violated 5 of the FTC Act and whether the conduct is protected by 1st Am.? Holding/Rationale: SCTLA violated 5. CJA attorneys, before the boycott, competed w/ each other to get appointed to indigents; their agreement through the SCTLA, therefore, is a horizontal agreement. SCTLA sought to increase price by forcing an increase in hourly rates, threatening to and, carrying out a, strike if their demands werent met. This is a naked restraint on price and output. Respondents justifications and the lower courts rationales look to the reasonableness of the naked restraints, which is precluded by their classifications as naked restraints. Also, respondents reliance on NAACP v. Claiborne Hardware for 1st Am. protection is misplaced because this case involves conduct by business competitors, not private individuals seeking to obtain equality and freedom. Note: Brennan and Marshall dissented arguing that the Courts use of the per se rule demonstrated insensitivity to the venerable tradition of expressive boycotts as an important means of political communication. (Brennan, J., dissenting). A. COLLUSIVE EFFECTS AND THE RULE OF REASON 1. Origins of the Traditional Rule of Reason The Courts rule of reason adopted in Standard Oil was explained by J. Brandeis in Chicago Bd. Of Trade, setting out not only the prevailing statement of the rule, but also the earliest example of its practical application. Case: Bd. Of Trade of the City of Chicago v. United States, 246 U.S. 231 (1918); p. 146 Parties: Petitioners (Board), the commercial center through which most of the trading of grain in the Chicago grain market is done; Respondents (government). Facts: The Board has 1600 members from all facets of grain market. There are 3 forms of trading: 1) spot sales, grain already in Chicago that is ready for immediate delivery; 2) future sales, agreements for delivery at a time in the future; and 3) sales to arrive, agreements to deliver grain in transit to Chicago or soon to be in transit. In 1906, the Board developed the call rule, which prohibited purchasing or offering to purchase between the close of call and the opening the next day. Before the rule, members made bids throughout the day and even after close w/out knowing actual market conditions. The rule made members decide by close if they wanted arrival grain.
Ph: Lower courts found that the Board engaged in a conspiracy to restrain interstate foreign trade, enjoining them enforcing the plan. Issue: Whether the call rule is an unreasonable restraint of trade in violation of 1? Holding/Rationale: No, the rule is not invalid. All trade agreements restraint trade in one way or another. The test of legality should be whether the restraint has the effect of destroying competition. Courts should consider the particular industry before and after the restraint is imposed; the nature and effect of the restraint; as well as looking at the intention of the restraint. These factors should be considered to better understand the facts of the particular case and to predict the consequences of the restraint, thereby condemning those restraints contemplated by the Sherman Act. The restraint had no effect on general market prices (price) and did not materially affect the total volume of grain entering into Chicago (output). The Court noted the procompetitive aspects of the restraint, including allowing country dealers more participation in the market and bringing buyers and sellers into more direct relations. The Court recognized that restraints could in fact promote competition, and not always destroy or impair competition; accordingly, a more subjective view of the restraint should be used. Case: National Society of Professional Engineers v. United States, 435 U.S. 679 (1978); p. 150 Parties: Petitioners (NSPE) are professional organization of engineers; Respondents (government) Facts: NSPE was organized to deal w/ the promotion of the professional, social, and economic interests of its members. Its membership includes 69,000 engineers throughout the world. 11(c) of NSPEs Code of Ethics prohibits competitive bidding by its members, encouraging members to focus on quality of work and other non-price related factors. NSPE defended its practice stating that price competition among engineers is contrary to the public interest by forcing engineers to cut-back on quality materials. NSPE argues that their plan protects the public from poor work. Issue: Whether NSPEs ethical canon is justified because it is developed by a professional organization to minimize the risk that [price] competition would produce inferior work? Holding/Rationale: No, the NSPEs ban on price competition is unlawful. The Court recognized two analytical frameworks for antitrust analysis: per se rules, which expressly prohibits certain practices, and the rule of reason, which considers the totality of the circumstances. The inquiry is on the restraints effect on competition. The current plan prohibits members, who are also competitors, from price competition; the ban prohibits consumers from making price comparisons. The Sherman Act protects competition believing that healthy competition best serves consumers. Notes: See questions on p. 155
Even though the rule of reason is accepted as a means of analyzing restraints on trade, but theres no guidance, from Chicago Bd. Of Trade, about what factors are important to rule of reason.
What factors, if identified, should be given more weight and what procompetitive factors, if any, could protect a restraint? How are the burdens of proof and production to be allocated? How much and what kind of evidence of purpose, nature, and effect will be sufficient to shift a burden of production to the defendant? How can the defendant rebut this evidence? There is no exception to the rule of reason based on profession
2. Ancillary Restraint AnalysisAn Alternative Approach to Defining Reasonableness Case: United States v. Addyston Pipe & Steel, Co., 85 F. 271 (6th Cir. 1899); p. 156 Parties: Petitioner (government); Respondents (Addyston) competing producers of cast iron pipe. Facts: Respondents agreed to fix prices defending on the ground that w/out the agreement, 1) they would be subject[ ] to ruinous competition from each other; 2) reasonable prices; and 3) they didnt have significant market share (30%). Issue: Whether Addystons price fixing scheme is valid due to its justifications? Holding/Rationale: The price fixing agreements are per se unlawful, involving nothing but restraint; the defenses were all rejected. J. Tafts reasonableness approach focused on ancillary restraints, which are more limited than that announced in Standard Oil. To uphold a restraint, courts must find that the restraint is reasonably necessary 1) to the enjoyment of the covenantee; 2) to legitimate business ends; 3) for the protection of the covenantor; 4) to protect the convenantor from the misuse of trade secrets. Notes: Ancillary restraint analysis required consideration of these questions: o Was the restraint ancillary to a proper or legitimate purpose? o How necessary was it? o Was it no more restrictive than necessary to facilitate the proper purpose? Ancillarity served to promote the integration of resources facilitating greater economic activity and a more efficient allocation of resources. The focus on the economic aspect of horizontal restraint analysis is now a widely accepted. 3. The Import of Less Restrictive Means In per se cases, defendants face an irrebuttable presumption of illegality because such restraints are assumed to do nothing but restrain. In non-per se cases, there is a burden shifting process. Plaintiff will always bear the burden of proof, but can shift the burden of production by providing evidence of actual anticompetitive effectsi.e. direct evidence of restricting output and raising priceor through proof of market power (the exercise of?). With this evidence plaintiff establishing a rebuttable presumption of illegality, shifting the burden of production to the defendant. Defendant must now demonstrate that the restraint is ancillary to a legitimate underlying purpose to rebut the presumption of illegality. Plaintiff may still prevail by showing
that although the restraint is ancillary, it is unreasonable either by arguing either that the legitimate reasons are pretext or that the restraint is more than what is necessary to achieve the legitimate purpose. See Brown University. COLLUSIVE ANTICOMPETITIVE EFFECTS: MODERN TRENDS
See Figure 2-7 for Summary of Traditional Horizontal Per Se Rules (p. 164). There are three per se categories: 1) price fixing; 2) division of markets; and 3) collusive group boycotts. 1. Per Se Offenses by Competitors Case: JTC Petroleum Co. v. Piasa Motor Fuels, Inc., 190 F.3d 775 (7th Cir. 1999); p. 165 Parties: Petitioner (JTC) an applicator that bids for road construction/maintenance jobs; Respondents (Piasa) producers of asphalt and other applicators. Facts: JTC alleges that both defendant applicators and producers agreed among each other to not compete on local government jobs, allowing the cartel to assign jobs to various applicators. Producers of asphalt refused to sell to JTC, a maverick, at the direction of the colluding applicators. Ph: District court granted s/j for defendants that didnt settle w/ petitioners. Issue: Whether the lower court erred in granting s/j to producers and applicators alleged to have engaged in unlawful collusion? Holding/Rationale: Yes, the lower court erred. The evidence suggests that the asphalt industry was ripe for collusion given its history of bid rigging, the inelasticity of asphalt, the limited number of producers, and the high switching costs for producers. The evidence, which is to be viewed in the light of the non-moving party, suggests that applicators conspired w/ each other to eliminate competition for jobs and assigned jobs to one another to achieve this end. Furthermore, evidence suggested that applicators paid producers to refuse to sell to mavericks, such as JTC. Given the evidence and burden shifting, JTC created an issue of fact to be tried. 2. The Search for a Structured Rule of Reason: The Quick Look and Other Abbreviated Approaches Starting w/NSPE, the courts began looking for an intermediate framework between per se application and rule of reason. The third category premised that not all cases literally falling into the per se category warrant per se treatment and not all non-per se cases deserved a full-blown rule of reason analysis. Case: NCAA v. Bd. Of Regents of University of Oklahoma, 468 U.S. 85 (1984); p. 169 Parties: Petitioner (NCAA) governing agency of collegiate athletics; Respondents (Okla.) is a university and member of NCAA.
Facts: NCAA implemented a plan regulating tv rights to members football games. Regulations limited who could broadcast games (CBS & ABC) and the number of times members may appear on tv. The agreements determined compensation for television appearances regionally and nationally. NCAA tried to get as many members on tv as possible so certain schools wouldnt receive all tv contracts and get all corresponding money. Members are not allowed to sell their tv rights inconsistently w/ the NCAAs plan. Respondents did so, and sued when NCAA threatened sanctions. Ph: The district court found for respondents; the court of appeals affirmed. Issue: Whether the NCAAs limitations on the televising of college football games by networks and amount of compensation paid to televised members violate 1? Holding/Rationale: Yes, the NCAAs plan violates 1 because it restrains competition among the members. A cooperatives regulation of members ability to market a product isnt illegal per se, but only if the limits restrain competition among the members. Members agree to eliminate price competition or kind of tv rights w/ respect to the relevant product, college sports. Horizontal restraints on college sports are necessary if the product is to be available. NCAA, therefore, widens consumer choice by making available a product that, w/out it, may not be available. However, the plan prevents popular schools, such as Oklahoma and Georgia, from using their popularity to negotiate more favorable tv rights and make more $$; this aspect of the plan violates 1. (The quick look analysis) The Court refused to apply per se rules because of the nature of the industry and special role the NCAA plays in regulating all collegiate athletics. It didnt, however, go too in depth into the rule of reason analysis. Factors the Court considered include: 1) members inability to compete w/ price and outputhow much each member would get for a particular game and how many games would be televised of that particular school; 2) what networks are able to broadcast gamesNCAA restricted this to CBS & ABC, those national networks that could cover all of the NCAA. Case: FTC v. Indiana Federation of Dentists, 476 U.S. 106 (1986); p. 178 Parties: Petitioner (FTC); Respondent (IFD) independent dentists in IN. Facts: IFD organized itself as a union to try to avoid antitrust laws. Membership is small but is heavily concentrated in the Andersen-Lafayette-Fort Wayne area. After forming, IFD implemented a policy forbidding members from submitting patients x-rays w/ insurance claims. FTC alleged that the work rule suppressed competition among competitors w/ respect to cooperating w/ insurance companies. There is no dispute as to the existence of the work rule conspiracy to not cooperate w/ insurance companies exists. Ph: The 7th Cir. found that competition wasnt suppressed because 1) dentists dont normally compete w/ respect to cooperation w/ requests for information by patients insurance companies and 2) assuming dentists compete in this service, the policy didnt impair competition because members allowed insurance companies to use other methods of evaluating diagnoses (probably more costly). Issue: Whether the horizontal conspiracy to refuse patients requests for x-rays to submit to insurance companies for evaluation of claims violates antitrust laws?
Holding/Rationale: Yes, IFD unlawfully deprived patients (consumers) of a service (cooperation w/ insurance companies) in which dentists formerly competed. The record indicates that dentists perceived unrestrained competition tended to force them to comply w/ insurance companies requests in order to secure patients. The effect of the non-cooperation was that insurance companies had to use more costly, perhaps prohibitively costly, methods of evaluation. IFD eliminated a competition w/ respect to a service that patients could use to choose a particular dentist. The conspiracy is analogous to a group boycott and is thus improper. The Court applied the rule of reason but used an abbreviated analysis because the evidence of anticompetitive effects was fairly obvious. Case: California Dental Association v. Federal Trade Commission, 526 U.S. 756 (1999); p. 183 Parties: Petitioners (CDA) professional organization of dentists; Respondents (FTC). Facts: CDA is a nonprofit professional organization that was created to provide members access to different insurances, including liability coverage, and finance members real estate, equipment, cars, and patients bills. CDAs Code of Ethics 10 prohibited false or misleading advertising by its members in material respects including w/ price, competence and expertise of the member. FTC alleged that CDA restricts advertising in relation to price, particularly discount fees, and quality of services. Ph: ALJ found that CDA unlawfully restricted legitimate forms of advertising and, although it didnt have market power, its policies violate 5 of the FTC Act. The Commission accepted ALJs findings, but further found, under and abbreviated rule of reason analysis, that the CDA price and non-price advertising restrictions violated the FTC and Sherman acts. Court of Appeals affirmed. Issue: Whether a quick look sufficed to justify finding that certain advertising restrictions adopted by the CDA violated the antitrust laws? Holding/Rationale: No, quick look analysis is too limited to use here because the anticompetitive effects of the restraints are not intuitively obvious so a more thorough inquiry under the rule of reason is required. A quick look analysis is appropriate only where someone w/ a limited understanding of economics could conclude that the arrangements in question would have anticompetitive effects on the market and consumers, or where anticompetitive effects are easily ascertainable. Court doesnt answer the question of the restraints validity, but states that the restrictions may have a net procompetitive effect. In this case, the plausibility of both the CDAs and FTCs theories shouldve ruled out the quick look analysis. Courts should look to the circumstances, details, and logic of a restraint before striking it down. **(Breyer, J., dissent, w/ Stevens, J., Kennedy, J., and Ginsburg, J. in part and concurring in part) Dissenters argue that under rule of reason the FTC carried its burdens. The factual disputes went against CDA, according to the ALJ and Commission, and the Courts role is to see if the conclusions of fact were reasonable, which they are. The advertising restrictions on quality of work result in an overall limitation on competition because they prevent patients from finding out about dental services of members. CDA could not substantiate its procompetitive justifications empirically according to the Commission, which is an expert in false/misleading advertising and the arbiter of reasonableness in the matter. CDA had market power because its membership included, on average 75% of the marketplace, in one area having 90%. CDA hasnt provided
strong evidence to contradict the presumption of anticompetitive effects. Therefore, the dissenters argue that the court of appeals and ALJ be affirmed. Notes: Quick look came about because, under the old framework, restraints were either condemned swiftly if they were categorized in per se categories, or if the restraints didnt fall into per se categories, an in depth analysis into potentially a large amount of data must be undertaken. Two forms of quick look analyses resulted from the potential over-inclusiveness and under-inclusiveness of the rule of reason: quick look to condemn and quick look to exonerate: o Quick Look to CondemnSometimes the anticompetitive impact of a restraint can be readily demonstrated, even if the restraint falls outside of the established per se categories (Prof. Areeda). NCAA & Indiana Federation Of Dentists turned on, A facial review indicating harm to competition, Plausible efficiency defenses justifying abandoning per se rules, but Condemnation when evidence doesnt support the defense Also, when the full, formal rule of reason is the governing standard, plaintiffs almost never win. (p. 198) o Quick Look to ExonerateLooks to identify insubstantial cases for exoneration through the use of filters to weed out non-meritorious cases (J. Easterbrook). Filter #1: Market Power, if P cant show that D has market power, then the case is thrown outeven if conduct falls in a per se category because according to Easterbrook, firms w/out market power cant injure competition no matter how hard they try. If market power is established, then other filters must be passed through (casebook doesnt identify these filters). Guidelines for Competitor Collaborations tries to synthesize the two quick look frameworks. Its goals are: o To avoid full blown market inquiries when anticompetitive effects are evident o To avoid inquiry into justifications and efficiencies when evidence of market power is lacking, and o To preserve the flexibility to promptly condemn conduct having plausible efficiencies when those efficiencies in fact cannot be substantiated. o ******BRING THESE TO THE EXAM!!!! G. JOINT VENTURES AND STRATEGIC ALLIANCES The cases involving price fixing, group boycotts, and division of markets have been condemned by the Court. The cases where the Court has upheld defendants schemes have been labeled joint ventures, that is agreements formed among rival firms to achieve specified purposes, purposes that none of the participants couldve realized on their own. Meaning Chicago Bd. Of Trade, NCAA, BMI, and Topco may all be examples of joint ventures, suggesting joint ventures have procompetitive cooperation relationships that saved them from condemnation.
1. Categorizing Joint Ventures by Function Joint ventures generally all into one of three categories or a combination of multiple categories: research and development joint ventures, production joint ventures, or distribution joint ventures. Research and Development (R & D) Joint Ventures: This venture pools the intellectual and financial resources of firmsoften rivalsto pursue the development of new products, processes, or even basic scientific or technical knowledge. The cost of undertaking research can be daunting for a single firm, especially one that lacks the resources to pursue this course of action. R & D ventures can accelerate innovation and lead to significant technological breakthroughs. Production Joint Ventures: An undertaking to jointly produce something, typically a new product. This is similar to R&D ventures in that both may involve the sharing of knowledge and resources. To encourage both production and R&D ventures, Congress allows for antitrust exemptions to firms pursuing them. Distribution Joint Ventures: This venture combines the capabilities of firms to bring new or existing products or services to market. The may combine, improve upon or expand existing capabilities, or lead to the creation of new capabilities or methods. All joint ventures share certain characteristics, including 1) integration of resources to produce something firms couldnt independently produce on their own; 2) efficiency and cost saving from the sharing of costs and risks; and 3) contractual restraints to ensure parties are not being exploited by sharing information. 2. Possible Anticompetitive Effects of Joint Ventures Joint ventures often occur between rivals thereby substituting cooperation for competition. The possibility and conditions exist that firms would use joint ventures to directly or indirectly facilitate anticompetitive coordination. Essentially, a joint venture can serve as another method of setting price and restricting output, or restricting competition. In formation of joint ventures, the broader the scope of the venture, the greater the risk of the collective attainment of market power, the closer the firms come to becoming monopolists. The formation of a joint venture can also exclude other thereby causing exclusionary effects. In the operation of joint ventures, both collusive and exclusionary effects are also implicated. 3. The Variegated Legal Framework for Analyzing Joint Ventures Joint ventures, given their potential for collusive and exclusionary effects, and the range of conduct that can be described as joint ventures, analysis of joint ventures involves application of multiple competition policy systems. Joint ventures are looked upon favorably because of their high potential to facilitate production and innovation. However, the possibility for abuse and the corresponding danger to the market and consumer require that they be monitored closely.
