Professional Documents
Culture Documents
§ 1 Defining Monopolies.......................................................................... 4
§ 1.1 Product Market...........................................................................4
§ 1.2 Product “Submarkets”?.............................................................. 4
§ 1.3 Geographic Market.....................................................................5
§ 1.4 Proving Market Power............................................................... 5
§ 1.4.1 Direct Proof..........................................................................5
§ 1.4.2 Indirect Proof.......................................................................6
§ 1.4.3 Rebutting an Inference of Market Power..........................6
§ 2 Analyzing Violations of Sherman Act § 1........................................6
§ 2.1 Per Se Rule................................................................................. 6
§ 2.2 Rule of Reason............................................................................ 6
§ 2.3 Choosing the Rule to Apply.......................................................7
§ 3 Horizontal Restraints........................................................................ 7
§ 3.1 Hardcore Price Fixing (Per Se Prohibition)..............................7
§ 3.2 Horizontal Agreements Requiring Rule of Reason..................7
§ 3.3 “Quick Look” Analysis of Horizontal Agreements....................8
§ 3.4 Professional Self-Regulation......................................................8
§ 3.5 Allocation of Markets................................................................. 8
§ 3.5.1 Additional Considerations in Market Divisions...............9
§ 3.5.2 Permissible Market Divisions............................................ 9
§ 3.6 Refusals to Deal..........................................................................9
§ 3.6.1 Per Se Rule or Rule of Reason?.......................................... 9
§ 3.6.2 Market Power in Relation to Refusals to Deal................10
§ 3.7 Industry Regulations...............................................................10
§ 3.8 First Amendment Concerns.....................................................11
§ 3.9 Joint Ventures.......................................................................... 11
§ 3.9.1 Harm to Competition........................................................ 11
§ 3.9.2 Review Under the Clayton Act.........................................11
§ 3.10 Research and Development...................................................11
§ 3.11 Horizontal Conspiracies.........................................................12
§ 3.11.1 Conscious Parallelism.....................................................12
§ 3.11.2 Plus Factors.....................................................................12
§ 3.12 Trade Associations and Exchange of Information...............12
§ 3.12.1 Per Se Rule...................................................................... 12
§ 3.12.2 Shift Toward the Rule of Reason...................................13
§ 4 Vertical Restraints...........................................................................13
§ 4.1 Rule of Reason.......................................................................... 13
§ 4.1.1 Practical Effect of Shift.....................................................13
1
§ 4.2 Policy Considerations...............................................................14
§ 4.3 Additional Considerations....................................................... 14
§ 4.4 Vertical Non-Price Restraints.................................................14
§ 4.5 Vertical Conspiracies............................................................... 14
§ 4.5.1 Requirement of Plus Factors............................................14
§ 5 Conduct by a Single Firm................................................................15
§ 5.1 Two Elements of Monopolization............................................15
§ 5.2 Analytical Framework............................................................. 15
§ 5.3 Categories of Forbidden Conduct............................................ 15
§ 5.3.1 Generally Permitted Conduct..........................................15
§ 5.3.2 Maintenance of Excess Capacity......................................16
§ 5.3.3 Refusals to Deal................................................................ 16
§ 5.3.4 Relationship to Essential Facilities................................. 16
§ 5.3.5 Bottom Line....................................................................... 16
§ 5.3.6 “Price Squeezing” Not Cognizable...................................17
§ 5.3.7 Technological Considerations ..........................................17
§ 5.4 Attempted Monopolization......................................................17
§ 5.4.1 “Dangerous Probability of Success”.................................17
§ 6 Other Limitations on Single-Firm Action...................................... 18
§ 6.1 Predatory Pricing..................................................................... 18
§ 6.1.1 Measuring Cost................................................................. 18
§ 6.1.2 Effect on Victim.................................................................18
§ 6.1.3 Harm to Competition........................................................ 18
