G604 IO II

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• G604 IO II
• Eric Rasmusen, erasmuse_at_indiana.edu
• 27 April 2006
• ANTITRUST

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Readings

• Antitrust Law.     "Statutory Provisions and
  Guidelines of the Antitrust Division," 3rd
  edition (April 2001)    Microsoft case
  "Conclusions of Law," United States District
  Court for the District of Columbia, Civil action
  98-1232    Lawrence White (1999) "Present at the
  Beginning of a New Era for Antitrust Reflections
  on 1982-1983,"March 16, 1999. http//papers.ssrn.c
  om/paper.taf?abstract_id167208     Powerpoint
  lecture slides

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The common law Sherman Act (1890) Clayton Act
(1914) 1 Sherman Act, 15 U.S.C. 1 Trusts,
etc., in restraint of trade illegal
penalty Every contract, combination in the form
of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several
States, or with foreign nations, is declared to
be illegal. Every person who shall make any
contract or engage in any combination or
conspiracy hereby declared to be illegal shall be
deemed guilty of a felony, and, on conviction
thereof, shall be punished by fine not exceeding
10,000,000 if a corporation, or, if any other
person, 350,000, or by imprisonment not
exceeding three years, or by both said
punishments, in the discretion of the court.
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• 2 Sherman Act, 15 U.S.C. 2
• Monopolizing trade a felony penalty
• Every person who shall monopolize,
• or attempt to monopolize,
• or combine or conspire with any other person or
  persons, to monopolize
• any part of the trade or commerce among the
  several States, or with foreign nations,
• shall be deemed guilty of a felony, and, on
  conviction thereof, shall be punished by fine not
  exceeding 10,000,000 if a corporation, or, if
  any other person, 350,000, or by imprisonment
  not exceeding three years, or by both said
  punishments, in the discretion of the court.

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Having a Monopooly Is not Illegal

• It all depends on how you get the monopoly.

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2 Clayton Act, 15 U.S.C. 132 Discrimination
in price, services, or facilities (a) Price
selection of customers It shall be unlawful for
any person engaged in commerce, in the course of
such commerce, either directly or indirectly,
to discriminate in price between different
purchasers of commodities of like grade and
quality, where either or any of the purchases
involved in such discrimination are in commerce,
where such commodities are sold for use,
consumption, or resale within the United States
or any Territory thereof or the District of
Columbia or any insular possession or other place
under the jurisdiction of the United States,
and where the effect of such discrimination may
be substantially to lessen competition or tend to
create a monopoly in any line of commerce, or to
injure, destroy, or prevent competition with any
person who either grants or knowingly receives
the benefit of such discrimination, or with
customers of either of them Provided, That
nothing herein contained shall prevent
differentials which make only due allowance for
differences in the cost of manufacture, sale, or
delivery resulting from the differing methods or
quantities in which such commodities are to such
purchasers sold or delivered
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2 Clayton Act, (b) Burden of rebutting
prima-facie case of discrimination Upon proof
being made, at any hearing on a complaint under
this section, that there has been discrimination
in price or services or facilities furnished, the
burden of rebutting the prima-facie case thus
made by showing justification shall be upon the
person charged with a violation of this section,
and unless justification shall be affirmatively
shown, the Commission is authorized to issue an
order terminating the discrimination Provided,
however, That nothing herein contained shall
prevent a seller rebutting the prima-facie case
thus made by showing that his lower price or the
furnishing of services or facilities to any
purchaser or purchasers was made in good faith to
meet an equally low price of a competitor, or the
services or facilities furnished by a competitor.
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3 Clayton Act, 15 U.S.C. 14 Sale, etc., on
agreement not to use goods of competitor It
shall be unlawful for any person engaged in
commerce, in the course of such commerce, to
lease or make a sale or contract for sale of
goods, wares, merchandise, machinery, supplies,
or other commodities, whether patented or
unpatented, for use, consumption, or resale
within the United States or any Territory thereof
or the District of Columbia or any insular
possession or other place under the jurisdiction
of the United States, or fix a price charged
therefor, or discount from, or rebate upon, such
price, on the condition, agreement, or
understanding that the lessee or purchaser
thereof shall not use or deal in the goods,
wares, merchandise, machinery, supplies, or other
commodities of a competitor or competitors of
the lessor or seller, where the effect of such
lease, sale, or contract for sale or such
condition, agreement, or understanding may be to
substantially lessen competition or tend to
create a monopoly in any line of commerce.
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4 Clayton Act, 15 U.S.C. 15 Suits by
persons injured (a) Amount of recovery
prejudgment interest Except as provided in
subsection (b) of this section, any person who
shall be injured in his business or property by
reason of anything forbidden in the antitrust
laws may sue therefor in any district court of
the United States in the district in which the
defendant resides or is found or has an agent,
without respect to the amount in controversy,
and shall recover threefold the damages by him
sustained, and the cost of suit, including a
reasonable attorney's fee.
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6 Clayton Act, 15 U.S.C. 17 (not in
packet) Antitrust laws not applicable to labor
organizations Nothing contained in the
antitrust laws shall be construed to forbid the
existence and operation of labor, agricultural,
or horticultural organizations, instituted for
the purposes of mutual help, and not having
capital stock or conducted for profit, or to
forbid or restrain individual members of such
organizations from lawfully carrying out the
legitimate objects thereof nor shall such
organizations, or the members thereof, be held or
construed to be illegal combinations or
conspiracies in restraint of trade, under the
antitrust laws.
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7 Clayton Act, 15 U.S.C. 18 (not in the
packet) Acquisition by one corporation of stock
of another No person engaged in commerce or in
any activity affecting commerce shall acquire,
directly or indirectly, the whole or any part of
the stock or other share capital and no person
subject to the jurisdiction of the Federal Trade
Commission shall acquire the whole or any part
of the assets of another person engaged also in
commerce or in any activity affecting commerce,
where in any line of commerce or in any activity
affecting commerce in any section of the country,
the effect of such acquisition may be
substantially to lessen competition, or to tend
to create a monopoly.
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Why Have Antitrust Laws?
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Merger Guidelines