CHAPTER 3: PROVING CONCERTED ACTION A. ANTITRUSTS SPECIAL SCRUTINY OF COLLECTIVE ACTION Antitrust laws rarely interfere w/ individual competitors acting alone, but instead focuses on concerted action. Independent action is not seen as a threat because individual should have the right to control the output and prices of their products. Coordinated efforts between competitors, on the other hand, suggest that the public is being deprived and/or exploited by firms. Figure 3-1 Solving Cartel Problems Reaching consensus Deterring deviation (i.e. Cheating); and Preventing new competition Case: Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984); p.214 Parties: Petitioner (Copperweld) is a corporation being sued along w/ its wholly-owned subsidiaries; Respondents (Independence) a new entrant into the steel tubing industry. Facts: Independence alleges that Copperweld and its wholly owned subsidiary, Regal, unlawfully induced a mill supplier to breach a contract it had w/ Independence to supply tubing; the alleged breach delayed Independences entry into the steel tubing industry. Ph: Jury found for Independence but stated that only Copperweld and Regal conspired, not the mill supplier. Court of Appeals affirmed stating that a parent and its subsidiary could provide the plurality of actors necessary for 1 violations. Issue: Whether a parent and its subsidiary are sufficient to provide the plurality of actors necessary for a 1 violations? Holding/Rationale: No, a parent and its subsidiary are essentially one entity. 1 violations require concerted action or conspiracy to findings of liability. 2 addresses individual action, but then only when dealing w/ monopolists. Drafters of the Sherman Act likely felt that concerted actions to restraint of trade are a bigger threat to competition than single-entity restraints. A parent and its unincorporated subsidiaries are incapable of conspiring because they share the same interest in identitythis is drastically different than concerted action where competitors conspire because each conspirator has its own identity. Notes: Threshold for proof under 1 is less than that of 2. Circumstantial evidence in terms of market power demonstrated by market share becomes important B. THE MODERN ECONOMICS OF COLLUSION Although collusion is a significant concern of antitrust laws, it is difficult to prove, or even accomplish. Colluding firms must solve the three cartel problems: 1) reaching consensus; 2) deterring cheating; and 3) preventing new competition. (Case studies are skipped).
**Figure 3-2 (Factors facilitating or Frustrating Coordination) Facilitating Few firms Product homogeneity Simple products Excess capacity (multiple firms) Inelastic market demand Low marginal costs relative to price Open transactions Predictable demand Small transactions Small buyers Frustrating Many firms Product heterogeneity Complex, changing products Excess capacity (individual firm) Vertical integration Sale of complementary products Private transactions Unpredictable demand Lumpy sales Large buyers
The cartel problems are not easily solved for a number of reasons including mistrust among the cartel members in the sharing of information and loyalty to the cartel. In addition, it is difficult for firms to predict general market conditions such as demand so that the cartel may function properly. (p. 244-46 discusses strategies employed by firms attempting to form a cartel and the evidence plaintiffs would likely need to produce to bring them down.) A key concept in this section is conscious parallelism, where competitors follow the leader in pricing practices, including the increase in price. Conscious parallelism is a legitimate business tactic involving no collusion by the competitors. Conspiracy requires more than conscious parallelism. 2. Inferring Conspiracy from Circumstantial Evidence: Case: Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939); p. 247 Parties: Petitioner (Interstate) operator of first and second run theaters; Respondent (government). Facts: Interstate and other film distributors attempted to force local theater owners to raise minimum prices for first and second run films. Interstate sent a letter to eight branch managers of the distributors informing them all of its request/demand that they raise price on movies or Interstate will stop distributing movies to them. All distributors implemented the plan and subsequently raised price. There was no direct evidence that the distributors expressly agreed w/ each other to comply. Issue: Whether the existence of an agreement has to be definitely established to find a conspiracy in restraint of trade? Holding/Rationale: No, the agreement was inferred. Although there was no direct evidence of an express agreement, Interstate distributed its proposals to all distributors in a letter w/ all their names on it. As a result, each distributor knew of the plan, knew to who the letter was sent; each knew that uniform cooperation in the plan was necessary in order for the plan to work; and they
each knew the anticompetitive effects of their actioni.e. that they were violating 1. With the information, the distributors participated in and renewed the plan. The plan required a significant departure from standard behavior and it taxes credulity to believe that the several distributors would, in the circumstances, have accepted and put into operation with substantial unanimity such far-reaching changes in their business methods without some understanding that all were to join. This was a Hub-and-Spoke conspiracy. Case: American Tobacco Co. v. United States, 328 U.S. 781 (1946); p. 252 Parties: Petitioners (American) are the countrys largest tobacco producers; Respondent (government). Facts: Collectively petitioners account for 90% of the total U.S. cigarette production. Their cigarette prices were almost identical for a number of years, and then the prices were identical. The price increases took place when the costs for cigarettes raw materials were decreasing, thereby decreasing Americans manufacturing costs. The price increases took place on the same day to the identical amount. The market followers, American and Liggett (who followed Reynolds) defended stating that Reynolds increase in price would give it more ad spending and they had to keep up. The conduct resulted in less volume sales but dramatic increase in profits. Issue: Whether a conspiracy under 1 of the Sherman Act may be shown by a uniform course of dealing? Holding/Rationale: Yes. A formal agreement isnt necessary to constitute an unlawful conspiracy. A conspiracy may be found in a course of dealings or other circumstances in addition to express words when combined w/ concerted action (or uniform action as here). The Sherman Act is concerned w/ the result of the agreement, not its form. Here, the Court found through evidence of the circumstances of a unity of purpose or common design and understanding, or a meeting of minds in an unlawful arrangement. The followers conscious parallelism combined w/ plus factors justified a finding of conspiracy. Note Case: Theatre Enterprises v. Paramount Film Distributing Corp., 346 U.S. 537 (1954)(p. 255). Facts: Movie distributors refused to allow an exhibitor access to first-run films for showing in a suburban theater. The movie distributors argued they had not conspired and provided economic justifications for their independent decision for the same course of action. Holding/Rationale: Court held that defendants didnt conspire, stating that while conscious parallelism is helpful in determining conspiracy, it has not replaced the conspiracy requirements; there needs to be more than follow the leader. Notes: Courts will apply concerted action to interfirm coordination through means other than direct exchange of information. Agreements can be inferred from circumstantial proof suggesting that the challenged behavior more likely than not was the result of a jointly determined course of action.
Courts wont find concerted action where plaintiffs show only that defendants engaged in conscious parallelism; additional evidence termed plus factors are necessary to establish conspiracy.
Case: Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); p. 257 Parties: Petitioners (defendants below, Matsushita) are 21 Japanese corporations that manufacture or sell electronic products, mainly tv sets; Respondents (plaintiffs below, Zenith) American manufacturers and sellers of tvs. Facts: Zenith alleges that Matsushita and other engaged in predatory pricingpricing at below market value w/ the intent to force competition out of the market and, thereafter, restoring price to market level or higher. Zenith alleged that Matsushita for 21+ years priced their products in the U.S. at artificially low prices to drive them out of the U.S. market. Zenith further alleged that this plan was feasible because the Japanese government allowed them to maintain artificially high prices in the Japanese market tempering their lost profits in the U.S. markets. Zenith had a larger market share than its Japanese competitors. Ph: District court granted Matsushitas s/j motion, but the Court of Appeals 3d. reversed finding direct evidence of conspiratorial behavior in Japan and corresponding inferences in the U.S. market. Issue: Whether a s/j plaintiff show direct evidence of concerted action and a plausible motive to engage in predatory pricing to survive a defense to the s/j motion? Holding/Rationale: Yes. A s/j plaintiff must show direct evidence of concerted action along w/ a plausible motive to engage in predatory pricing. A plaintiff seeking damages for a 1 violation must present evidence that tends to exclude the possibility that the alleged conspirators acted independently. The 3d Cir. looked to petitioners anticompetitive behavior in Japan to justify its denial of s/j for petitioners. The Court held that a conspiracy to increase profits in one market (Japan) doesnt tend to show that a conspiracy to sustain loss in another market (U.S.). The Court found that there wasnt a rational motive to conspire in the manner Zenith alleges. S/J for Matsushita was proper because there was no genuine issue of material fact created by Zenith as to predatory pricing. *Plaintiff must show below cost pricing and a probability of recoupment. **(White, J., dissent) Argues that the Court hearing a s/j motion in an antitrust case can require more than what is required in a typical s/j motion to decide whether a genuine issue exists. Figure 3-6: Synthesizing the Plus Factors for Proving Conspiracy (Parallel Pricing +) Communication or opportunity to communicate (e.g., meetings, trade association conferences) Rational motive to behave collectively (e.g., inelastic demand, difficult conditions of entry) Actions contrary to self-interest unless pursued collectively (e.g., failure to alter price based on changes supply and demand)
Market conduct that appears irrational absent agreement (e.g., failure to price based on relative const advantages Past history of industry collaboration (e.g., historic evidence of successful interdependent or collusive action) Facilitating practices (e.g., pre-announcement of price increases) Industry structure (e.g. oligopolistic market structure, homogeneous products, difficult entry conditions, large numbers of purchasers, information asymmetries, frequent transactions) Industry performance (e.g., stability of market shares over time, sustained and substantial profitability, persistently supra-competitive pricing)
Decisions analyzing plus factors dont rank the factors from most probative to least or specify the minimum number of factors needed to establish concerted conduct. Future litigation is somewhat unpredictable. In re Text message-adds new prong, must meet (I THINK). This case did not mention mastusisha case. In willimason it was the leading case used as precedent. Williamson and Text message (one is the standard-exclude used in Williams, text is not) ApplyProb 3-1 (Durab 1) Industry conducive to coordination)- this is not enough so say there is a comp or not (concentrated industry, etc). Here, hard to enter market some tried and fell. Did they have means to reach concsensus, to punish cheating). 2) evidence of agreement (talk to the press. In willimason, but it tells us this is not the same. There is more back and forth here through the press as if they have negotiated (this is a big fact0rthis is not simple leader follow case, this is negotiation through the press). Battery sizes changed together at the same time, unusually. Question is would you deem this worthy of further investigation? Case: Blomkest Fertilizer, Inc. v. Potash Corp. of Saskatchewan, Inc., 203 F.3d 1028 (8th Cir. 2000); p. 283 Parties: Petitioners (Blomkest) a class of consumers that bought potash from one of the respondents; Respondents (Producers) are six Canadian and two American potash producers. Facts: Potash is a mineral essential to plant growth and thats used in fertilizer. The potash market is an oligopoly where a few firms dominant the market; consequently, producers must charge relatively the same price or risk losing market share. Canada produces most of the potash consumed in U.S. mainly through a government-established firm PCS. American firms insisted that during the 1980s PCS, whose main purpose was to provide Canadians w/ jobs, stripped more potash than demanded and would dump the excess potash into the U.S. driving the price of potash to historically low levels. In 1986, Canadian elections introduced a new administration that privatized PCS, which then drastically reduced output and raised its price. In 1987, the US Dept. of Commerce reached an agreement w/ Canadian companies that set minimum prices Canadian producers could charge for potash in the U.S. PCS announced a price increase which other Canadian producers paralleled leaving the price of potash markedly higher after the suspension agreement; prices have slowly stabilized since Canadian producers entered into the agreement w/ the U.S. Blomkest alleges that, from 1987 to 1994, the Canadian companies colluded to increase the price of potash. Blomkest provides evidence of conscious parallelism and plus factors: 1)
interfirm communications between the producers; 2) producers actions against self-interest respondents; and 3) economic models suggesting that potash prices wouldve been lower in the absence of collusion. Respond that the price increases resulted from the privatization of PCS, the Suspension Agreement and the interdependent nature of the industry. Ph: District court granted the producers motion for s/j. Issue: Whether Blomkests circumstantial evidence can defeat the producers motion for s/j in an antitrust case? Holding/Rationale: No, Blomkest fails to establish a prima facie case. Plaintiffs must provide evidence that tends to exclude the possibility of independent action by the producers: their initial burden is conscious parallelism w/ one or more plus factors, but they didnt meet their burden. First, plaintiffs interfirm communication evidence includes meetings at trade shows/conventions, price verification calls, and general discussions regarding the Canadian potash exports36 price verifications btw. various employees (including high level) in 7 yrs. The Court stated that the communications involved price checks on completed sales, not future sales. Subsequent price verifications of sales cant support a conspiracy to fix market price beginning at date plaintiffs allege. Second, plaintiffs allege that the producers acted against their self-interest by entering into the Suspension Agreement because producers w/ low dumping margins couldve undercut their competitors w/ high dumping margins. The producers stated that, even w/ low dumping margins, they wouldve had to pay high bonds, and that the results of the Depts investigation were unpredictable. They wanted to end the dumping investigation w/ a settlement allowing for unreasonably low prices to increase. The Court found that this wasnt acting against self-interest and that plaintiffs didnt rebut defendants legitimate business decision for complying w/ the Dept of Commerce. Finally, plaintiffs expert testimony regarding the price of potash in the absence of a conspiracy among the producers is flawed because it 1) didnt take into account the privatization of PCS in 1986 or the anti-dumping investigation by the Dept of Commerce, and 2) relied only on evidence thats not probative of collusion, such as the producers membership in a trade association and their publication of list prices to customers. **(Gibson, J., dissenting) The Court requires too high a standard for plaintiffs defending s/j motions: instead of allowing circumstantial evidence, the Court wants direct evidence. Monsanto required direct or circumstantial evidence that reasonably tends to prove commitment to a conspiracy. The industry is conducive to conspiracy. A genuine issue was created and the case shouldve gone to trial. (See Fig. 3-7 for compare/contrast of the majority and dissenting opinions) ***Key question: What if plaintiffs miscalculated the starting date of the conspiracyit couldve started earlier than 1987? The interfirm communications could be evidence of detecting cheating for a previously established conspiracy. Note: Sidebar 3-5 discusses What is an agreement? and also examines the role of plus factors. It states that plus factors are evidence that the alleged conspirators have negotiated and exchanged assurances for their parallel behavior.
CHAPTER 4: VERTICAL INTRABRAND AGREEMENTS Key concepts: Vertical restraints are restraints upon relationships between suppliers, manufacturers and distributors; Intrabrand competition is competition among sellers of the same brande.g. rival Chevy dealers, competition among Burger King franchises. Typical restraints upon this form of competition include allowing sellers to sell from authorized locations or within specified geographic areas; If interbrand competition is robust, then intrabrand competition does not raise many antitrust concerns. Interbrand competition is competition involves competition amongst rivals in the same product market. A. PRICE VS. NON-PRICE VERTICAL RESTRAINTS: THE UNRESOLVED TENSION BETWEEN Dr. Miles and Sylvania
1. Minimum Resale Price Maintenance: Dr. Miles and the Origins of the Per Se Rule:
Case: Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911); p. 343. Parties: Dr. Miles Medical Company (Dr. Miles) sold medicines manufactured by secret formulasi.e. placebo medicines. Facts: Dr. Miles sold to jobbers and wholesale druggists to distribute its medicines, and also sold directly to retailers. Sales were also largely dependent on Dr. Miles goodwill and reputation. Department stores began selling Dr. Miles products at cut pricesthey could spread any losses throughout the store, so the department stores would realize much loss, if any. Dr. Miles decided to set minimum prices for its retailers and jobbers; retailers receive a number of products and any surplus is sold back to Dr. Miles. Also, they could only sell to approved customers. Dr. Miles alleges validity of its minimum price maintenance by 1) claiming its product is made by secret formula or trade secret; and 2) that as a manufacturer, it is entitled to control prices of its products. Issue: Whether the restrictive agreements Dr. Miles requires of its distributors, jobbers, and retailers are lawful restraints under 1 of the Sherman Act? Holding: Dr. Miles unlawfully restrains its retailers and distributors with its agreements. Rationale: Generally, restraints on the alienation of articles are void as against public policy. The public interest is the first consideration. Restraints can be valid if they are found to be reasonable with respect to the public and the parties, and if the limitation is what is fairly necessary for the protection of the covenantee* (Addyston Pipe ancillary restraint analysis). Fixing of prices also injurious to public interest. Notes:
J. Holmes dissented arguing that the restraint was essentially necessary in order to prevent knaves from undercutting prices and so called freeloading. Colgate doctrine: A firm seeking to impose minimum RPM (retail price maintenance) was free to do so unilaterally provided it was not a monopolist: In the absence of any purpose to create or maintain a monopoly, the act does not restrict the long recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise 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.
2. Non-Price Restraints: Sylvania and the Return of the Rule of Reason:

In United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), the Court adds vertical, intrabrand, non-price restraints to the per se category. By 1977, all vertical intrabrand price restraints were per se unlawful (Dr. Miles (1911) and Albrecht (1968)) and non-price restraints (Schwinn (1967)). All horizontal territorial restrictions are per se unlawful (Topco (1972)). Case: Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36 (1977); p. 350 Parties: Sylvania, Respondent, manufacturer of tv sets; Continental, Petitioner, former distributor. Facts: Sylvania had a low market share in nationwide TV market and switched to more aggressive strategy. Began selling sets to smaller and more select group of franchised retailers, to decrease the number of competing Sylvania retailers. Required franchisees to sell only from specified locations from which it was franchised. Plan, which took place in 1962, resulted in an overall 5 % share of TV sales, and being ranked as nations 8th largest color TV manufacturer. The current dispute revolves around broken franchisor-franchisee relationship between the parties. Sylvania had prior deal w/ Continental in San Francisco to sell its TVs, but became unhappy w/ low sales in the city. Sylvania decided to franchise a more established retailer in San Francisco to increase sales; Continental then canceled a large order from Sylvania and ordered from its competitors. The relationship was terminated after Sylvania significantly lowered Continentals credit, and the latter w/held payments. Issue: Whether Sylvanias location restraints are anticompetitive? Holding: Sylvanias restrictions are not anticompetitive. Rationale: The per se rule announced in Schwinn is overruled because across-the-board application of per se is too strict. The general rule in antitrust law is that of the rule of reason. This standard should not be departed from except in the most blatant of cases where per se is justified by demonstrable economic effect. Vertical intrabrand restrictions may be helpful because they help promote efficiency and protect manufacturers reputation. Interbrand competition is the primary concern of antitrust law. See n.19, p.354 for discussion on the effects of intrabrand competition on interbrand competition:
-Fig. 4-5 (p. 357) Justifications for Vertical Non-price Intrabrand Restrictions recognized in Sylvania: induce competent retailer to carry new products induce relatilers to promote existing products defeat market imperfections, such as free ridinge.g. Dr. Miles insulate manufacturer from product liability exposure by ensuring safety protect manufacturers reputation by protecting quality, goodwill Also, the Court held that the per se standard of Northern Pacific was very demanding and that per se was necessary only for those obviously unlawful agreements. See n16 on p. 354 for discussion on per se unlawfulness. Notes:
Sylvanias aftermath included per se illegality for vertical price restraints, but use of the rule of reason for non-price restraints. If intrabrand restrictions negatively affect interbrand competition, then anticompetitive effect. Vertical, intrabrand non-price restraints have become, as a practical matter, almost per se Lawful; meaning, they havent been struck down. Accommodate Sylvania and Colgate:
3. Exploring the Fault Lines that Emanate from Dr. Miles: The Supreme Courts efforts to
Colgate and Dr. Miles have tension between them because Dr. Miless prohibition on agreements on price could have a hindering effect on a companys individual, or unilateral, decision making; consequently, Colgate established that unilaterally imposed resale price maintenance may be lawful if monopolistic intent is not present. A dealer is not in violation of 1 if it announces the conditions on which it will sell, including price, and then stops or refuses to sell to those who purchase the product but charge a different price than the manufacturer wants. The dealer cannot try to force or cajole a retailer/distributor into compliance w/ its policies (p. 362). Colgate essentially lessens the harsh holding of Dr. Miles. Case: Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984); p. 364 Parties: Petitioner, Monsanto manufactures chemical products; Respondent, Spray-Rite is a former distributor for Monsanto Facts: Monsanto and Spray-Rite had a manufacturer-distributor relationship from 1957-68. Monsanto was in the corn herbicide and soybean herbicide market, and had a 15% and 3% share respectively in the markets. To increase sales and market share, Monsanto instituted a new system in 1967. One-year terms for distributors, renewal to be determined according to specified criteria: -distributors primary activity is soliciting sales (on behalf of Monsanto) to retailers; -employment of trained salespersons who can explain the technical aspects of Monsantos herbicides to customers;
-ability of the distributor to exploit fully the market in its primary geographical area of responsibility. Also, there was cash incentive program that paid cash to distributors sending salespersons to training sessions, and provided free product deliveries to customers w/in distributors area of primary responsibilityNOT exclusive territorial restrictions. In 10/98, Monsanto terminated relationship w/ Spray-Rite alleging the distributors failure to hire trained employees and to promote sales to dealers. Spray-Rite alleges 1 violation stating that Monsanto and its distributors conspired to fix prices. Issue: Whether Monsantos termination of Spray-Rite for not complying with the manufacturers agreement/requirements violates 1? Holding: The Court upheld the lower courts decision that Monsantos behavior was contrary to 1 based on direct and circumstantial evidence. (Disagreed as to lower courts opinion regarding standard for proving 1 violation). Rationale: The Court held that there must be evidence that tends to exclude the possibility that manufacturers and nonterminated distributors were acting independently. The Court recognized two distinctions in distributor-termination cases: 1) 1 requires concerted action between manufacturer and distributorsa manufacturer is allowed to act independently to deal w/ whomever s/he chooses under Colgate; and 2) price restraints versus non-price restraintsformer are per se unlawful, while the latter are judged under rule of reason and requires the weighing of relevant evidence. Accordingly, Court found substantial direct evidence to support decision against Monsanto. Specifically, Monsanto district mgr. testified that price-cutting distributors were warned that if they continued price-cutting, then Monsanto would w/hold supply of its herbicides i.e. attempts to force compliance. Notes:
Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988) (p. 370), states that an agreement between manufacturer and dealer to terminate a price cutter may not alone satisfy per se standard because they, too, may have minimal procompetitive effects. Monsanto and Business Electronics, taken together, are maintain Dr. Miles, but they may be seen to make it more difficult for the plaintiff to prove the sort of RPM that would trigger per se rule. General trend, it seems, toward rule of reason application in all cases instead of formalistic approach of per se rules; see Monsanto. Court also overruled United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), which held that exclusive dealer territories after the transfer of title to goods were per se illegal because of they were so obviously destructive of competition; vertical nonprice restrictions didnt require per se application.
4. Maximum RPM: From Albrecht to Khan:

Distinguishing minimum RPM from maximum RPM;
Minimum resale pricesplacing floor under the price a downstream firm can charge; it maintains prices above a certain level, minimum RPMs are concerned w/ the elimination of discounting; Maximum resale pricesplacing a ceiling on the prices a downstream firm can charge (function of both seems the exact same); Albrecht v. Herald Co., 390 U.S. 145 (1968)(note case, p.381), involved a newspaper, Herald, terminating one of its carriers, Albrecht, for charging more than the suggested retail price of the paper. Each carrier had exclusive territories, or paper routes, and most carriers charged the suggested retail price, except for Albrecht. Herald told its customers on Albrechts route that they could buy directly from them at the lower price, and, also, secured a new carrier to deliver on that route. Albrecht continued to charge more and was required to sell his route under threat of termination. The majority rejected the Heralds core arguments that its home delivery method was the most efficient way to get its paper out, and that the method wouldnt work w/out maximum resale prices because w/out this restriction, the carrier could behave as mini-monopolist, like Albrecht, and charge more. The Court stated that minimum/maximum resale prices were indistinguishable and, therefore, should be treated the same: per se unlawful.
Case: State Oil v. Khan, 522 U.S. 3 (1997); p. 382 Parties: Petitioner, State Oil, owner convenience store and gas supplier; Respondent, Khan, former lessee of the store. Facts: Khan leased gas station from State Oil further agreeing that he would not charge above the suggested retail price. If more was charged, then the difference must be rebated to State Oil. Agreement allowed 3.25 cents-per-gallon margin for Khan and any price below the suggested price would reduce the 3.25 cents Khan gets from each gallon sold. Khan fell behind on lease payments and State Oil terminates the agreement. A receiver is appointed to the gas station but s/he isnt subject to the terms of the agreement w/ Khan. The receiver charged less for regular grade and more for premium and received an overall profit. Khan sued alleging 1 violation by fixing maximum price, which was per se unlawful under Albrecht. Essentially, the claim was that if Khan had been allowed to raise/lower price then he, too, couldve received profit. The agreement was effectively fixed price. (J. Posner, 7th Cir., held the agreement lawful, but wrote opinion outlining infirmities of the precedent; he was constrained by S. Ct. precedent). Issue: Whether State Oils maximum resale price restraints are per se unlawful? Holding: No; vertical maximum price restraints are not per se unlawful but should be decided under the rule of reason. Rationale: Court overruled Albrecht stating, among other things, that the decision was poorly decided after considering handling of the decision in subsequent cases and scholarly opinion AND that Albrecht has little or no relevance in modern enforcement of antitrust law. In overruling Albrecht, the Court dismissed its fears that:
1)
2) 3)
the independent dealer that Albrecht was seeking to protect from manufacturers is not much of a concern because in light of that decision, manufacturers have integrated to distribution; the fear that maximum resale prices would be set too low for dealers to offer consumers good deals is likely unjustified because such prices would be too low for the supplier to receive any benefit; concern that maximum price fixing would be used to disguise minimum price fixing can likely be solved w/ rule of reason analysis.
Also, the Court noted that stare decisis is not an exorable command especially in relation to the Sherman Act because the Act itself was based on common law and Congress has asked the Court to determine the Acts principles. Notes:
In order to reach Dr. Miles per se rule, must distinguish horizontal from vertical agreements, price from non-price agreements, and, finally, minimum from maximum price. Sidebar 4-3 (p. 389-94) list and discuss 3 pricing strategies that courts have found to be reasonable: cooperative advertising programs, minimum advertised pricing programs, and discount pass through programs. Four possible anticompetitive theories associated w/ minimum RPM: monopoly pricing, dealers cartel, manufacturers cartel, and dampening of competition; all are theories of collusion, not exclusion.
Case: Pace Electronics, Inc. v. Canon Computer Systems, Inc., 213 F.3d 118 (3d. Cir. 2000); p. 395 Parties: Petitioner (Pace) is a distributor that buys/sells Canon equipment from Respondent and resells; Respondent (Canon) supplier/manufacturer of Canon computer equipment. Facts: Pace entered into nonexclusive agreement w/ Canon to (re)sell the latters equipment. Pace agreed to buy minimum quantities from Canon in exchange for being allowed to buy the equipment at dealer prices. After 1 yrs., Canon terminated Pace stating Pace refused to buy minimum quantities. Pace sold primarily in the NY/NJ region. Pace alleges that Canon didnt fulfill its orders because it refused to engage in a vertical minimum price fixing agreement Canon engaged and implemented w/ a Pace competitor, Laguna (also a defendant). Ph: Dist. Ct. NJ dismissed Paces complaint stating that Pace did not allege actual, adverse economic effect (12b6 failure to state a claim on which relief may be granted). Issue: Whether the termination of a wholesale dealers contract for its refusal to comply in a vertical minimum price fixing conspiracy constitutes an antitrust injury that will support an action for damages under 4 of the Clayton Act? Holding: Yes, Paces allegation alleged the type of injury antitrust laws are designed to protect. Rationale: Pace alleged significant financial detriment that included lost profits by not complying w/ Canons plan. A maverick dealer terminated for non-compliance w/ price fixing scheme suffers the type of injury contemplated by antitrust laws. Vertical minimum price fixing
is per se unlawful and by requiring plaintiff (Pace) to prove injury through a more involved procedurei.e. actual, adverse economic effect required by lower courtsounds more like rule of reason analysis. Per se rules so blatant and nefarious that a more searching analysis is not required; their anticompetitive effects have already been accepted. Therefore, antitrust injury in per se cases is established by the categorization of per se. B. EXCLUSIVE DISTRIBUTORS AND SUPPLIERS Exclusive distributorships take the form of commitments by a supplier not to appoint more than one or some limited number of dealer(s) w/in a certain geographic area, or w/ authority to sell to a specified class or classes of customers. They are the most typical examples of vertical, intrabrand non-price restraints that constrain the upstream firm. Limiting the number of dealers competing against each other decreases intrabrand competition, similar to geographic and location restraints as well as customer restraints. Exclusive distributorships are justified because the exclusivity entices the dealer to take the best efforts to promote the suppliers brand of product. To do this, the dealer must be sure that free-riding will not occur, from competing dealers or the supplier itself; free-riders allow another to market the product and assume the marketing costs, and then take customers away from the dealer promoting the product. Case: Paddock Publications, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir. 1996); p. 400 Parties: Petitioner, Paddock (the Daily Herald), a small newspaper in Metro Chicago area; Respondent, Chicago Tribune (and other big Chicago newspaper). Facts: The Daily Herald is suing the Chicago Tribune (and others) under 1 of the Sherman Antitrust Act for having exclusive distributorship deals w/ the big supplemental news suppliers. Leading national newspapers, such as--The New York, Times Washington Post, L.A. Times have supplemental news services set up that allow other, smaller newspapers to reprint the originators stories in their own paper. Most supplemental news services charge by the circulation of the newspaper, so they seek agreements w/ the larger newspaper in a metropolitan area. News services also have deals exclusive to the newspaper they supplement and they limit their relations to one (1) newspaper in any given large city: the supplier of the Chicago Tribune cant also supply the Chicago Sun-Times, and the Tribune cannot also seek supplements from any other news service. The Daily Herald alleges these arrangements are anticompetitive because they prevent smaller papers from receiving these stories. The paper doesnt allege that the big newspapers conspired w/ each other or that the supplemental news services conspired w/ each other. Issue: Whether exclusive distributorship agreements in the newspaper industry are prohibited by 1? Holding: Exclusive distributorship agreements in question are not anticompetitive and have procompetitive justifications. Rationale: Exclusive contracts make the market hard to enter in mid-year but cant stifle competition in the long run. In the news industry, exclusive contracts help the papers distinguish themselves from other papers. The contracts are terminable at will or usually 30-day notice, after which the small papers can try to outbid the big boys. The exclusive contracts do not prohibit
entrynew news services can form and engage in contracts w/ newspapers, or new newspapers (or those w/out such arrangements) may out bid. C. CHARACTERIZATION CHALLENGES
1. Dual Distribution and Market Division:

Terminated distributors emphasize the per se rule of Dr. Miles by emphasizing the price aspect of the restraint; the suppliers emphasize the rule of reason of Sylvania and point to the nonprice aspects of the restraint as justification of the termination. Dual Distribution. Manufacturers contract w/ distributors to sell their products; manufacturers also sell their products directly to customers. Consequently, manufacturers play a dual role as dual distributors, distributing to both distributors and customers. Manufacturers acting as dual distributors can be considered competitors of the distributors themselves; the Sylvania-type vertical restraints such as territorial distributions could be viewed as Topco-style division of marketsper se unlawful. But, such vertical restraints are considered under Sylvanias rule of reason.
2. Supplier or Dealer Exclusivity and Concerted Refusals to Deal:

Concerted refusals to deal. Supplier switches from one exclusive dealer to another. This action is alleged to be horizontal concerted action because of the exclusivity of the agreement and the change from competitor to competitor. Characterization of the relationshiphorizontal v. verticalis the determining factor of legality. Case: NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998); p. 409. Parties: Petitioner, NYNEX, owner of Material Enterprises and New York Telephone Company; Respondent, Discon, sold removal services. Facts: ATT, by consent decree, was broken up and became a long distance phone provider; it had to allow other companies to provide local services. Because ATT had such a large portion of both the local and long distance market, much of the call switching equipment belonged to ATT. Independent companies provided removal services that physically removed the old call switching equipment. Discon provided removal services that it sold to one of NYNEXs subsidiaries, New York Telephone Co, a company that provided local phone services in New York State and parts of CT. NYNEX owns Material Enterprises, a purchasing entity that bought removal services for New York State. (Allegation) Discon alleges that NYNEX and its subsidiaries engaged in anticompetitive activities designed to hurt it and benefit its competitor by switching removal services providers, from Discon to Western Electric, a subsidiary of Discons competitor ATT. Issue: Whether the per se group boycott rule applies where a single buyer favors one seller over another for improper purposesfraud? Holding: No; the per se group boycott rule doesnt apply and plaintiff, Discon, must allege and prove harm, not only to a single competitor but to the competition process itself. Rationale: Klors is the relevant precedent, but it and other precedent applies the group boycott per se rule in horizontal agreements. The present case concerns ONLY a vertical agreement and
vertical restraint, one that involves depriving a supplier of a potential customer. The consumer injury that resulted from the activity in this case resulted from market power exerted by a monopolist that gained such power lawfully, New York Telephone, and NOT from less competition in the removal services market. D. DISTRIBUTIONAL RELATIONSHIPS IN THE EUROPEAN UNION: THE ARTICLE 81 APPROACH I dont think hes going to test over this.
CHAPTER 5: MERGERS AMONG COMPETITORS A merger occurs when a firm buys all of the assets of another firm; an acquisition occurs when a firm buys only part of the assets of another firm. Mergers and acquisitions among horizontal rivals can reduce competition because they alter reduce the number of competitors in the market (higher concentration). There are three main categories of mergers: 1) horizontal; 2) vertical; or 3) conglomeratethis chapter focuses on the collusive competitive concerns of horizontal mergers. A. A PRIMER ON MERGER ANALYSIS IN THE U.S. 1. The Statutory Framework Mergers can be analyzed under 7 of the Clayton Act, 1 Sherman Act agreements in restraint of trade or as monopolies (or attempts to monopolize) under 2. Today, mergers are assessed for their anticompetitive potential before they are consummated, but they can also be assessed after consummation. Prospective merger analysis requires that the courts (and enforcers) to make a prediction of the likely anticompetitive effects of the merger. The structural presumption predicts, or presumes, that the higher the concentration in a given market, the larger potential for anticompetitive effects. 2. Motives for Merger Among Rivals Firms motives for seeking to merge: To reduce costs or improve products in ways unavailable to the merger partners individually; To improve the profitability of the acquired assets by replacing ineffective management; and To obtain tax advantages in some situations.
Despite these benign, perhaps even procompetitive motives, mergers raise antitrust concerns because they may also be motivated by the desire to obtain market power. Ways to obtain market power: (Coordinated Competitive Effects) By reducing the number of competitors, the merger makes it easier for rivals to tacitly collude or achieve higher prices through consciously parallel after the mergerthis conduct raises the same collusive concerns as horizontal price-fixing or division of markets agreements. (Unilateral Competitive Effects) Mergers among producers of (close) substitutes allows firms to coordinate business strategies, lessening the competitive constraint they may pose to each other and leading to higher prices even if other competitors dont change their own strategies. (Exclusionary Anticompetitive Effects) A merger may allow firms to forclose rivals form key inputs or distribution channels, thereby obtaining market power through exclusion.
The key question in merger analysis is how to reconcile, particularly when predicting anticompetitive effects, the procompetitive motivations of mergers (through efficiencies or economies of scale) w/ their anticompetitive potential (particularly through higher concentration in the market).
3. Historical Perspectives on Merger Enforcement Mergers have been treated differently over the years as evidenced by the waves of mergers consummated throughout the years. Characteristics of merging firms have also varied from different erasthe trusts that give antitrust its name were created through mergers (e.g., Standard Oil, American Tobacco), while today firms in the defense, pharmaceutical, energy, and financial services industries have attempted to merge. Sometimes enforcement is strict, preventing mergers, other times enforcement is more lax, allowing for more mergersprobably depends on the state of the economy at the time of the mergers. B. THE EMERGENCE AND EROSION OF THE STRUCTURAL PARADIGM 1. A Guide to the Cases Proponents of the structural paradigm emphasized the structure of the market in analyzing mergers, particularly the concentration of sellers but also emphasizing entry conditions, product differentiations, vertical integration and other factors. The focus was to view the previously mentioned factors on a firms post-merger conductsuch as pricing, advertising, investment, product variety, R&Dand market performancefirm profits, economic welfare, and other measures. As a result, antitrust laws accepted a strong presumption of economic harm from high market concentration and identified competitive concerns at certain concentration levels. Supreme Court precedent codified these concerns in Brown Shoe and Philadelphia National Bank, which set forth a legal presumption of anticompetitive effect from a horizontal merger increasing market concentration. Modern merger analysis, dating from the 1982 Merger Guidelines, accepted the structural presumptions from Supreme Court precedent but also incorporated General Dynamics idea of a rebuttable presumption of economic harm. The rebuttable presumption concept requires consideration factors facilitating or frustrating anticompetitive effects such as (ease of) entry and efficiencies. These factors should be considered in predicting the effect of the merger. The Merger Guidelines were intended to be a prosecutorial guide, but the courts have incorporated them into their own analysis of mergers. The Waste Management (1982) Court allowed ease of entry to rebut the structural presumption of harm from high concentration statistics; the University Health (1990), similarly, suggested that efficiency defenses could also rebut the structural presumption. Finally, Baker Hughes (1990) and Heinz (2001) reaffirm that Philadelphia National Banks structural presumption is still valid (controlling precedent), but differ in important respects. Baker Hughes emphasizes how the presumption can be rebutted, while Heinz stresses the importance of the presumption where concentration is very high. 2. The Emergence of the Structural Presumption Case: Brown Shoe Co. v. United States, 370 U.S. 294 (1962); p. 425 Parties: Petitioner (Brown Shoe) fourth largest shoe manufacturer, third largest retailer trying to acquire Kinney Co.; Respondent (government) opposing the merger. Facts: The merging companies were both vertically integrated into both the manufacturing and retailing aspect of the shoe industry. Kinney was mainly into retailing as the countrys twelfth largest retailer (1.2% of shoes sold). After the merger, the top four manufacturers would account for 23% of domestic shoe production and the top 24 manufacturers making 35% overall. There
was a trend among vertically integrated firms to merge w/ other retailers to decrease their own costs and obtain cost advantages. Brown had been buying up retailers over the years and changing the product mix to favor their own shoes. Ph: District court found a trend toward concentration through shoe manufacturers acquisitions of retail outlets. It enjoined the merger stating that Browns policy of forcing its shoes on its subsidiaries forcloses competition for different styles of shoes and if unchecked, this trend would substantially lessen competition. Issue: Whether the market in which the merged companies competed is the appropriate market to consider in determining the validity of a merger? Holding/Rationale: Yes, the appropriate market to consider is the market the merging firms competed in. The legislative history of the Clayton Act indicates Congress fear of increased concentration in particular market and the resulting lessening of competitionthe Act authorizes breaking the trend toward concentration by pre-empting mergers that would result in lessening of competition. Antitrust laws seek to protect competition and the trend in the shoe industry is to vertically integrate into both manufacturing and retailing decreases the number of retailers in the market and lessens competition among the retailers. It puts up barriers to entry by eliminating potential customers for new manufacturers and limiting the supply of shoes available to independent retailers. The trend also harms small businesses that cant obtain the cost advantage of the merged firms. Therefore, the present merger was properly enjoined because it reflects Congress intention to curb the harmful effects of the trend toward concentration in their incipiency. Case: United States v. Philadelphia National Bank, 370 U.S. 321 (1963); p. 429 Parties: Petitioner (government) wants to prevent respondents merger; Respondents (Philadelphia) are the 2d and 3d largest banks in the Philadelphia metro area trying to merge. Facts: The merger would make the new bank the largest in the geographic area giving the top two banks 59%, 58%, and 58% of the regions total assets, deposits, and net loans, respectively. The Governments evidence was primarily statistical and expert testimony, which stated that the merger would run contrary to the competitive forces presently operating in the relevant geographic market. Defendants emphasized the soundness of the business aspect of the merger, further stating that the increased lending limits and prestige of the resulting bank would be able to compete w/ larger out-of-stat banks, particularly from New York. Issue: Whether a merger will violate 7 of the Clayton Act if its effect may be to substantially lessen competition in the relevant market? Holding/Rationale: Yes, a sound prediction of anticompetitive effects will occur if the relevant market analyzed. Here, the relevant market is the four-county metro Phila. area. The relevant product is commercial banking, of which the resulting would control more than 30%. The Court held that this percentage of commercial banking in the metro area threatens undue concentration. The merging firms couldnt rebut the inherently anticompetitive tendency manifested by these percentages. They offered testimony that there would be competition in commercial banking after the merger, but testimony was supported economically. 7 is meant to arrest the trend
toward concentration. The resulting increase of more than 30% in commercial banking from the top 4 banks represents a high presumption of anticompetitiveness (structural paradigm). Banks state that the merger will allow banks to follow customers to the burbs, retaining their business. This goal can be achieved by opening new branches where their customers live they didnt say that they couldnt open new banks. The justification that the merger will help them compete w/ larger (NY) banks is invalid because competition in one market cant justify anticompetitive effects in another. The Banks are capable of lending to the overwhelming majority of local businesses w/ their current lending capacities; businesses needing more $$ can and do go to other banks. Finally, the resulting anticompetitive effects defeat the contention that the city needs a bank the size of the merged entity to bring in new business. The merged banks couldnt overcome the presumption stemming from the high concentration that would result from the merger. Note Case: United States v. Vons Grocery Co., 384 U.S. 270 (1966)(p. 433) Facts: Vons, a grocery chain in L.A., acquired another chain Shopping Bag Food Stores. The merger wouldve resulted in 7.5% of the metro L.A. market, the largest grocer in the area having 8%. The trend in the area was the expansion of chain grocers and declining number of single grocers. Holding/Rationale: The Court struck down the merger relying primarily on the rapid decline in the actual number of grocers in the area from 5,365 (1950) to 3,590 (1963). Since the merger, the number of similar mergers and acquisition in the grocery market. The Court stated [t]hese facts alsone are enough to cause us to conclude . . . that the Vons-Shopping Bag merger did violate 7. (Stewart, J., dissenting) The reduction in the number of single grocers doesnt necessarily mean that competition is lessened. There are still a number of single firm grocers that compete w/ each other and the chain stores. The Courts rationale is only protecting mom and pop stores that are largely becoming obsolete because they arent as efficient as the larger stores. Note Case: United States v. Pabst Brewing Co., 384 U.S. 546 (1966)(p.434) Facts: Pabst, the 10th largest beer producer in 1958, tried to merge w/ Blatz, the 8th largest brewer. Holding/Rationale: Decided in the same term as Vons, the Court again struck down this merger looking, again, the to the trend of concentration in the brewing industry. Although the merger would account for 4.49% of the nationwide brewing, higher percentages wouldve resulted in the Wisconsin and Wis.-Ill.-Mich. Tri-state area beer sales. The Court held that the percentages necessitated a 7 violation in each and all of the above markets. 3. The Erosion of the Structural Presumption General Dynamics stated that the presumption of anticompetitive effects through high concentration is rebuttable, foreshadowing a change in merger analysis that would consider more factors than just market concentration. Case: United States v. General Dynamics Corp., 415 U.S. 486 (1974); p. 435
Parties: Petitioner (government) seeking divestiture of respondents assets from merger; Respondent (General) merged w/ a firm that itself owned a coal producer. Facts: General merged w/ Materials Serv. Corp., which itself acquired United Electric. Materials and United produced and sold coal in Ill. and the eastern interior coal province. The mergers resulted in General have substantial control over coal production in both geographic coal markets. Ph: The district court dismissed. The court found 1) that coal wasnt able to compete as much as an energy source; 2) the electric utility industry is the primary consumer of coal; and most importantly 3) nearly all coal sold to utility companys is through long-term contracts where producers promise to meet future requirements at predetermined prices. It considered more than statistical evidence of high concentration. These factors justified a finding that competition in the energy industry isnt hindered. Issue: Whether the district court erred by considering other pertinent factors affecting the coal industry and the business of the appellees justified a conclusion that no substantial lessening of competition occurred or was threatened by the merger? Holding/Rationale: No, the district courts approach is valid insofar as it describes the market. Uniteds position in the coal industry was weak because it didnt have much in its reserves and most of its coal was committed in its long-term contracts, as was standard industry practice. It couldnt play an important role in the coal industry because it wouldnt be able to increase its reserves. Given Uniteds weak position as a competitor, Generals acquisition of it wouldnt substantially lessen competition. The governments prima facie case established through concentration statistics was rebutted by consideration of other market descriptive factors. Principles of Merger analysis since 1975
A plaintiff in a 7 case can create a presumption of illegality by demonstrating a trend toward concentration, a significant increase in concentration, and that post-acquisition market shares have exceeded a specific level. See Philadelphia National Bank. The relevant threshold of concern may be as low as 4.49% See Pabst. The presumption of illegality created by market share data is virtually conclusive. In usual circumstances, however, the defendant can rebut the presumption of illegality by showing that the plaintiff has calculated market shares based upon a measure of commercial activity that fails to give an accurate picture of the merging parties capability to compete for future sales. See General Dynamics Courts should subordinate efficiency considerations in favor of attaining a more decentralized commercial environment. See Brown Shoe.
Case: United States v. Baker Hughes, Inc., 908 F.2d 981 (DC Cir. 1990); p. 441 Parties: Petitioner (government) wants to prevent a merger between respondents subsidiaries; Respondents (Baker Hughes) sell hardrock hydraulic underground drilling rigs (HHUDR). Facts: A Finnish corporations sells HHUDRs through its subsidiary, Tamrock; Baker Hughes does the same through its subsidiary, Secoma. Tamrock wants to acquire Secoma. The government challenges this merger arguing that competition in the U.S. HHUDR market will
substantially lessen. Tamrock averages 40.8% of the U.S. market, while Secoma averages 17.5% in the years immediately preceding the proposed merger. The HHI index increased substantially. Ph: The district court found that the defendants rebutted the governments prima facie case of anticompetitive effects in the relevant markets (geographic and product). Government claims that the court erred by not requiring defendants to provide clear evidence that entry into the market . . . would be quick and effective. Issue: Whether the lower court erred by allowing defendants to rebut the governments prima facie case w/out requiring clear evidence of quick and effective entry? Holding/Rationale: No, the lower court properly assessed a number of factors in considering the likelihood of the substantial lessening of competition in the relevant markets. The government can, and did, establish a prima facie case of anticompetitive effect w/ statistical evidence of a highly concentrated market, shifting the burden of production to the defendant. The defendants rebutted the prima facie case by showing the misleading nature of the statistics and the sophistication of the HHUDR consumers. The lower court didnt err by considering such factors and concluding that the prima facie case was rebutted. The burden then shifted back to the government to government to produce additional evidence of anticompetitive effects merging w/ the ultimate burden of persuasion. The governments insistence on clear and effective proof of entry disregards other relevant factors and shifts the burden of persuasion to the defendant. This isnt the proper standard for merger analysis. The Court also suggested factors from the Merger Guidelines that may be considered in rebutting a prima facie case including: ease of entry, financial condition of the firms, nature of the product, buyer market characteristics, conduct of firms in the market, efficiencies, etc. (citing Merger Guidelines). Case: Federal Trade Commission v. H.J. Heinz Co., 246 F.3d 708 (DC Cir. 2001); p. 446 Parties: Petitioner (FTC) seeking preliminary injunction against respondents merger; Respondents (Heinz) trying to merge w/ Beech-Nut. Facts: Respondents are two of three firms dominating the baby food market (along w/ the industry leader, Gerber w/ 65%). Respondents have 17.4% and 15.4% respectively and were battling for 2d place. Government established a prima facie case through the HHI index and a showing of high barriers to entry to the market. Respondents defended stating: 1) little competitive loss from the merger because they dont compete at the retail level; 2) anticompetitive effects are offset by efficiencies and the ability to better compete w/ Gerber; and 3) the merger required Heinz to innovate and improve its competitiveness w/ Gerber. Ph: The district court found for respondents pointing to the lack of competition Gerber faces in the market, and also to the efficiencies claimed by respondents. Issue: Whether the lower court erred by allowing the merger between respondents? Holding/Rationale: Yes, the lower court erred because it didnt make the requisite factual findings to support its decision. The Court found that government established a prima facie case, but respondents didnt overcome their burden of production. The high level of concentration in the marketthree competitorsrequires a higher level of rebuttal evidence. The merger would
lead to a duopoly but the district court offered no specific barriers to collusion relying on one experts testimony. Creating a duopoly presents a high probability of collusion requiring specific findings of why solving the cartel problems in the specific industry will be harder to solve than in any other industry, thereby rebutting the inference of anticompetitive effects. C. MERGER ANALYSIS UNDER THE DOJ/FTC MERGER GUIDELINES 1. Market Definition, Market Participants, and market Concentration (Guidelines 1.0) The Merger Guidelines describe under how the DOJ and FTC will prosecute mergers, but they also provide a template of how courts will analyze mergers, and general burden shifting in antitrust analysis. Horizontal Merger Guidelines 5-Step Analytical Framework: 1. Determine market concentration (HHI)**. 2. Assess potential adverse competitive effects. 3. Assess whether entry would deter or counteract adverse effects. 4. Assess potential procompetitive efficiencies, and 5. Determine whether one of the merging firms is in such financial distress as to qualify as failingif so, then merger will likely be approved. *The first 2 are for the plaintiff; the last three are for the defendant. **Guidelines 1.5: HHI = a2 + b2 + . . . . (sum of the squares, where a, b are the respective market shares). Post merger HHIs: 10001800 + (increase of 100 or more) Greater than 1800 + (increase of 50 or more) is a potential for anticompetitiveness Greater than + (increase of 100 or more) is a probable anticompetitiveness a. Evolution of market standards Case: United States v. E.I. DuPont, 351 U.S. 377 (1956); p. 455 Parties: Petitioner (government); respondent (Dupont) cellophane producer. Facts: Dupont produces cellophane, producing 75% of the cellophane sold in the U.S.; cellophane makes up less than 20% of flexible packaging materials. The government alleges that Dupont monopolized the cellophane market, violating 2 of the Sherman Act. Dupont defends, stating that cellophane is only a part of the relevant market for flexible packaging. Ph: The lower courts held that Dupont had not monopolized the cellophane market. Issue: Whether the lower court erred in finding that the relevant market was flexible packaging and not cellophane in determining Duponts 2 monopoly violation? Holding/Rationale: No, the lower court properly found that the relevant market is flexible packaging. Monopoly power is the power to control price or exclude competition in the market. The relevant market is determined by: 1) geography (nationwide) and 2) relevant substitutes (all