§ 6.2 Tying..........................................................................................18
§ 6.2.1 Per Se Rule........................................................................ 19
§ 6.2.2 Rule of Reason................................................................... 19
§ 6.3 Exclusive Dealing Arrangements............................................19
§ 6.3.1 Rule of Reason................................................................... 19
§ 6.3.2 Exclusive Dealing Under the Clayton Act.......................20
§ 6.3.3 Exclusive Dealing Under the Sherman Act.................... 20
§ 6.3.4 Exclusive Dealing Under the FTC Act............................20
§ 7 Mergers.............................................................................................20
§ 7.1 Horizontal Mergers.................................................................. 21
§ 7.1.1 Efficiencies as a Defense...................................................21
§ 7.2 Analytical Framework............................................................. 21
§ 7.3 “Failing Company” Defense..................................................... 22
§ 7.4 Conglomerate Mergers.............................................................22
§ 7.4.1 Extension Mergers............................................................ 22
§ 7.4.2 Pure Conglomerate Mergers............................................22
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§ 8 Exemptions.......................................................................................23
§ 8.1 Noerr-Pennington Doctrine..................................................... 23
§ 8.1.1 Sham Exception................................................................ 23
§ 8.1.2 Providing Fraudulent Information to the Government. 23
§ 8.2 State Action Immunity.............................................................24
§ 8.2.1 Extension of Immunity to Individuals.............................24
§ 8.2.2 Unilateral Government Action.........................................24
§ 8.3 “Cleary Articulated”................................................................. 24
§ 8.4 “Actively Supervised”............................................................... 24
§ 8.5 Municipalities........................................................................... 25
3
§1 Defining Monopolies
A firm is a monopoly when it has the “power to control prices or ex-
clude competition.” United States v. E.I. du Pont de Nemours & Co.
Whether such power exists depends on the definitions of (1) the
product market and (2) the geographic market in which the firm oper-
ates.
4
§ 1.3 Geographic Market
Geographic markets generally depend on the extent to which physical
distances impose barriers to entry on would-be competitors. Trans-
portation costs are often a major factor in determining whether a dis-
tant firm is capable of meaningful competition with a local firm. See,
e.g., United States v. Aluminum Co. of Am. (cost of transporting alu-
minum from overseas meant that Alcoa had effective control of the
American market for aluminum).
Furthermore, a firm may be found to have nationwide market power
even if its products are available on a locality-by-locality basis. See,
e.g., United States v. Grinnell Corp. (Grinnell had nationwide market
power for “central station” alarm services even though each individual
service covered only local communities). Localities, in turn, may be
defined by consumers’ standards of convenience. See, e.g., Jefferson
Parish Hosp. Dist. No. 2. v. Hyde (“East Bank of Jefferson Parish” was
a cognizable geographic market because patients tended to choose hos-
pitals by proximity); United States v. Philadelphia Nat’l Bank (indi-
viduals and businesses tended to patronize local banks rather than
those located farther away).
In rare cases, a product may be so widely distributed that its geograph-
ic market is worldwide. See, e.g., United States v. Microsoft Corp.
(Microsoft products had a global market). Alternatively, a firm may
have a nationwide monopoly on one level and numerous local monopol-
ies on another. See, e.g., FTC v. Proctor & Gamble Co. (Proctor &
Gamble found to have nationwide monopoly in the manufacture of
bleach but also regional markets defined by barriers to transportation).
5
§ 1.4.2 Indirect Proof
Market share can be a proxy for market power, but a defendant may
rebut the link between market share and market power.
In using indirect proof, it is important to avoid the “cellophane fallacy.”
Just because a firm cannot further raise prices without losing custom-
ers does not mean that it is not already making supracompetitive
profits on its goods or services. Relevant factors in assessing market
power include (1) entry barriers, (2) abnormal profits, (3) historical
trends, (4) fragmented competition, (5) and corporate conduct, and (6)
vulnerability of consumers to abuses of market power. Furthermore, a
finding of market power may be weakened where it can be shown that
competing firms would quickly enter the market if prices were to be
raised.
6
§ 2.3 Choosing the Rule to Apply
Categorize the conduct by (1) determining whether a horizontal or ver-
tical arrangement is involved, (2) assessing if there has been an agree-
ment, and (3) categorizing the particular restraint at issue.
Then, apply the appropriate rule, depending on whether the conduct
merits per se prohibition or a fuller analysis under the rule of reason.
