UNDERSTANDING ANTITRUST AND IT; ECONOMIC IMPLICATIONS

Transcription

1 UNDERSTANDING ANTITRUST AND IT; ECONOMIC IMPLICATIONS Fifth Edition E. Thomas Sullivan Irving Younger Professor of Law and Dean Emeritus University of Minnesota Law School Jeffrey L. Harrison Stephen C. O'Connell Chair University of Florida College of Law LexisNexis"

2 CHAPTER 1 ANTITRUST POLICY: AN INTRODUCTION 1.01 The Focus of Antitrust Legislative History and Antitrust Goals Early Interpretation 5 CHAPTER 2 ANTITRUST ECONOMICS 2.01 Introduction Perfect Competition 8 [A] Demand and Supply 8 [B] Elasticity 10 [C] s" Market Equilibrium 12 [D] The Individual Firm Under Perfect Competition: The Marginal ': Revenue = Marginal Cost Rule 14 [E] Equilibrium Under Perfect Competition Monopoly Monopoly v. Competition: A Synthesis ' Oligopoly Market Power 23 [A] The Economic Theory of Market Power 23 [1] Market Share and Market Power 24 [2] Market Definition and Cross-Elasticity of Demand 26 [3] Elasticity of Supply 27 [4] Geographic Markets 28 [5] Further Refining the Importance of Market Share 28 [B] Market Power in the Courts 29 [1] United States v. Aluminum Company of America (Alcoa) 29 [2] United States v. Grinnell Corp 30 [3] Telex Corp. v. IBM Corp 31 [4] United Parcel Service and Dimmit Agri Industries 32 [5] Eastman Kodak v. Image Technical Services and the Lock-in Issue 33 [6] Market Definition and Methods of Distribution: FTC v. Staples, Inc 36 [7] Lucas Automotive Engineering, Inc. v. Bridgestone/Firestone, Inc.: The Matter of Submarkets 37 [8] Microsoft and the Relevance of Net-Work Effects 37 [9] Market Definition in the Context of Monopsony 38 xv

3 [10] Department of Justice and Federal Trade Commission Guidelines CHAPTER 3 ANTITRUST COVERAGE: JURISDICTION, ENFORCEMENT, AND EXCEPTIONS 3.01 Introduction Private Enforcement 41 [A] Standing 44 [B] Antitrust Injury 46 [C] Direct Purchaser Requirement "Domestic and International Antitrust 'Commerce' Jurisdiction" 58 [A] Sherman Act Requirements 58 [B] Clayton Act Requirements 59 [C] International Application of U.S. Antitrust Laws First Amendment Defenses 66 [A] Noerr-Pennington Doctrine 66 [B] Overbroad Remedial Orders ;-' Common Law Defenses Antitrust Enforcement in Regulated Industries 74 [A] Introduction 74 [B] Regulation of Natural Monopoly 75 [C] Antitrust or Regulation? 77 [D] Expressed Federal Exceptions 79 [1] Exemptions Furthering National Policy 79 [a] Labor Organizations 79 [b] Export Associations 84 [2] Exemptions for Specific Industries 86 [a] Insurance Federalism 89 [A] The State Action Doctrine, 89 [1] Local Government Antitrust Act 98 [B] The Doctrine of Preemption 99 CHAPTER 4 HORIZONTAL RESTRAINTS AND CARTEL BEHAVIOR 4.01 Introduction Policy Introduction 103 [A] Populism 103" [B] Structuralism and the Warren Court 104 [C] Economic Efficiency and the Burger Court 105 [D] Guidelines for Collaborations Among Competitors Economic Analysis, Market Power and Horizontal Restraints 106 xvi