flexible packaging material. The substitutes must be functionally similar. All products that are reasonable substitutes will be included in the relevant product market. Here, cellophane competed w/ a number of other packaging materials, including pliofilm, foil, glassine, saran, etc., and all fall in the category of flexible packaging materials. Dupont accounts for only 17.9% of this market and this isnt a significant enough share to control price or exclude competitiontheres too much competition in the flexible packaging market. Notes:
The cross elasticity of demand (different from elasticity) must also be appraised to determine the relevant product market. Cross elasticity of demand considers the responsiveness of consumers to increases/decreases in price, asking, At which price will consumers for a given product switch to another a substitute. If a slight decrease in price of one product leads to a large increase in the sales of another, then there is a high cross elasticity of demand between the two and they are in the same market. Functional interchangeability The substitution of products for cellophane doesnt tell much about Duponts power to control price, which is the point of the monopoly analysis. At some point, everything can be priced high enough to force substitution b. Market definition under the Merger Guidelines
See Merger Guidelines 1.0, 1.11, and 1.21 c. Measuring market concentration Case: Federal Trade Commission v. Cardinal Health, Inc., 12 F.Supp.2d 34 (D.D.C. 1998); p. 485 Parties: Plaintiff (FTC) seeks to enjoin defendants merger; defendants (Cardinal) are wholesale distributors in the U.S. Facts: Cardinal wants to merge w/ Bergen; in response, McKesson wants to merge w/ AmeriSource. Wholesale distributors buy from drug manufacturers, store them in their own warehouses, and resold the drugs to dispensers and delivered the goods direct to their individual stores and institutions. FTC challenges the merging of these four wholesalers into two wholesalers arguing that the mergers would lead to a substantial lessening of competition. FTC argues that direct distributing by manufacturers, mail orders, and self-warehousing are not viable alternatives to the distribution needs of the pharmaceutical industry, which requires fast and efficient distribution. Defendants argue that these are all viable alternatives and that their roles in the pharmaceutical drug industry are that of middlemen. They also argue that the new firms would be more efficient in distribution, allowing them to compete w/ the alternative distribution method; the efficiencies would be realized, in part, through decreasing the number of facilities. Issue: Whether there is reason to find that if the defendants were to raise prices after the proposed mergers, their customers would switch to alternative sources of supply to defeat the price increases?
Holding/Rationale: No, customers wouldnt be able to defeat potential price increases if the merged firms raised price because there arent sufficient alternatives to wholesale distribution for certain consumers to feasibly switch. To establish a prima facie of the mergers anticompetitive nature, the government must provide evidence of the high concentration in the relevant market. The Court first defined the relevant market. The Court recognized a broader market encompassing delivery of prescription drugs by all forms of distribution, stating that w/n this broader market is the wholesale distribution sub-market that may be used for antitrust purposes. The question becomes what substitutes are available to customers to wholesale distribution? A large number of the wholesalers customershospitals and independent pharmacieshad no reasonable substitutes to the wholesalers due to the latters efficient distribution schemes centralized warehousing, deliver, and billing services enabling customers to avoid carrying large inventories, dealing w/ large numbers of vendors, and negotiating numerous transactions. The Court then defined the relevant geographic market as the U.S. The burden shifting approach was used in this case. Before the prima facie case could be established through HHI, the relevant market had to be defined. After the Court defined the relevant marketgeography and buyer substitutionit found that the post-merger concentration wasnt rebutted w/ defendants pro-competitive justifications. Under Section 7, a merger may be prohibited where conscious parallelism (p.496) would be easily facilitated Lessons on pp. 498-499 2. Competitive Effects of Collusive Mergers a. Case: Hospital Corp. of America v. FTC, 807 F.3d 1381 (7th Cir. 1986); p. 500 Parties: Petitioner (HCA) is the largest proprietary hospital chain in the U.S. and it acquired two corporations; Respondent (FTC) wants Court to sustain its decision to preclude the merger. Facts: The acquisitions of the corporations/hospitals reduced the number of competing hospitals in the Chattanooga market from 11 to 7. The resulting top four hospitals in the relevant geographic area, Chattanooga, controlled almost all of the market. FTC established its prima facie case by concluding that the high inelasticity of hospital services, tradition of hospitals cooperation w/ each other through exchange of information on costs (and prices), and joining together to resist government pressure to decrease costs. These factors are evidence of the high possibility of collusion when the number of hospitals is reduced; therefore, the merger creates an appreciable danger of such consequences in the future and of anticompetitive effect. HCA defended itself arguing the 1) the complexity and heterogeneity of hospital services; 2) heterogeneity of sellers in the market due to the differences in services provided by the hospitals; 3) differences in corporate character of the hospitals; 4) rapid technological developments and economic changes in the hospital industry; 5) sophistication of the payors/insurance companies; and 6) that a competitors complaint lead to the present proceeding. Issue: Whether the FTCs justifications for challenging the merger were valid? Holding/Rationale: Yes, the FTC was justified in precluding the merger. The standard of review in this case is not to reevaluate the FTCs decisions, but it is administrative and requires that the evidence in the record adequately support the FTCs findings, which it does. The relevant market Coordinated competitive effects
is Chattanooga hospitals because 1) its unlikely that patients will travel outside of the city for hospital services and 2) the only reasonable alternatives to HCAs hospitals are other hospitals in Chattanooga that provide hospital services. The Court discounted these defenses primarily arguing that the probative value of the evidence used to support these claims is to be decided by the FTC. The Court also noted a significant barrier to entry: the Tennessee certificate-of-need law. The Court explained that if the post-merger hospitals colluded to raise price, patients would be forced to not go to the hospital when ill resulting in excess hospital capacity. Because the law requires that new hospitals be approved by a state agency based on the need of hospital capacity, and because potential entrants into the market would only add to that excess capacity (to try to undercut the artificially raised prices), they would likely not be allowed into the market. The colluders would only point to their excess capacity to undermine the need for new entrants. Essentially, HCA didnt shift the burden back to the FTC. **The Court suggests that if the acquired hospitals had been insignificant in the marketplace, then the merger may not have violated 1; however, because they accounted for a significant portion of market sales (12%), their acquisition violated 1. *This section dealt more w/ mergers among rivals diminishing competition by making it more possible/probable that rivals would collude due to the fewer number of post-merger firms. b. mergers Unilateral competitive effects of
This section deals w/ mergers making it more possible for the new firm to raise prices on its own w/out having to worry about the likely responses of non-merging firmsmergers to monopoly. The Merger Guidelines identify two theories of unilateral competitive effects: 1) when products are differentiated ( 2.21); and 2) when products are homogeneous ( 2.22). This chapter considers the primary unilateral competitive effects theory, when products are differentiated. Substantial evidence test Case: New York v. Kraft General Foods, Inc., 926 F.Supp. 321 (S.D.N.Y. 1995); p. 515 Parties: Plaintiff (NY state) brought action against defendants when the FTC declined to do so; Defendant (Kraft), the 3d largest ready-to-eat cereal producer attempting to acquire Nabisco, the 6th largest RTE producer. Facts: The top two RTE producers, Kellogg and General Mills, accounted for 60% of the RTE market; Kraft, 12 %; and General Mills, < 3%. Plaintiff challenged the acquisition on both coordinated and unilateral competitive effects theories. The state alleges that the acquisition diminishes the likelihood of competition between them by placing the two products under one roof because the state alleges that they are close substitutes. Issue: Whether the proposed merger will have significant unilateral competitive effects, violating 1? Holding/Rationale: No. The evidence, including consumer consumption/purchase information and econometrics, demonstrated that the two products at issueGrape Nuts and Shredded Wheat
compete w/ other cereals and arent first or second choice to many consumers. The two cereals are physically different, are marketed differentlyone as healthy, the other as puretarget different audiences and have different direct form competitors. Grocery chain representatives testified that they dont consider the two close competitors and both manufacturers looked to other cereals as benchmarks for pricing the disputed cereals. In addition, the cross-price elasticities of demand between the two was very slight, suggesting the two are not close competitors. The Court found that it wouldnt be profitable for Kraft to raise Grape Nuts price in the expectation that lost sales would be recouped in increased sales of Shredded Wheat; the two arent first and second choices for consumers. Case: FTC v. Staples, Inc., 970 F.Supp. 1066 (D.D.C. 1997); p. 522 Parties: Plaintiff (FTC) seeks a preliminary injunction against defendants proposed merger; defendants (Staples) two of the top three sellers of office products. Facts: Defendants sell office productssuch as office supplies, business machines, computers and furniturethrough retail outlets and direct mail delivery. Staples is the 2d largest office supply superstore in the U.S.; its 550 retail stores in 28 states (and DC) accumulated for $4 bill in 1996. Office Depot is the largest office supply superstore; its 500+ retail stores in 38 states (and DC) accumulated $6.1 bill in 1996. Officemax is the only other office supply superstore. There isnt any dispute as to the geographic market. The FTC defines the relevant product market as consumable office supplies sold through office superstores; the definition includes items that get used up or discardedsuch as pens, paper, file folders, toner cartridges, etc. but doesnt include more long term itemssuch as computers, fax machines, or office furniture. Defendants argue that the relevant product market is the overall sales of office products, of which the merger would account for $5.5%. Issue: Whether the Commission established that theres a reasonable probability that the proposed merger will substantially impair competition? Holding/Rationale: Yes, the Commission satisfied its burden. The relevant market in this case is the sub-market of consumable office supplies sold in office superstores; sub-markets are defined through various practical indicia. The market is justified because of 1) pricing evidence, including internal documents and Staples own pricing information; 2) the uniqueness of office superstores; and 3) industry or public recognition of the sub-market as a separate economic entity. First, defendants prices were higher in areas where they competed against other superstores compared to where they didnt compete against superstores. Internal documents showed that prices were affected by other superstores, not all stores selling office supplies. The Court found that SSNIPa small but significant increase in pricedidnt cause consumers to go to nonsuperstores to buy office supplies. Second, testimony and first hand observation of the defendants suggested that their size, selection, depth and breadth of inventory distinguishes them from other retailers: [y]ou certainly know an office superstore when you see one. Finally, internal documents shows that defendants were primarily concerned w/ competition from other superstores, such as Best Buy or Wal-Mart; defendants primarily price check w/ other superstores more frequently/extensively than other alleged competitors. Therefore, the practical indicia (Brown Shoe) suggests that the relevant product market is consumable office supplies sold in office superstores. The Court, then, found that a number of geographic markets would have high concentration levelse.g., 100% market share in 15 geographic markets, and in many markets the number of firms would drop from 3 to 2leading to a presumption of anticompetitive effect.
The Commission argued that the price of products in post-merger markets wouldnt drop as much as they would if competition remained. Therefore, FTC established its burden and defendants couldnt rebut. 3. Supply substitution and entry Case: United States v. Waste Management, Inc., 743 F.2d 976 (2d Cir. 1984); p. 530 Parties: Petitioner (government); Respondent (WMI) is a waste disposal company in 27 states that acquired EMW, which owns a subsidiary (TIDI) also involved in waste disposal. Facts: WMI and EMW both own subsidiaries operating in Dallas. The government argued that the merger eliminated all waste disposal competition in the Dallas area. WMI argued that the companies provided different disposal services to different customers. It also stated that it would be unable to raise prices because new firms would quickly enter the market to undercut them. Ph: The district court found that the post-merger market share of the firm was 48.8%, concluding that the percentage was prima facie illegal. The court also found that although there was easy entry into the Dallas waste disposal market, ease of entry didnt rebut the prima facie case and ordered WMI to divest itself of TIDI. Issue: Whether the ease of entry into the Dallas waste management market was sufficient to rebut the prima facie case of anticompetitive effects? Holding/Rationale: Yes, the entry of new firms, or existing firms from Ft Worth, is so easy that any anti-competitive impact of the merger would be eliminated relatively quickly. People can enter the market by operating out of their homes as long as they acquire a truck and containers and compete well w/ any other firm. There is no barrier preventing collectors in Ft Worth from acquiring garage facilities in Dallas to operate in that market. The market share can only be retained through competitive pricing due to the ease of entry into the market. The rebuttal evidence, namely ease of entry, came straight out of the Merger Guidelines. Notes: In Baker Hughes, the Court considered ease of entry as evidence rebutting anticompetitive effects. The government insisted that entry be quick and effective to rebut the prima facie case, relying on Waste Management; the Court held this standard to be too high. The Court found ample evidence that the mergers attempt to raise price in the U.S. HHUDR market would lead to new undercutting competitors, from Canada and other foreign countries. In fact, the Court found that Secoma became the market leader in 1989 by lowering its price; previously, it couldnt sell HHUDRs in the U.S. because of its higher price. The Court stated that ease of entry could avert anti-competitive effects and combined w/ other factors was sufficient to rebut the presumption. In assessing potential entrants into the market, the government also considers committed and uncommitted entrants. The latter are allocated (estimated) market shares and impact market share calculations. The Baker Hughes court rejected the quick and effective entry requirement stating that it sets the bar too high for entry. Two years later, the government published Merger Guidelines requiring that entry be timely, likely, and sufficient to count. (But, the courts arent bound by the Guidelines)
4. Efficiencies Mergers and joint ventures have significant and important pro-competitive justifications that benefit the economysuch as innovation. These justifications can be termed efficiencies because they permit[ ] a better utilization of existing assets, enabling the combined firm to achieve lower costs in producing a given quantity and quality than either firm could have achieved. Merger Guidelines 4.0. The Polk Bros., Inc. court recognized that some degree of cooperation among individuals or firms is necessary before they compete. This cooperation facilitates efficient production. Efficiencies are controversial insofar as their ability to rebut prima facie cases, particularly in light of Supreme Court precedent to the contrary from the structural paradigm era. Judicial hostility to efficiencies has been tempered w/ the increased emphasis on economic factors in merger (antitrust) analysis. Case: FTC v. University Health, Inc., 938 F.2d 1206 (11th Cir. 1991); p. 542 Parties: Petitioner (FTC) seeks to enjoin the merger of two Augusta, Ga. area hospitals; respondents (University) are area hospitals. Facts: University Hospital sought to acquire St. Joseph, another hospital in the Augusta area. The merger wouldve resulted in higher concentration in an already concentrated marketthe merger would result in 43% of the market share, raising the HHI more than 630 to almost 3200. Defendants argue that the acquisition would lead to efficiencies because it would eliminate unnecessary duplication between the hospitals. Ph: The district court found that although market was concentrated and that a state law served a substantial entry barrier, the efficiencies resulting from the merger rebut the governments prima facie case. The injunction was denied. Issue: Whether the district court erred by allowing efficiencies to rebut the FTCs prima facie case? Holding/Rationale: No, the court may consider the mergers efficiencies in certain circumstances; but, in this case, the efficiencies werent sufficient to rebut the presumption of anti-competitive effects. The hospitals approximated, in dollars, the savings, but didnt explain how the alleged efficiencies would be maintained or achieved. Notes: The 1997 Merger Guidelines articulated a ways to consider efficiencies, but also developed parameters for efficiency defenses. Efficiencies arent cognizable unless 1) substantiated and verified and 2) merger specific, meaning they couldnt practically be achieved through reasonable alternatives that presents less risk to competition. The Guidelines also suggested that some efficiencies are more cognizable than others. Guidelines, 4.0. Efficiencies almost never justify full rebuttal of the presumption by alone. In Staples, the Court recognized that the Merger Guidelines discussion of economies of scale as justification for mergers is somewhat consistent w/ some case law. The Court recognized that efficiencies could rebut a prima facie case, but that the efficiencies asserted by Staples didnt rebut the presumption. The efficiencies asserted by defendants included substantial monetary
savings, a lowering of price due to the increased efficiency resulting from increased sales volume, and, finally, that 2/3 of the savings would be passed on to the customer. The Court essentially didnt believe the defendants. The savings were exaggerated compared to previous estimations; they are unverified; and, finally, that the pass-on plan is unrealistic because previous cost savings passed on to consumers was only 15-17%, whereas as defendants claim a 2/3 portion pass on. Case: FTC v. Staples, Inc., 970 F.Supp. 1066 (D.D.C. 1997); p. 545 Facts: Above Issue: Whether an efficiencies defense showing that the intended merger would create significant efficiencies in the relevant market, thereby offsetting any anti-competitive effects, thereby offsetting any anti-competitive effects, may be used by a defendant to rebut the governments prima facie case? Reasoning: The revised efficiencies section of the Merger Guidelines recognizes that, mergers have the potential to generate significant efficiencies by permitting a better utilization of existing assets, enabling the combined firm to achieve lower costs in producing a given quality and quantity than either firm could have achieved without the proposed transaction.(Guidelines 4). This coincides with the view of some courts that whether an acquisition would yield significant efficiencies in the relevant market is an important consideration in predicting whether the acquisition would substantially lessen competition Therefore, an efficiency defense to the governments prima facie case in section 7 challenges is appropriate in certain circumstances. The defendants did not accurately calculate the projected cost savings, which are considered to be specific to the merger, but in fact, arent related to the merger. Mr. Painter testified that, by his calculation, 43% of the estimated savings are savings that Staples and Office Depot would likely have achieved as stand-alone entities. Efficiencies and Consumer Welfare In a coordinated effects case, for example, the Guidelines suggest that the merger might promote competition by creating a maverick firm with an incentive to expand output and lower price. In a unilateral effects case, the merger might reduce the merged firms variable costs, giving it an incentive to lower price that outweighs any incentive to increase price resulting from the loss of localized competition. The efficiency revisions to the Merger Guidelines explain that the greater the potential adverse competitive effects of a merger, the greater must be the cognizable efficiencies in order to conclude that the merger will not harm competition Efficiencies almost never justify a merger to monopoly or near monopoly (Guidelines 4) 5. Failing Firms The final step in the Merger Guidelines involves consideration of failing firms; the Supreme Court created a narrow failing company defense in International Shoe v. FTC, 280 U.S. 291 (1930). The Guidelines allow the acquisition of a firm notwithstanding harm to competition if 1) the firm wouldnt be able to meet its financial obligations in the near future and unable to reorganize successfully; 2) it has made good-faith but unsuccessful efforts to sell its assets to a buyer who would keep its assets in the relevant market and pose a less severe danger to