§3 Horizontal Restraints
7
justify restriction on advertising of discounts should be analyzed under
full rule of reason).
8
§ 3.5.1 Additional Considerations in Market Divisions
Market divisions, however, may serve procompetitive purposes. They
may, for example, prevent companies in one area from free-riding off
the services and advertising provided by companies in another. This
was essentially the concern that motivated the market divison in
Topco. See also General Leaseways, Inc. v. Nat’l Truck Leasing Ass’n.
Because of Topco, however, it is unclear whether courts will readily ac-
cept “preventing free-riding” as a justification for market divisions.
9
and (4) practices generally not justified by plausible arguments that
they were intended to enhance overall efficiency and make markets
more competitive. N.W. Wholesale Stationers, Inc. v. Pacific Stationery
& Printing Co. The bottom line is that the features of the refusal to
deal must add up to a “predominantly anticompetitive effect.” Id. Ad-
ditionally, the courts have suggested that a “core group of situations”
resembling group boycotts are worthy of per se condemnation: (1) hori-
zontal combinations at one level of distribution having the purpose of
excluding direct competitors from the market, (2) vertical combinations
designed to exclude from the market direct competitors of some mem-
bers of the combination, and (3) coercive combinations intended to in-
fluence the trade practice of boycott victims.
In Toys “R” Us, Inc. v. FTC, the court held that a boycott could be con-
demned under the per se rule if (1) the boycotting firm has cut off ac-
cess to a supply, facility, or market necessary for the boycotted firm, (2)
the boycotting firm possesses a dominant position in the market, and
(3) the boycott cannot be justified by plausible arguments that it was
designed to enhance overall efficiency. The problem, however, is that
the factors in this standard require an inquiry into market conditions
and pretty much defeats the purpose of a per se rule.
10
unles they (1) allege unreasonable standards or (2) impose an inappro-
priate standard of review. In re Rambus addresses the issue of using
industry standards to strong-arm competitors into paying royalties for
patented technologies. The Rambus court said that the FTC did not
prove that the standard-setting body would not have adopted some oth-
er standard absent Rambus’s deception.
11
§ 3.11 Horizontal Conspiracies
Because colluding firms must make their intentions known in un-
der-the-table ways, courts have developed standards of proof for con-
spiracies to commit anticompetitive acts.
12
courts were likely to find a § violation. See, e.g., Am. Column & Lum-
ber Co. v. United States (exchange of information about lumber pricing
prohibited where firms apparently intended to raise prices); Cement
Mfrs. Protective Ass’n v. United States (no § 1 violation because inform-
ation was being collected to prevent customers from speculating on ce-
ment prices); Sugar Inst. v. United States (sugar sellers committed § 1
violation by forcing each other to commit to openly announced prices).
§4 Vertical Restraints
13
§ 4.2 Policy Considerations
The Leegin court cited several considerations which are relevant to re-
views of vertical restraints: (1) the tension between intrabrand com-
petition and interbrand competition; (2) the fact that manufacturers
are more likely than retailers to side with consumers; (3) the free-rider
problem, wherein some retailers might take advantage of advertising
and services provided by others; and (4) the possibility of coercion by
retailers, which might use price maintenance as a way to squeeze com-
peting retailers out of business.
14
§5 Conduct by a Single Firm
15
§ 5.3.2 Maintenance of Excess Capacity
In Alcoa, the court found that Alcoa had abused its dominant market
position by continuing to expand production capacity in such a way
that discouraged competitors from entering the market. It is unclear,
however, whether this ruling is still valid today.
16
§ 5.3.6 “Price Squeezing” Not Cognizable
In Pacific Bell Telephone v. Linkline Communications, Inc., Linkline
alleged the Pacific Bell had tried to squeeze it out of business by selling
wholesale equipment at expensive prices and retail equipment at very
low prices. The court, however, found no violation because Pacific Bell
had no duty to deal with Linkline. Unless Pacific Bell engaged in pred-
atory pricing, there was no violation of Sherman Act § 2.
17
elasticity of consumer demand. Int’l Distrib. Ctrs., Inc. v. Walsh
Trucking Co. The bottom line is that the courts are concerned with
competition rather than competitors. This means that elbows-out busi-
ness tactics are acceptable as long as they do not threaten to create a
monopoly.
