Scenario 3: Basic Facts

1
Scenario 3 Basic Facts

• Year 1904
• Smith-Jones form New Jersey holding company
• Smith-Jones consolidate through holding company.
• Smith-Jones acquire 10 other firms through
  holding company
• Divide market in 15 states

2
Scenario 3

• In 1904, what would have been best arguments
  against Smith/Jones position?
• In 1904, what would have been best arguments in
  support of Smith/Jones position?

3
Smith-Jones Opposition Arguments

• Words of statute
• Deprive public of benefits of competition
• No need to show complete monopoly
• Liberty to contract not include right to deprive
  public of competition

4
Pro Smith Jones Argument

• Rights to property and freedom to contract
  Congress cant mess with
• Act says nothing about competition and
  competition not central purpose
• No violation of common law no sinister intent
  or attempt to keep rivals out

5
Northern Securities

• Morgan/Hill/Harriman railroad holding company.
• Challenged under Sherman Act.
• Harlan (Majority) Done deal clear words of
  Section 1.
• White (Dissent) Freedom of contract rights of
  property.
• Holmes (Dissent) Not about competition. Common
  law standard. Property rights

6
Fact Change Again

• Year 1915
• Smith-Jones major player in 25 states
• Would additional facts help?
• What facts?

7
Standard Oil (1911)

• Rockefellers Oil Trust The Mother of all
  Trust
• How bad were the actors?
• How significant was common law?
• White on majority. Was he consistent with his
  prior views?
• What is undue restraint, standard of reason.

8
US Steel

• Combination of 50 plus of steel output.
• Natural evolution pools without penalties
• Association, trade dinners?
• Mere size not offense, nor existence of unexerted
  power.
• Overt acts must be shown.

9
What US Steel Did Not Do?

• No brutalities and tyrannies of others
• No rebates under or above table
• No artificial shortages
• No quality hits to max profits
• No coercion of competitors
• No low-ball prices with bad intent
• No crushing of competitors

10
Status At Crash of 29

• Naked agreements among competitors to fix prices
  violated Sherman 1
• Consolidations and mergers were safe absent a
  showing to drive our rivals or force them to
  join.
• Standard Oil was example of bad U.S. Steel
  example of good.
• Antitrust was weak, but

11
Foundations For

• The role of competition and common law
• The debate on size importance
• The relevance of conduct
• The rule of reason and per se distinction
• The importance of ancillary and naked
• The role of executive policy politics
• The importance of efficiency consumer v.
  competitor short-term v. long-term
• The need for economic analysis