competition than the proposed merger; and 3) the assets of the failing firm would exit the relevant market absent the merger. Guidelines, 5.1. These requirements are strictly construed, so a weak or flailing firm in financial trouble but not close to bankruptcy wont satisfy the requirements for this defense. A weakened or flailing firm, in financial trouble but not close to bankruptcy, will not satisfy the strict requirements of the failing firm defense. However, the merger partners may argue that their transaction is unlikely to harm competition because the firm being acquired is not likely to be a significant competitive force in the future without the merger. This is sometimes called the General Dynamics defense. Note: Merger Analysis Framework Governments prima facie case w/ a showing of high market concentration Market definition Geographic market Product market defined through buyer substitution w/ reasonable, functional alternatives HHI calculation, pre- and post-merger Competitive effects theories Defendants defense by showing Ease of entry into the market Efficiencies Failing firm consideration of the acquired firm
CHAPTER 6: DOMINANT FIRM BEHAVIOR Antitrust laws are also concerned w/ unreasonably exclusionary behavior by dominant firms. 2 of the Sherman Act bars unreasonable efforts by single firms to suppress competition. It contemplates three separate offenses: 1) monopolization, 2) attempted monopolization, and 3) conspiracy to monopolize. Plaintiffs alleging attempted monopoly must prove 1) that the defendant engaged in predatory or anti-competitive conduct w/ 2) specific intent to monopolize and 3) a dangerous probability of success. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Conspiracy to monopolize requires concerted action and a specific intent to achieve a monopoly, but plaintiffs dont have to prove that defendants have monopoly. See American Tobacco Co. (1946). Antitrust laws rarely condemn monopoly itself, meaning firms that possess monopoly power are not punished. The first step in analyzing monopoly behavior is to define monopoly, then to define what constitutes improper behavior. In evaluating single firm conduct, both anticompetitive effects and pro-competitive rationales are considered. Competition and Predation can have the same effect A. THE OFFENSE OF MONOPOLIZATION The modern test for establishing illegal monopolization under 2 requires plaintiffs to prove 1) that the defendant enjoyed monopoly power and 2) achieved or maintained its preeminence through improper means. 1. Measuring Substantial Market Power Modern economics treats market power as the ability to raise prices above competitive levels w/out suffering an immediate and unprofitably substantial loss of sales. The main direct techniques for identifying substantial market power are a) to measure the elasticity of demand for the products of the firm believed to possess a monopoly or b) to show that the alleged monopolist has actually used business methods other than superior performance to exclude its rivals from the market. Courts have used a defendants share of sales as the primary measuring tool of circumstantial techniques. First, however, the relevant market must be defined by isolating the geographic area and reasonable substitutions for the product. Courts calculate market share by comparing the firms activity in the relevant market (through sales, units, or capacity) w/ the activity of all firms in the market. a. Market shares as circumstantial proof Note Case: Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911)(p. 565) Facts: Standard Oil held a 90% share of the petroleum refining. The parties agreed that the relevant market includes the production of crude oil and the refining, transportation, and marketing of petroleum products. Standard maintained its share for over a decade. The government charged that Standard had engaged in predatory activities to monopolize the market, including local price-cutting, bribery, rebates from railroads, and commercial espionage. The district court found for the government and ordered that Standard be broken up into 30 companies. Control in the refining market allowed Standard to infiltrate upstream (crude oil production) and downstream (marketing). Holding/Rationale: The Court upheld the lower courts decision. Standards share of activity w/n the market was calculated w/ circumstantial evidence and proved its status as a monopolist. The
Court mentioned Standards exercise of its market power: coercion. The Court suggested that proof of successful efforts to suppress and assimilate rivalsdirect evidence of the capacity to restrict competitioncould reinforce the inference of monopoly power derived from analyzing market shares. Note Case: United States v. U.S. Steel, 251 U.S. 417 (1920). Facts: US Steel had acquired monopoly power through a number of acquisitions, acquiring between 80-95% of U.S. production of numerous steel products. It then raise prices dramatically earning high profit levels. US Steels president would hold dinners to so it could collude w/ competitors to raise prices. The district court ruled in favor of the defendant stating that by the time the trial ended, US no longer had monopoly powerits market share was 40.9%. The court also downplayed the price fixing dinners; competitors testified as to USs proper business tactics. Holding/Rationale: The Court affirmed, emphasizing the lack of evidence as to defendants market power. The Court pointed to circumstantial (USs declining market share) evidence and the lack of direct evidence of market power. US didnt abuse its competitors the way Standard Oil treated competitors, and its alleged attempts to convince competitors to collude even if true, didnt work. There was no monopoly market power. c. Alcoa (1945): Identifying market participants and attributing market shares Alcoa, since its creation, quickly became the countrys largest aluminum producer. However, it also used exclusionary techniques, such as requiring electric companies w/ whom it contracted to not supply electricity to other aluminum producers. By 1937, Alcoa was the sole U.S. producer of virgin aluminum ingot, and the increase in demand for aluminum to build planes, cars, appliances, and ships gave Alcoa a lot of power. Before determining if Alcoa behaved improperly (by excluding competitors), the Court first identified the relevant market. Case: United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945); p. 571 Parties: Petitioner (government); Respondent (Alcoa) the sole producer of virgin aluminum ingot. Facts: (See above) The government argued that the relevant market is virgin ingot and that Alcoa had a monopoly in this market; Alcoa argued that it was at all times subject to competition from imported and secondary ingot. Issue: What is the relevant market? Holding/Rationale: The relevant market is the virgin ingot market in which Alcoa accounts for 90% and makes it a monopoly. Alcoa didnt receive serious competition from other sources of ingot. Secondary ingot was as much in Alcoas control as virgin ingot because the former resulted from the latter; the virgin ingot gave Alcoa monopoly power. Also, while the foreign ingot market likely wouldve entered had Alcoa raised price, tariffs and the cost of transportation for foreign ingot producers amounted to a barrier to entry. Therefore, since there wasnt any competition or alternative to Alcoas virgin ingot, virgin ingot is the relevant market. Alcoa also
expanded its own capacity in anticipation of increase demand; this raised costs for potential entrants into the market and acted as a barrier to entry. d. Cellophane (1956): Injecting economic analysis into the market definition process via crosselasticity of demand. Cellophane involved allegations of Dupont holding a monopoly in the cellophane market (75%) violating 2. Cellophane offered a much-quoted definition of monopoly power, as the power to control prices or exclude competition. Its also important because it set the standard test to determine the relevant market: analysis of the cross-elasticity of demand for the defendants product. e. Kodak (1992): Market Power in aftermarkets Products may create an aftermarket for themselves or their parts if they are durable goods. Firms other than the original manufacturer sometimes serve the aftermarkets. These independent service organizations (ISOs) purchase spare parts from the equipment manufacturer or other sources and perform routine services on the original equipment manufacturer (OEM). Case: Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992); p. 583 Parties: Petitioner (Kodak) is a manufacturer/supplier of Kodak photocopiers and micrographic equipment; Respondent (ITS) is an ISO that used to service Kodak equipment. Facts: ISOs formerly serviced Kodak brand copiers and other equipment. They posed as competition to Kodak in the aftermarket of servicing Kodak equipment. Kodak began a policy that limited the availability of parts to ISOs, making it more difficult for them to compete w/ Kodak in the aftermarket. The policy allowed sales of replacement parts for micrographic and copying machines only to buyers of Kodak equipment who use Kodak repair services or repair them on their own. Plaintiffs allege that Kodak has substantial power in the parts market, stating that certain parts are available only through Kodak; Kodak has control over the availability of parts it doesnt manufacture; Kodaks control over the equipment market has excluded service competition, increased service prices, and forced consumers to Kodaks services (evidence suggests that the quality of service went down while prices increased). Kodak rebuts stating that even if it did have a monopoly in the parts market, it couldnt exercise market power in the service market because attempts to do so would cost it sales in the equipment market. Ph: The district court granted defendants s/j motion, but was reversed by 9th Cir. Issue: Whether defendants lack of market power in the primary equipment market precludes, as a matter of law, the possibility of market power in derivative aftermarkets? Holding/Rationale: No, there isnt any basic economic reality insisting that competition in the equipment market cant coexist w/, or precludes, market power in the after market. Kodak has raised service prices for its customers since the new policy was implemented. Kodaks theory, that it charged subcompetitive prices for equipment in order to make it up in the services market, isnt substantiated by actual market behavior.
In order for service-market price to affect equipment demand, consumers would have to know the total packageequipment, service and partscost at the time of purchase. Theyd have to know the life cycle price, or the price of a product from purchase to its life, which includes repair costs and replacement part costs, quality of service, upgrade, etc. This information is difficult to obtain because most companies wont distribute it. Also, the current owners of Kodak products are locked in to that product and would have to incur substantial switching costs to change products. The seller could charge supra-competitive prices for the locked in customers, but simultaneously charge competitive prices for potential customers. Based on the evidence, it is reasonable to conclude that Kodak has market power to raise prices and exclude competitioni.e. behave as a monopolistin the service aftermarket. Also, there is also a genuine issue as to Kodaks status a monopolist in the Kodak services market. A market is defined primarily by the alternatives available to consumers; here theres little, if any, alternative for consumers who have already purchased Kodak products to go to another product. A reasonable jury may determine that Kodak is a monopolist. 2. Identifying Improper Conduct a. Evolution of traditional judicial perspectives on exclusion: from Alcoa (1945) to DuPont (1980 ) Note Case: Alcoa (1945), Issue: Whether Alcoa possesses a monopoly w/n the meaning of 2? Holding/Rationale: Yes, Alcoas monopoly is covered by 2. The mere size of monopoly doesnt carry w/ it guilt; a violation of 2 requires some exclusion of competitors; that the growth wasnt natural or normali.e. through superior products; that there must be a wrongful intent or other specific intent; or that coercive methods were used. The Court recognizes that an extremely efficient firm may find itself in a monopoly positione.g. Microsoft. Alcoa had a lawful monopoly in 1909, but it engaged in unlawful conduct to strengthen its position for several years. Alcoa increased its production of ingot 8-fold during a 20 + year period when no other firm produced ingot. Alcoa repeatedly increased its capacity, anticipating entry, thereby raising entry costs of potential to such a level that the entry was aborted. This process was repeated and had the effect of excluding competitors, which was Alcoas intent. d. Refusals to deal: Three variations Individual firms have the right to decide for themselves what other firms it wants or doesnt want to deal w/. United States v. Colgate & Co, 250 U.S. 300, 307 (1919). Three categories of refusals to deal: 1) cases where the dominant firm threatens to stop cooperation w/ a customer or supplier thats considering forming a relationship w/ the dominant firms competitors; 2) cases where dominant firms attempt to w/draw from existing contractual relationships or to impose new terms on an existing relationship; and 3) cases where the dominant firm refuses access to an essential facility rivals require to compete w/ the dominant firm. i. Threats to forestall Access: Lorain Journal (1951) Case: Lorain Journal Co. v. United States, 342 U.S. 143 (1951); p. 631
Parties: Petitioner (Journal) is a news publisher having a virtual monopoly in Loraine, OH for years; Respondent (government) alleges Lorain violated 2. Facts: The Lorain Journal had a virtual monopoly in new dissemination in both local and national news in the City of Loraine, OH for many years. WEOL, a radio station, was licensed to operate in Loraine; it depended primarily on advertising to stay in business. The radio station was an alternative news service for Loraine residents. The Journal attempted to drive WEOL out of business by refusing to sell advertising space to advertisers also using WEOL. Most advertisers complied because they depended so heavily on the Journal for business. The government alleges the Journals conduct was an unlawful use of its market power in violation of 2. Ph: The lower court found in favor of the government stating that the Journal had the plan and desire to destroy a new entrant/competitor. Issue: Whether a monopolist may use its market dominance to injure new entrants into its market? Holding/Rationale: No. Businesses occupying a position of economic dominance in a market may not use its power to injure new entrants into the market. An attempt to reestablish monopolistic control over a market through unlawful means violates 2. The Journals coercive policy toward advertisers is an unfair method of competition. Notes: The plaintiff bears its initial burden of proof by offering a hypothesis of competitive harm. The burden then shifts to the defendant to offer a justification for the challenged conduct. The Journal couldnt offer a justification for its conduct. Exclusionary arrangements w/ suppliers, distributors, or customers, or even for single firm refusals to deal, sometimes may harm competition in the same way as a cartel. Applying the raising rivals costs framework (adopted from Figs. 6-3, 6-4; p. 636-37): o Step 1: Exclusion, or raising rivals costsConsiders whether a firm in the role of firm C has been excluded. This step focuses on whether the excluded firms have practical alternative means of obtaining supply or distribution. o Step 2: Market power, or power over priceconsiders if the excluding firm or firms can successfully disadvantage other firms such that would allow the former to obtain or keep market power. o Step 3: Efficiency Justificationsidentifies any legitimate business justifications for the exclusionary conduct, and asks whether any resulting benefit to competition would outweigh the potential harm to competition demonstrated through the first two steps.
Case: Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985); 641 Parties: Petitioner (Skii) operated 3 mountains in Aspen, Col.; Respondent (Highland) operated remaining mountain in same area. Facts: The operations in the area offered varying all-Aspen ticket programs, allowing skiers in the area to go to all the facilities in the area w/ minimum difficulties. Sales of the ticket were
good and the program was generally well received. In the 1970s, Skii threatened to discontinue its mountains (3) from the all-Aspen ticket unless Highland agreed to a fixed share of the revenues generated by the ticket, which was lower than what it traditionally made. Another offer was made the next year, but w/ a lower fixed share. Highland tried to market its own multiarea package, but Skii made it hard to do by refusing to accept any vouchers from Highland and refusing to sell Highlands any ski lift tickets that they could market. W/out the convenience of the previous tickets, Highlands tickets didnt do as well and its revenues began to drop off. Highlands challenged Skiis conduct alleging 2 violation. Ph: Jury found for Highland, awarding $2.5 mill and then the district court trebled the damages; the Court of Appeals affirmed. Issue: Whether a firm w/ monopoly power can refuse to deal w/ smaller competitors where its found that there were no valid business reasons to refuse? Holding/Rationale: No. If the record supports a jurys conclusion that no valid business decision exists for the refusal of a firm w/ monopoly power to deal w/ smaller competitors, then its judgment will be sustained. Businesses arent obligated to cooperate w/ one another, but only to a degree. Skii changed a pattern of distribution that had existed for many years in the skiing industry, and that enhanced competition in the market. The all-Aspen ticket was of superior quality, evidenced by its prior popularity, and it could be concluded that consumers were adversely affected by the elimination of the ticket. Highlands share of the market declined as a result of the elimination of the all-Apsen ticket. Skii hasnt offered any efficiency justification for its refusal; it seemed to be willing to forgo substantial benefits associated w/ the ticket. The refusal wasnt bold, relentless, and predatory, the evidence supports the conclusion that Skii intended that consumers would stop dealing w/ Highlands. Notes: In assessing efficiency justifications, courts will consider if the record shows that theoretically plausible justifications in fact motivated the defendants refusal to deal Monopolists successfully defending 2 allegations have typically provided business justification to excuse the refusal to deal. Trans Sport v. Starter Sportswear, Inc., 964 F.2d 186 (2d Cir. 1992) (emphasizing defendant manufacturers effort to curb free-riding by plaintiff distributor). Cannot restrict competition in an unnecessary manner (Ancillary analysis of Addison Pipe) Cannot exclude rivals on any basis other than efficiency o If output is restricted and price is raised, efficiency cannot be present o Raising the costs of rivals can allow a company to raise its own prices with an increased profit margin Market Power Refusals to provide access to essential facilities; this doctrine requires the plaintiff to prove o Control of an essential facility by a monopolist, o The inability of a competitor to reasonably duplicate the essential facility, o The denial of use of the facility to a competitor, and o The feasibility of providing the facility
CHAPTER 7: CONCERTED CONDUCT Examples of exclusionary strategies: 1. Unilateral: predatory pricing. 2. Horizontal: when other firms willingly or unwillingly participate in predatory pricing. 3. Vertical: involves suppliers or customers of the firm. A. EXCLUSIONARY GROUP BOYCOTTS
Case: Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985); p. 683 Parties: Petitioner (Northwest) is a purchasing cooperative; Respondent (Pacific) is a former member of Northwest that was expelled. Facts: Northwest is a purchasing cooperative consisting of office supply retailers. It is the primary wholesaler for its members. Non-member retailers can wholesale from Northwest for the same price as members, but they dont receive the rebate members receive at the end of the year, resulting in an overall decrease in costs for members. Northwest also provides warehousing facilities. Pacific engaged in both wholesaling and retailing, in violation of the 1974 amendments to Northwests bylaws. A grandfather clause allowed Pacifics membership rights to continue. It was expelled when it failed to notify the cooperative that controlling ownership had changed, violating another bylaw. No notice was given to Pacific, nor was there a hearing or any opportunity to challenge the decision. In 1978, Northwest made $5.8 mill, while Pacific made $7.6 mill. Pacific argues the expulsion resulted from its wholesaling and retailing. Northwest points to Pacifics failure to notify the cooperative of a change in ownership. Ph: The district court granted s/j for Northwest finding no anticompetitive effect of the expulsion. The Ninth Circuit reversed finding that the expulsion w/out procedural protections was a concerted refusal to deal w/ Pacific on equal footing amounting to a per se 1 violation. The court further stated that the rule of reason would apply if the cooperative provided procedural safeguards; absent this condition, per se applies. Issue: Whether the decision to expel Pacific w/out procedural protections is properly viewed as a group boycott or concerted refusal to deal mandating per se invalidation? Holding/Rationale: The court of appeals didnt evaluate the district courts determination under the rule of reason, but erroneously applied the per se rules. Per se rules are appropriate in cooperative buying arrangements only where the cooperative possesses 1) market power, or 2) exclusive access to an element essential to effective competition; w/out this showing the rule of reason applies. Pacific hasnt meet the threshold requirement of a showing on this issue. Notes:
When the per se rule applies: "when the practice facially appears to be one that always or almost always tends to restrict competition and decrease output."
When the rule of reason applies: "when the practice is one designed to increase economic efficiency and render markets more, rather than less, competitive." Traditional application of per se rules when joint efforts by a firm or firms disadvantaged competitors by either directly denying, persuading, coercing suppliers or customers to deny relationships the competitors need in the competitive struggle; o o o the boycott often cut off access to a supply, facility, or market necessary to enable the boycotted firm to compete; frequently the boycotting firms possessed a dominant position in the relevant market; and the practices were generally not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive.
"A plaintiff seeking application of the per se rule must present a threshold case that challenged activity falls into a category likely to have predominantly anticompetitive effects. The mere allegation of a concerted refusal to deal does not suffice because not all concerted refusals to deal are predominantly anticompetitive. When the plaintiff challenges expulsion from a joint buying cooperative possess, market power or unique access to a business element necessary for effective competition."
Figure 7-1 Framework for Analyzing Exclusionary Group Boycotts Under Northwest Wholesale Stationers Three Steps/Requirements cutting off access to a supply, facility, or market necessary to enable the boycotted firm to compete (Exclusionary Conduct) frequently the boycotting firms possessed a dominant position in the relevant market (Market Power) no plausible arguments that boycott enhanced overall efficiency (No Procompetitive Justification) INTERBRAND VERTICAL RESTRICTIONS