The problem, however, is that the requirement of dangerous probabil-
ity means that § 2 does not cover thuggish behavior by smaller firms.
§ 6.2 Tying
Tying is prohibited under § 1 of the Sherman Act and § 3 of the
Clayton Act. Under the Sherman Act, tying of any kind of product is
18
prohibited, and tying is defined by two factors: the business engaged
in tying must have a monopolistic position in the tying product and (2)
a substantial volume of business in the tied product must be re-
strained. The Clayton Act covers only commodities, but the standard
of review is the same as that under the Sherman Act.
19
chinery Co. v. Dresser Indus., Inc. There is a three step process for de-
termining whether an exclusive dealing arrangement exists: (1) look
for an agreement to deal exclusively—under § 1 of the Sherman Act
and § 3 of the Clayton Act, an agreement must be proven, but § 2 of the
Sherman Act covers unilateral conduct that is functionally equivalent
to exclusive dealing; (2) define the relevant market; and (3) apply the
rule of reason.
An exclusive dealing arrangement need not be explicit in order to viol-
ate antitrust laws. Courts have sometimes inferred a “meeting of the
minds.” E.g., United States v. Dentsply Int’l, Inc.
§7 Mergers
Section 7 of the Clayton Act governs horizontal and vertical mergers.
It prohibits mergers which threaten to “substantially lessen competi-
tion” in “any line of commerce.” A “line of commerce” may include dis-
20
tribution of goods in any submarket. Brown Shoe Co. The Clayton Act
is intended to address threats to competition in their incipiency.
21
§ 7.3 “Failing Company” Defense
Courts have been willing to allow a merger to go forward when one
company is obviously in dire financial straits. Under the guidelines of
the DOJ and FTC, the failing firm defense is available only when (1)
the allegedly failing firm would be unable to meets its financial obliga-
tions in the near future; (2) it would not be able to reorganize success-
fully under Chapter 11 bankruptcy; (3) it has made unsuccessful good-
faith efforts to elicit reaosnable alternative offers of acquisition; and (4)
absent acquisition, the assets of the failing firm would exit the relevant
market.
See, e.g., Hosp. Corp. of Am. v. FTC (inelasticity of demand for hospital
services and tradition of collusion between hospitals in region meant
that merger should not go forward); FTC v. H.J. Heinz Co. (merger of
baby-food manufacturers failed because merging firms failed to estab-
lish an adequate procompetitive justification); FTC v. Staples (signific-
ant increases in concentration, combined with speculative efficiencies,
meant that merger should not be permitted).
22
ally do not reach these firms. In general, only the FTC Act could be
used to question these mergers.
§8 Exemptions
23
§ 8.2 State Action Immunity
A state may effect a policy that supports a monopoly as long as that
policy is “clearly articulate and affirmatively expressed” and “actively
supervised” by the state. Calif. Retail Liquor Dealers Ass’n v. Midcal
Aluminum, Inc. However, this immunity extends to states only. A mu-
nicipality cannot authorize monopolies. Town of Hallie v. City of Eau
Claire. There are four reasons for this limitation: (1) states create mu-
nicipalities; (2) municipalities do not exercise sovereign powr and can-
not because their interests are more parochial; (3) redress through
political action would not protect people living outside the municipal-
ity; (4) the sheer number of municipalities would threaten national an-
titrust enforcement.
24
cial review of a peer-review decision itself is enough to constitute active
supervision.
§ 8.5 Municipalities
A statutory provision authorizing municipalities to engage in anticom-
petitive conduct does not need to acknowledge the potential anticom-
petitive effects. The effect must merely be a “foreseeable result.” See,
e.g., Town of Hallie v. City of Eau Claire (municipal-level monopoly
over sewage disposal was immune because the state had authorized
the monopoly and determined the area to be served); Columbia v.
Omni Outdoor Advertising, Inc. (billboard monopoly was immune be-
cause it was carried out pursuant to a state policy that granted muni-
cipalities plenary zoning power).
The rationale for this rule is that municipalities authorized to enact
policy should not have to look over their shoulders for potential anti-
trust enforcement.
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