Fall
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GLOBAL ANTITRUST – PROF. ELHAUGE – SPRING 2011 Short-Form Outli Itro!u"tio.................................................................................2 Statutor# Fram$%or& a! E'or"$m$t.................................................2 E'or"$m$t.................................................2 P$r S$ Rul$( a! Rul$ o' R$a(o R$)i$%............................................... R$)i$%...............................................* *
+ar&$t ,$itio........................................................ ,$itio.......................................................................... .................. * +ar&$t ,$itio................................................................................* +ar&$t +ar&$t Po%$r...................... Po%$r.......................................................................... ................................................................ ............
Uilat$ral /o!u"t............................ /o!u"t........................................................................ ............................................ O)$r)i$%............................................................................................ B$lo%-/o(t B$lo%-/o(t Pr$!ator# Pri"i.......................................................... Pri"i............................................................... ..... A3o)$-/o(t Pr$!ator# Pri"i...............................................................4 E5"$((i)$ Pri"i................................................................................. Pri"i.................................................................................4 4 Pri"$ ,i("rimiatio............................................................................6 Pri"$ S7u$$8$(........................................................... S7u$$8$(................................................................................... .......................... 6 R$'u(al( to ,$al................................................................................10 A't$rmar&$t(.....................................................................................12
Pro)i S$9arat$ Etiti$(................................. Etiti$(........................................................... ............................ 1* Hori8otal Ar$$m$t(.......... Ar$$m$t(...................................... ......................................................1* ..........................1* O)$r)i$%...........................................................................................1* Pro)i Hori8otal Hori8otal Ar$$m$t(..................................................... Ar$$m$t(.......................................................... .....1 1 Hori8otal Pri"$ Fi5i....................................................................... Fi5i....................................................................... 1 Hori8otal Out9ut R$(tri"tio(...........................................................1 Hori8otal +ar&$t ,i)i(io(...............................................................1: Hori8otal Ar$$m$t( Not to ,$al %ith Parti"ular Firm( ;Bo#"ott(<....14 Pro'$((ioal S$l'-R$ulatio..............................................................16 Ar$$m$t( Fa"ilitati Fa"ilitati Olio9oli(ti" Olio9oli(ti" Pri"$ /oor!iatio........ /oor!iatio............. .......... ........21 ...21
=$rti"al Ar$$m$t(...................................................................22 O)$r)i$%...........................................................................................22 Pro)i =$rti"al =$rti"al Ar$$m$t(........................................................ Ar$$m$t(.............................................................. ......22 22 E5"lu(i)$ ,$ali ,$ali a! R$(tri"tio( o ,$ali( %ith Ri)al(............... ...2* Lo#alt# ,i("out(..............................................................................2 T#i................................................................................................2: =$rti"al =$rti"al Pri"$ a! No-Pri"$ R$(trait(............................................... R$(trait(............................................... 26
+$r$r(.....................................................................................*2 +$r$r( i G$$ral............................................................................*2 Hori8otal +$r$r(............................................................................*2 /olom$rat$ +$r$r(......................................................................*: =$rti"al =$rti"al +$r$r(.............................................................................. +$r$r(.............................................................................. ..*4 .. *4
INTRO,U/TION Statutor# Fram$%or& a! E'or"$m$t US Statutes
Sh$rma A"t § 1: anticompetitive agreements § 2: monopolization /la#to A"t § 3: sales of goods conditioned on the buyer not dealing with the seller’s rivals §§ !8: mergers and interloc"ing directorates FT/ A"t § #: prohibits all $unfair methods of competition%
Enforcement