4 [A] Price Fixing Effectiveness 106 [B] Output Analysis 107 [C] Market Power Analysis Ancillary Restraint Doctrine Rule of Reason Development Per Se Rule of Illegality and Price Fixing Modern Treatment of the Per Se Rule Trend Toward a Structured Rule of Reason for Price Fixing The Rule of Reason and Anticompetitive Conduct by Professionals Trade Association and Data Dissemination Activity Joint Ventures Maximum Price-Fixing Schemes Concerted Refusals to Deal Horizontal Market Divisions 151 [A] * Dividing Territories and Fixing Price 153 [1] Introductory Cases 153 [2] Exclusive License for an Assigned Area 154 [3] Externalities and the Free-Rider Defense 157 [4] Polk Brothers and the Trend Towards a Rule of Reason The Conspiracy Doctrine 161 [A] Proof of an Agreement 162 [1] Express Agreements 162 [2] Implied Agreements 163 [3] Procedural Matters 163 [4] Conscious Parallelism 166 [a] Interpretation 169 [b] Base Point Delivered Pricing 170 [B] Oligopoly Pricing and Facilitating Devices 172 [C] The Plurality Requirement & Intra-Enterprise Conspiracy 175 [1] Corporate Parent and Wholly-Owned Incorporated Subsidiary 176 [2] Corporate Parent and Partially-Owned Incorporated Subsidiary [3] Corporation and its Unincorporated Division 180 [4] Corporation and its Agents or Independent Consultants 180 [5] Sports League Teams 183 [6] Trade Associations 184 [7] Members of Non-Profit Foundations 185 [8] Local Governmental Units 186 [9] Single Entities Created as Instrumentalities for Unlawful Purposes [10] National Clubs and Affiliates Criminal Liability 190 xvii

5 CHAPTER 5 VERTICAL RESTRAINTS 5.01 Intrabrand Distributional Restraints 193 [A] Intrabrand Restraints and the Free Rider Problem 194 [B] Vertical Restraints on Price: Shifting Positions 195 [1] Minimum Resale Price Maintenance (RPM) 195 [2] Maximum Resale Price Maintenance 201 [C] The Treatment of Agreements in the Pre-Leegin Period 202 [1] Agreements: The Restrictive Period 202 [a] Consignment and the Use of Sales Agents 202 [b] Vertical Agreements: The Colgate Doctrine and Dealer Termination 204 [i] The "Colgate Doctrine" 204 [ii] The Parties Who Can Combine Under [2] Agreements in The Less Restrictive Period 207 [a] Monsanto v. Spray-Rite Service Corp 207 [b] Business Electronics v. Sharp Electronics Corp [3] Resale Price Maintenance and Antitrust Injury 209 [C] Territorial and Customer Restraints 210 [1] White Motor Co. v. United States 210 [2] United States v. Arnold, Schwinn & Co 211 [3] Continental T.V., Inc. v. GTE Sylvania 212 [4] The Aftermath of Sylvania 214 [D] Dual Distribution 216 [E] Exclusive Dealerships Interbrand Vertical Foreclosure 219 [A] Exclusive Dealing 220 [1] Economic Issues 220 [2] Exclusive Dealing and the Supreme Court 221 [3] Exclusive Dealing as an Unfair Method of Competition 223 [4] Exclusive Dealing in the Post-Tampa Electric and Sylvania Era [B] Tying Arrangements 226 [1] The Economics of Tying 227 [2] Tying and the Supreme Court 230 [a] Early Interpretations 230 [b] Former I and // 232 [c] Jefferson Parish Hospital v. Hyde 234 [d] Eastman Kodak Co. v. Image Technical Services 236 [e] Illinois Tool Works, Inc. v. Independent Ink 238 [f] Modern Tying Doctrine, and United States v. Microsoft 238 [3] Package Transactions: Block Booking and Bundling 240 [4] "Defenses" and Justifications 241 xviii

6 [a] The Single Product "Defense" 242 [b] Goodwill 245 [5] When the Tying Product Is Sold by a Third Party 245 [6] Reciprocal Dealing 247 CHAPTER 6 MONOPOLIZATION AND RELATED OFFENSES 6.01 Introduction, The Economics of Monopoly The Modern Offense of Monopolization: The Search for Standards 252 [A] Early Interpretations 252 [1] Preliminary Issues 252 [2] Standard Oil v. United States 252 [3] United States v. United States Steel Corp 253 [B] United States v. Aluminum Co. of America (Alcoa) 253 [If Background 254 [2] Market Definition 254 [3] Alcoa's Conduct 255 [C] The Search for Standards in the Aftermath of Alcoa 256 [1] United States v. Griffith 256 [2] United States v. United Shoe Machinery Corp 257 [3] United States v. Grinnell Markets Under Monopolizing Conduct 259 [A] Maintenance of Excess Capacity: Alcoa 260 [B] Exclusivity: United Shoe 261 [C] Product Innovation and Predisclosure 262 [D] Physical and Technological Ties 263 [E] The Refusal to Supply an Essential Facility or Input 264 [1] The "Essential Facilities" Doctrine 265 [2] Refusals to Deal and Vertical Integration.' 269 [3] The Economics of Vertical Integration 270 [F] Price Squeeze 272 [G] Raising Rivals' Costs 273 [H] United States v. Microsoft '. 274 [I] The Exercise of Monopsony Power Attempt to Monopolize 278 [A] Intent 279 [1] Intent to Do What? 279 [2] Proof of Intent 280 [B] Dangerous Probability of Success 281 [1] The Role of Market Analysis 281 xix

