Mergers and Joint Ventures

1
Mergers and Joint Ventures

• Horizontal Mergers
• A horizontal merger involves companies that
  compete in the same market.
• FTC and European Commission halt/approve mergers,
  based on likely impact on competition
• HHI as measure of market concentration too much
  concentration creates rebuttable presumption of
  violation

Herfindahl-Hirschman Index Calculator sum of
the squares of the market shares of firms in
industry. Threshold inquiry.
2
Mergers and Joint Ventures

• Horizontal Mergers
• FTC and European Commission halt/approve mergers,
  based on likely impact on competition
• HHI as measure of market concentration too much
  concentration creates rebuttable presumption of
  violation
• What is market?
• Product market
• Geographic market

3

• Hewlett-Packard / Compaq merger

Product Market? Geographic Market?
4

• Hewlett-Packard / Compaq merger

Product Market? Geographic Market?
Access Devices?
HHD
Laptops PCs workstations
5

• Hewlett-Packard / Compaq merger

• Product Market?
• Market shares?
• Access devices?
• Entry level servers?
• Geographic Market? EEA

6

• Office Depot/Staples Merger

Office Depot Staples Other office supply
7
Mergers and Joint Ventures (contd)

• Vertical Mergers
• Key is foreclosure of opportunities for
  non-merging firms
• Time Warner Turner Broadcasting
• What makes this merger worrisome for regulators?

8
Monopolization

• Under 2 of the Sherman Act, it is illegal to
  monopolize or attempt to monopolize.
• EC Art. 82 outlaws abuse of a dominant
  position in the market
• To tell if a monopoly is illegal, ask
• What is the market?
• Does the company control the market?
• No matter what your market shares, you do not
  have a monopoly unless you can exclude
  competitors or control prices.

9
Monopolization (contd)

• How did the monopolist acquire or maintain
  control?
• Possessing a monopoly used to be illegal
  probably not any more
• using bad acts to acquire or maintain one is.
• What kind of bad acts? Anticompetitive behavior
• Other antitrust violations
• Tying arrangements
• Exclusive dealing/refusals to deal
• KEY did/will behavior diminish competition

10
Microsoft

• Does defendant have monopoly power?
• Market share
• What market?
• Did defendant misuse it?
• Microsoft I Caldera v. Microsoft
• Microsoft II The U.S. case - settled
• Microsoft III The European case

11

• MICROSOFT ARGUMENT
• Our monopoly cannot hurt consumers for two
  reasons
• Innovation in the computer industry is so fast
  that any monopoly is inherently unstable. If we
  are inefficient, we will lose our monopoly.
• Our industry is characterized by network
  effects i.e., the value of the product
  increases as it is more widely used.
• These two characteristics mean that consumers
  benefit (and costs of production decrease) from a
  monopoly, AND that the monopoly nevertheless
  must be efficient (keep costs down) to survive.

12
Microsoft US case

• Netscape
• Microsoft offered to leave the browser market for
  non-windows machines to Netscape (i.e., not to
  develop a version of Internet Explorer for those
  machines) and to give Netscape preferred access
  to information about new versions of Windows IF
  Netscape would refrain from developing its
  produce as a platform that could support
  applications.
• When Netscape refused to cooperate with
  Microsoft, Gates sought to limit other companies
  use of the Netscape Browser.
• Apple was installing Netscape at the default
  browser on its machines. Ninety percent of Mac
  OS users were running a suite of office
  productivity applications called Microsoft's
  Mac Office.
• Microsoft threatened to cancel the product
  unless . . . Apple distributed and promoted
  Internet Explorer, as opposed to Navigator, with
  the Mac OS. Apple agreed.

13
Microsoft US case

• Sun Microsystems
• The inventors of Java at Sun Microsystems
  intended the technology to enable applications
  written in the Java language to run on a variety
  of platforms . . . so that a program written in
  Java . . . will run on any PC system.
• Wanted Java to be windows-compatible, but
• Microsoft designed its Java developer tools to
  encourage developers to write their Java
  applications using certain "keywords" and
  "compiler directives" that could only be executed
  properly by Microsoft's version of the . . .
• Microsoft encouraged developers to use these
  extensions by shipping its developer tools with
  the extensions enabled by default and by failing
  to warn developers that their use would result in
  applications that might not run properly with any
  version of Java other than Microsoft's . . .

14
Microsoft US case

• Intel
• Although Intel is engaged principally in the
  design and manufacture of microprocessors, it
  also develops some software.. . .
• At a meeting, Gates told Intel CEO Grove that
  he had a fundamental problem with Intel using
  revenues from its microprocessor business to fund
  the development and distribution of free
  platform-level software. In fact, Gates said,
  Intel could not count on Microsoft to support
  Intel's next generation of microprocessors as
  long as Intel was developing platform-level
  software that competed with Windows.

15
Microsoft US case

• Apple
• QuickTime is Apple's software architecture for
  creating, editing, publishing, and playing back
  multimedia content. . . . QuickTime competes with
  Microsoft's own multimedia technologies . . .
• Microsoft tried to persuade Apple to stop
  producing a Windows 95 version of its multimedia
  playback software In return, Microsoft
  offered to cooperate with Apple in a joint
  multimedia product.
• Microsoft's representatives made it clear that,
  if Apple continued to market multimedia playback
  software for Windows 95 that Microsoft would
  enter the authoring business to ensure that those
  writing multimedia content for Windows 95 would
  use Microsoft's product instead of Apples.

16
Microsoft US case

• IBM
• IBM makes PCs, operating systems (OS/2) and
  software.
• Microsoft tried to convince IBM to move its
  business away from products that themselves
  competed directly with Windows (OS) and Office
  (software) . . . . When IBM refused to abate the
  promotion of those of its own products that
  competed with Windows and Office, Microsoft
  punished the IBM PC Company with higher prices, a
  late license for Windows 95, and the withholding
  of technical and marketing support.

17
Microsoft The EU Case

• Bundling Windows Media Player into Windows
• Why do this?
• 2. Failing to share Windows information with
  Server manufacturers
• Why do this?

18

• Remedies for Microsofts wrongdoing?
• How do growing firms protect themselves against
  liability for violating antitrust laws?