Parti$( • overnment (45, 67, tates) • +n9ured parties (or states on their behalf): in9unctive relief, treble damages, attorney fees ost ; cases brought o by private parties
EU 101;1<: 101;1<: restrictive agreements between &rms 101;*<: 101;*<: e'emptions from 101(1) prohibition for agreements *greements e'empted from 101(1) prohibition if: 1) +mprove production or distribution of goods, or 2) -romote technical or economic progress, and 3) *llow consumers a fair share of the resulting bene&t, and .) /o less * alternatives, and #) liminate competition in a substantial part of the mar"et 102: 102: abuse of a dominant position an be a $collective dominant position% position% (for oligopolistic mar"ets or contractual lin"age among the parties) an be applied to any economic $underta"ing% (including public entities) Parti$( • >irtually all enforcement done by or national competition agencies (/*s) R$m$!i$( • /o punitive treble damages
R$m$!i$( • riminal -enalties: re
2
INTRO,U/TION Statutor# Fram$%or& a! E'or"$m$t US Statutes
Sh$rma A"t § 1: anticompetitive agreements § 2: monopolization /la#to A"t § 3: sales of goods conditioned on the buyer not dealing with the seller’s rivals §§ !8: mergers and interloc"ing directorates FT/ A"t § #: prohibits all $unfair methods of competition%
Enforcement
Parti$( • overnment (45, 67, tates) • +n9ured parties (or states on their behalf): in9unctive relief, treble damages, attorney fees ost ; cases brought o by private parties
EU 101;1<: 101;1<: restrictive agreements between &rms 101;*<: 101;*<: e'emptions from 101(1) prohibition for agreements *greements e'empted from 101(1) prohibition if: 1) +mprove production or distribution of goods, or 2) -romote technical or economic progress, and 3) *llow consumers a fair share of the resulting bene&t, and .) /o less * alternatives, and #) liminate competition in a substantial part of the mar"et 102: 102: abuse of a dominant position an be a $collective dominant position% position% (for oligopolistic mar"ets or contractual lin"age among the parties) an be applied to any economic $underta"ing% (including public entities) Parti$( • >irtually all enforcement done by or national competition agencies (/*s) R$m$!i$( • /o punitive treble damages
R$m$!i$( • riminal -enalties: re
2
Pleading Standard
T%om3l#-I73al Plau(i3ilit# Pl$a!i • rawing all innocent inferences for the ?s, is it plausible the ?s acted unlawfully@ 7wombly 7wombly:: draw if $natural $natural o and obvious% +
-lausibility less of an issue because virtually all enforcement done by or national competitions agencies (access to information not as important)
P$r S$ Rul$( a! Rul$ o' R$a(o R$)i$% P$r S$ Rul$( )$r(u( Rul$ o' R$a(o R$)i$% 1) ain 9usti&cation for holding a particular type type of agreement agreement illegal illegal per se is that agreements of that type always a lways or almost always tend to raise prices or reduce output 2) Bowever, if agreement agreement could possibly possibly have a - 9usti&cation, CoC CoC applies 3) 7he rule of reason balancing test focuses on whether whether the restraint in
Rul$ o' R$a(o R$)i$%> Sta$( o' Aal#(i( a! Bur!$( o' Proo' 1) tage tage 1: 7he 7heor ory y a) E must must allege allege * * theory theory of of conduct conduct b) ? must allege allege plausibl plausible e - theory theory of conduct conduct i) +f abbreviat abbreviated ed CoC CoC applies applies and ? is not not able to do this ? loses summarily ii) -ossible - 9usti&cations: 9usti&cations: e'pands output, reduces reduces prices, prices, enhances
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+AR?ET ,EFINITION +ar&$t ,$itio O)$r)i$% 1) ; and ; apply apply simila similarr approach approach 2) 7wo ain ar"et omponents ($Ceasonably +nterchangeable% +nterchangeable% 7est) 7est) a) -roduc oductt i) ubstitutes ii) ii) iFe iFerrenti entiati ation on b) eog eogra raph phy y 3) Bypothetic Bypothetical al onopoly onopoly 7est 7est a) #H pri price ce incr increas ease e eFects on consumer substitution between products and regions i) ust be caref careful ul about about using using empiric empirical al data data on consum consumer er substitution (demand elasticity) because of the ellophane fallacy (if mar"et power e'ists, using current prices will lead to an e'cessively broad mar"et de&nition) ii) *lso importan importantt to "eep in mind mind that &rms &rms compete compete on both price and
+ar&$t Po%$r +ar&$t Po%$r O)$r)i$% ?$# A((um9tio (
P$r'$"t /om9$titio *ll participants are $price ta"ers% Iarge number of buyers • a'imize utility • ownward=sloping demand curve Iarge number of sellers /oDlow barriers to entry
-erfect -erfect demand elasticity L substitability /oDlow transaction costs
+oo9ol# onopolistic actor is a $price ma"er% /ot necessarily large number of buyers (monopsony)
/ot necessarily large number of sellers (monopoly) Jarriers to entry • Iarge sun"D&'ed costs • 7echnological 7echnological barriers barriers returns to scale • +ncreasing returns (eKgK, networ" eFects) • overnment=created barriers to entry • stablish position of incumbents Celative Celative demand inelasticity and no perfect substitutes 7ransact action costs possib sible
.