• 1968 Guidelines no two companies with 5 market
  share allowed to merge
• 1982 Guidelinesmuch more lenient and rational.
  They are still in place.
• Justice Dept. Antitrust Division Federal Trade
  Commission
• Prosecutorial Discretion

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White 1982 Merger Guidelines the appropriate
or relevant market for merger analysis should
generally be the smallest group of sellers that,
if they coordinated their actions, could
successfully (profitably) exercise market power
-- e.g., by raising prices by a small but
significant amount and sustaining that higher
level for a significant period of time. To be
successful, this effort at collective exercise of
market power would not be thwarted by a
sufficient number of buyers switching away to
sellers of substitute products or to sellers of
the same product located elsewhere. In essence, a
relevant market is one that can be successfully
monopolized. Problem for applying to monopoly
or cartel, as opposed to pre-merger the
cellophane fallacy. Dupont said it had only a
small share of flexible wrapping materials in
1956, with cellophane. But that was because its
price was high. Optimal monopoly pricing till
demand gets elastic enough.
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More on the Guidelines ... 1. Were the
merger partners selling in the same
market(s)? 2. What would be the post-merger
level of overall seller concentration in each
relevant market, measured in terms of the
Herfindahl-Hirschman Index (HHI)? . What
changes in seller concentration would occur as a
consequence of the merger? 4. How easy is
entry? 5. Are there other characteristics of
the market -- the nature of the product, the
numbers and types of buyers, the histories and
characteristics of the sellers -- that would make
the post-merger exercise of market power more or
less likely? 6. And, in the spirit of Williamson
(1968), are there readily identifiable
efficiencies that would arise from the merger
that would provide a sufficient offset to any
perceived likelihoods of the exercise of market
power.
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Vertical Restraints 1. Resale Price Maintenance
per se illegal in 1980 and now, except for 1997
exception for max. RPM. (Maximum, minimum) Why?
Telser (1960) explanation prevent free riding.
Other explanations? --cartel leader,
various. The Reagan Division stopped bringing
RPM cases. Entered amicus brief for defendant in
a civil case. Congress passed a law specially to
stop Justice from arguing in favor of RPM in oral
argument in Monsanto case. 2. Vertical
integration, foreclosure 3. Exclusive dealing,
foreclosure 4. Tying, foreclosure
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Frequently Asked Questionshttp//www.ftc.gov/bc/c
ompguide/question.htm

• Q The gasoline stations in my area have
  increased their prices the same amount and at the
  same time. Is that price-fixing?
• Q Shopping for a stereo loudspeaker made by
  Sound Corporation, I couldnt find a dealer who
  would sell it for less than the manufacturers
  suggested retail price. Isnt that price-fixing?
• A The key is evidence of an agreement. If the
  manufacturer and a dealer entered into an
  agreement on a resale price or minimum price,
  that would be a price-fixing violation. The
  agreement could be formal, through a contract, or
  informal, when the dealers compliance is
  coerced.
• However, if the manufacturer has established a
  policy that its dealers should not sell below a
  minimum price level, and the dealers have
  independently decided to follow that policy,
  there is no violation.

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• Q The medication my doctor prescribed for my
  heart condition is available from only one
  manufacturer, and the price is very high. Is that
  a monopoly?
• Q My town has given an exclusive franchise to
  one firm to provide all trash-collection
  services. I think I could get a better price from
  another hauler. Isnt the franchise restraining
  competition?
• A Although the towns decision to grant an
  exclusive franchise prevents competition in trash
  collection, it probably is within the municipal
  powers granted by the state. If so, the town is
  immune from the antitrust laws under the state
  action doctrine, which says that the antitrust
  laws are not meant to apply to the actions of a
  state.

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• Q I own a small jewelry store and the
  manufacturer of TimeCo brand watches recently
  dropped me as a dealer. Im sure its because my
  competitors complained that I sell below the
  suggested retail price. The explanation was the
  manufacturers policy its products should not be
  sold below the suggested retail price, and
  dealers who do not comply are subject to
  termination. Is it legal for the manufacturer to
  dictate my prices?
• Q I own a retail clothing store and the Brand
  Company refuses to sell me any of its line of
  clothes. These clothes are very popular in my
  area, so this policy is hurting my business.
  Isnt it illegal for Brand to refuse to sell to
  me?
• A It could be illegal if the refusal to sell is
  based on an agreement between Brand and your
  competitors.

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• Q I operate two stores that sell recorded music.
  My business is being ruined by giant discount
  store chains that sell their products for less
  than my wholesale cost. I thought there were laws
  against price discrimination, but I cant afford
  the legal fees to fight the big corporations. Can
  you help?
• A Although it appears that the discount chains
  are receiving their recorded music products at a
  lower wholesale price, it may be because it costs
  a manufacturer less, on a per-unit basis, to deal
  with large volume customers.
• Q I bought a Total Motors car a few years ago,
  and now, when I need parts replaced, I have to
  get them from the TM dealer. Theyre very
  expensive. Isnt this illegal monopolization?

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(No Transcript)
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• A link to the course website
• http//www.rasmusen.org/g604/0.g604.htm