B.
Two principal groups of vertical restraints: 1) intrabrand restraints which only affect competition for the same brand of product or servicee.g., exclusive dealing & tying; and 2) interbrand restraints which affect competition between different brands (rivals).
Exclusive dealing arrangement involve a supplier and its customer, typically a retail dealer, agreeing that the dealer will purchase the product or service in question exclusively from the supplier. Output contract is where a buyer agrees to purchase all of a supplier's output of a specified good or service.
Requirement contracts: a buyer agrees to purchase all of its requirements for a certain product or service from a specified seller. Tying involves an arrangement whereby a supplier conditions the sale of one product, the "tying" product, on the purchaser's agreement to purchase another, usually complementary product, the "tied" product. Effects of tying: The purchaser is neither free to decline to purchase the tied product, nor able to purchase the tied product from other suppliers, and other suppliers are precluded from serving the needs of the dealer for the tied product.
o Tying has both collusive and exclusionary effects (Fig 4-3)

**Tying and exclusive dealing can be evaluated under section 1 and 2 of the Sherman Act as well as Section 3 of the Clayton Act. 1. Tying and the "Leveraging" Problem Rudimentary features of tying agreements: 1) the presence of two products, one desired, the other not; 2) a degree of "forcing." in the sense that the purchaser has nor choice but to take the second product to get the first; and 3. a legal inference that the effects of such forcing can be "monopolistic." IBM Four part test for tying: 1. There must be two distinct products or services; 2. There must be a conditioned or sale, i.e. the tying product must be available only on the condition that the second, tied product also be purchased; 3. the seller must have "appreciable economic power" in the tying product, such that "forcing" is likely, i.e. it appears that the second product would either not be purchased at all, or would not be purchased from the seller of the tying product, but for the seller's market power; and 4. The arrangement must affect a "substantial volume of commerce in the tied market." Fortner. Case: Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984); p. 694 Parties: Petitioner (Jefferson) executed a contract agreeing to require all consumers of its hospital operating rooms to use anesthesiologists employed by Roux and Associates; Respondent (Hyde) an anesthesiologist denied hospital privileges. Facts: Hyde sued Jefferson after he was denied hospital privilege, due mainly to the contract. He contended that the contract illegally tied the purchase of operating room use w/ a fixed source of anesthesiological services, in violation of antitrust laws. Jefferson argued that since only 30% of
the market for operating rooms belonged to other hospitals, it had an insufficient market share to manipulate consumers into using unwanted anesthesiologists. Ph: The district court dismissed the complaint but the court of appeals reversed, holding that the contract was per se unlawful because the contract was a tying arrangement requiring that users of the hospitals operating rooms (the tying product) are also compelled to purchase the hospitals chosen anesthesia service (the tied product). Issue: Whether the contract gives rise to a per se violation of 1 of the Sherman Act because every patient undergoing surgery at the hospital must use the services of one firm of anesthesiologists, and, if not, whether the contract is nevertheless illegal because it unreasonably restrains competition among anesthesiologists? Holding/Rationale: No, the agreement didnt illegally fix prices. Tie-in agreements are illegal only if the market power of the owner of the operating rooms at Jefferson went to other hospitals. Thus, Jefferson didnt have a sufficient market share to force patients to buy the tied productthe anesthesiologists affiliated w/ Roux. The Court didnt apply the per se rule in this case. Notes:
When tying is lawful: If each of the products may be purchased separately in a competitive market, one seller's decision to sell the two in a single package imposes no unreasonable restraint on either market, particularly if competing suppliers are free to sell either the entire package or its several parts. When tying is unlawful: the essential characteristic of an invalid tying arrangement lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms. (They need to have market power for this). When the per se rule is applied: Per se condemnation-condemnation without inquiry into actual market conditions-is only appropriate if the existence of forcing is probable. Inquiry into validity of tying arrangement: Any inquiry into the validity of a tying arrangement must focus on the market or markets in which the two products are sold, for that is where the anticompetitive forcing has its impact. A tying arrangement cannot exist unless two separate product markets have been linked. Sidebar 7-1, 7-2, 7-4 These last two cases apply a per se rule only to dominant firms with Market Power.
*Concurrence: Tying: a form of marketing in which a seller insists on selling two distinct products or services as a package. The concurrence clarifies why rule of reason should be used in this case. 2. Exclusive Dealing: The Basis and Limits of Foreclosure Analysis Case: Jefferson Parish Hospital District No. 2 v. Hyde,
p. 719 Exclusive-dealing arrangements may, in some circumstances, crate or extend market power of a supplier or the purchaser party to exclusive-dealing arrangement, and may thus restrain horizontal competition. In determining whether an exclusive-dealing contract is unreasonable, the proper focus is on: 1) the structure of the market for products or services in question, 2) the number of sellers and buyers in the market, 3) the volume of their business, and 4) the ease with which buyers and sellers can redirect their purchases or sales to others. Exclusive dealing is an unreasonable restraint on trade only when a significant fraction of buyers or sellers are frozen out of the market by the exclusive deal. Sidebar 7-2 : The Economics of Tying The Chicago School Critique Single monopoly profit theory: If the seller were in fact a monopolist of the tying product, it could maximize its profits by charging the monopolist's price for the tying product, and "tying" could add nothing to that profit. Some explanation other than "leverage" would have to be found. Pro and Anti-Competitive Uses of Tying Anticompetitive Effects of Tying Having to purchase a second, unwanted product is the economic equivalent of being charged a higher price. Likewise, having to forego choice also may be viewed as a collusive effect. Case: Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157 (9th Cir. 1997); p. 721 Facts: The defendant manufacturer did business with various distributors to distribute its products. The plaintiff, which was kind of like a Maverick and wanted to introduce one-stop shopping to the market for various manufacturers acquired two distributors of the defendant the defendant then notified the distributors that it would only be dealing with distributors who only sold their product. They informed the plaintiffs that their contracts were terminated. EXCLUSIVE DEALING ARRANGEMENTS ARE ANALYZED UNDER RULE OF REASON ANALYSIS. Issue: Whether the district court erred in submitting to the jury the plaintiffs' Clayton Act 3 exclusive dealing and other state law claims. Holding/Rationale: Reasons why defendant's actions are not likely to have anticompetitive effects: 1) exclusive dealing arrangements imposed on distributors rather than end-users are generally less cause for anticompetitive concern; 2) the short duration and easy terminability of these agreements negate substantially their potential to foreclose competition. **Dissent: The court should have considered the following factors: 1. the dominance of the seller; 2. the existence of an industry-wide practice of exclusive dealing; 3. the proportion of affected
commerce in comparison to the entire market; and 4. the probable effect immediately and in the future of the exclusive dealing, including effects on the ability of the consumer to change products. The dissent feels that the majority incorrectly defined the markets.
Problem 2-1 What is the Concerted action? First question is what is the conduct o Seems like a joint marketing plan o Doctors are afraid of what would happen if they do not stick together Cost containment would be at risk o Doctors come out best if they dont work together and dont agree to the HMO o Goal was to agree not to let any HMO into their town Analysis o Collusive Boycott similar to superior court trial lawyers o There is only restraint on trade o Actual restraint of trade o Inference of restraint of trade 50% market share and no easy alternatives Burden shifts to Doctors to show procompetitive purpose Not easily proven on facts o Probably a good candidate for quick look analysis Price was not fixed, but an anticompetitive agreement was made with no reasonably procompetitve purpose
Problem 2-2 Genl Leaseways 744 F2d 588 (7th Cir 1984) New Product argument that they never could have come up with a trucking system without collusion

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The two approaches to Per Se unlawfulness:

The two approaches to the Rule of Reason:

1. Foundation Cases: Trenton Potteries and Socony-Vacuum Oil

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1. Foundation Cases: From Eastern States to Klors

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2. Contemporary Treatment of Collusive Group Boycotts

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2. Non-Price Restraints: Sylvania and the Return of the Rule of Reason:

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4. Maximum RPM: From Albrecht to Khan:

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1. Dual Distribution and Market Division:

2. Supplier or Dealer Exclusivity and Concerted Refusals to Deal:

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