7 [2] Market Share and "Dangerous Probability" 282 [C] Conduct Generally 284 [D] The Use of Leverage 285 [E] Predatory Pricing 286 [1] How Likely is Predatory Pricing? 288 [2] Standards for Predatory Pricing 290 [3] Predatory Pricing Standards in the Courts 293 [4] Buying Side Predation 296 [F] Discounted Bundles Oligopoly and "Shared Monopoly" 298 [A] Oligopolistic Behavior 298 [B] "Shared Monopoly" Conspiracy to Monopolize ' 300 CHAPTER 7 MERGERS AND ACQUISITIONS 7.01 Introduction.,: Horizontal Mergers Non-horizontal Mergers 303 [A] Vertical Mergers 304 [B] Conglomerate Mergers 305 [C] Loss of Potential Competitors Economic Analysis of Mergers 306 [A] Horizontal Mergers : 306 [B] Vertical Integration Through Merger Legal Analysis of 7: An Overview 310 [A] Geographic Market 310 [B] Product Market 311 [C] Market Power Mergers Under the Sherman Act: The Early Years The Clayton Act [A] Vertical Integration Through Merger 315 [B] Horizontal Mergers 319 [C] Conglomerate Mergers 329 [1] Mergers of Potential Competitors 329 [2] Potential Competition and Joint Ventures 333 [D] Hart-Scott-Rodino Act Failing Company Defense Department of Justice Merger Guidelines 338 [A] Product Market 339 [B] Geographic Markets 342 [C] Calculating Market Shares 342 xx

8 [1] Horizontal Mergers 343 [a] Potential Adverse Competitive Effects of Mergers 344 [i] Coordinated Interaction 344 [ii] Unilateral Effects 345 [b] Efficiencies 346 [c] Entry Analysis 349 [i] Timeliness 350 [ii] Likelihood 350 [iii] Sufficiency of Entry 351 [2] Non-horizontal Mergers 351 [a] Vertical Integration 351 [b] Potential Competitors and Conglomerate Mergers 352 [D] Remedies Private Enforcement of International Mergers and Acquisitions " Conclusion 359 CHAPTER 8 PRICE DISCRIMINATION 8.01 Introduction 361 [A] The Clayton Act and Robinson-Patman Amendments 361 [B] Overview: The Components of the Robinson- Patman Act 362 [1] Price "Discrimination" and Price "Difference" 362 [2] Section 2(a) Components 362 [3] Defenses 363 [4] The Per Se Offenses 363 [5] Coverage The Economics of Price Discrimination 363 [A] First-Degree Price Discrimination 364 [B] Second-Degree Price Discrimination 366 [C] Third-Degree Price Discrimination ' Definitional Issues 368 [A] Two Prices and Two Sales 368 [B] Price Differences 369 [1] Discounts 369 [2] Base Point Pricing 370 [3] Indirect Price Discrimination 371 [4] Indirect Purchasers 372 [C] "Commodities" of "Like Grade and Quality" Injury to Competition 373 [A] Primary-Line Price Discrimination: Reconciling the Robinson-Patman Act with General Antitrust Goals 374 xxi

9 [1] Utah Pie v. Continental Baking 374 [2] Brooke Group Ltd. v. Brown & Williamson Tobacco 375 [B] Secondary-Line Discrimination 376 [1] The Inference of Injury 376 [2] In Competition 378 [3] Showing Actual Harm Seller's Affirmative Defenses 380 [A] Cost Justification 380 [1] The Basic Defense 380 [2] United States v. Borden 381 [3] The "Cost Justification" Standard, 381 [B] Meeting Competition 382 [1] Good Faith: Verification and Information Exchange 382 [2] Good Faith: Breadth of Response The Per Se Offenses 384 [A] "Section 2(c): Unlawful Brokerage Payments 384 [B] Promotional Allowances...: Buyer Liability 387 [A] Generally 387 [B] The Plaintiffs 2(f) Case 387 [C] The "Meeting Competition" Defense 388 APPENDIX: Selected Antitrust Statutes 389 TABLE OF CASES TC-1 INDEX 1-1 xxn