-erfect information
LR E7uili3riu m
Mero economic pro&ts in IC -c N N *7
*symmetric information possible /on=zero economic pro&ts in IC C N O -m P CO -m P *7
1) ar"et -ower a) Jased on: i) urrent ompetitors ('pandability) ii) -otential ompetitors (ntry) iii) -roduct iFerentiation (-ositioning) b) ar"et power usually gained through &rm being more eQcient (costD
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L$al T$(t( o' +ar&$t Po%$r 1) - P a) Bard to do in practice, also has theoretical problems (monopolistic competition, &'ed costs) 2) -ower to price above competitive levels a) ;sed more by courts, but hard to determine the $but for% world 3) -ower to constrain mar"et output or to raise mar"et prices a) ;nhelpful if already at monopolistic price b) Cuns into mar"et de&nition problems
UNILATERAL /ON,U/T O)$r)i$% O)$r)i$% 1) ;nilateral conduct can be aimed vertically or horizontally a) >ertically: upstreamDdownstream eFects i) ownstream: buyers (eKgK, $only sell our product, not our rival’s%) ii) ;pstream: strong=arming suppliers (eKgK, $don’t supply our rival%) b) Borizontally: $+ will hurt you, competitor% 2) Jecause of mar"et share screens, mar"et de&nition very important for these cases
,o"tri$ O)$r)i$% O)$r)i$% US Statutes
•
herman *ct § 2 onopolization o *ttempted onopolization onspiracy to onopolize o 67 *ct § # * conduct o C-* +llegal price discrimination o -ower to control prices or e'clude competition
EU •
76; 102 *buse of dominant mar"et o power Note: no law against o attempted acquisition of dominance; must actually be dominant
•
-ower to control prices or behave independently of pressures from other mar"et participants an be collecti!e dominance by multiple "rms M#$%& di'erence from o (S doctrine P #0H: presumed dominance 2#H!#0H: maybe T 2#H: probably not K K Kbut mar"et share can be deceptive
o
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Market Power/Domin ance
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Market S)are Screens
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P AAH: li"ely monopoly power #0H!AAH: maybe T #0H: probably not K K Kbut mar"et share can be deceptive
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A
Pro!ing #buse
Defenses
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47;: onopolization N monopoly mar"et power R willful ac
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*buse of dominant mar"et power N e'clusion of rivals or e'ploitation of consumers o /o ; parallel for consumer e'ploitation, but rarely enforced
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Qciencies *ut if you actually get to o a monopoly position+ t)is is no defense 4b9ective necessity for product safety 5 nearly always re9ects o this
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B$lo%-/o(t Pr$!ator# Pri"i ,$itio@ E"oomi"(@ a! Poli"# 1) Jelow=cost predatory pricing: predator prices below costs to drive rivals from mar"et, then recoups costs later a) 4verdeterrence especially problematic here because low prices are generally good for consumers b) ost scholars and many 9udges thin" this rarely if ever happens i) +f you canUt "eep new entrants out of the mar"et when you raise prices to a supracompetitive level, how do you maintain your dominant mar"et position@ 2) Ghat measure of costs to use@ a) IC*+ i) /ow method often used by courts ii) Jasically, forward=loo"ing total cost iii) IC*+ N 6 R > (increment), for product in i) Jad because it favors capital=intensive &rms with low >s d) ** (> of predatory output increase) i) ’s preferred methodO compare total costs during period of predation to what would have occurred in the same period with the predation
/urr$t ,o"tri$ US Predatory Pricing
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Price Measure
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liminates or disciplines rivals R below $incremental costs% R recoupment li"ely ( Brooke Group) *pplies even to cases o involving predatory overbidding in inputs mar"ets (Weyerhauser ) - T IC*+ illegal if proof of * intent Jut some courts use other cost measures (, *>, **)
EU •
-ricing below costs
•
- T **: presumptively illegal (EU Guidelines ) - T *>: illegal if ? dominant ( Akzo) - T IC*+: illegal if ? dominant R ? can fund losses with pro&ts protected by legal monopoly or privatized sector with low >s (Deutsche Post ) *>D** T - T *7 illegal if proof of * intent to eliminate rivals ( Akzo, EU Guidelines ) /one (Tetra-Pak II, Deutsche Post )
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&ecoupment &equirement
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C-*: $reasonable prospect% (broader) herman § 2: $dangerous probability% Cecoupment unli"ely in oligopoly setting (Brooke Group)
&ig)t to Meet ompetition
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/o absolute right to meet competition’s prices ( France Tlco!, Deutsche Post ) -olicy concern here: o dominance by legal monopoly or privatized sector
A3o)$-/o(t Pr$!ator# Pri"i ,$itio@ E"oomi"(@ a! Poli"#
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1) ame overdeterrence concerns as below=cost predatory pricing 2) -roblem with doctrine in this area is that it conduct would not drive an e
/urr$t ,o"tri$ US #PP laim #llowed, Price Measure
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/o (United "tates #$ A%& )
%t)er &equirement s
EU •
Ves ('o!pa(nie %ariti!e Bel(e, Irish "u(ar)
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*bove=cost predatory pricing illegal if - P *7 but price cuts are ('o!pa(nie %ariti!e Bel(e): Ceactive o elective o o -redatory purpose D short= term pro&t sacri&ce -ossibly also re
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E5"$((i)$ Pri"i /urr$t ,o"tri$ 1) ;: no e'cessive pricing claims 2) ;: e'cessive pricing illegal, but unclear how this is determined, but rarely, if ever, enforced
Pri"$ ,i("rimiatio ,$itio@ E"oomi"(@ a! Poli"# 1) -rice discrimination: sales of identical goodsDservices from the same provider R at diFerent prices to diFerent groups of consumers a) enerally increases e' post total welfare but reduces consumer welfare (unless there’s a monopoly, in which case even total welfare may decrease) 2) 7wo types for antitrust purposes a) -rimary=line price discrimination: in9ury to buyers’ competition (damage to competition between the seller and its competitors because of the low price) b) econdary=line price discrimination: in9ury to sellers’ competition (in9ury is in the downstream retail mar"et) W
/urr$t ,o"tri$ 1) -rimary=line price discrimination (competition between seller and its rivals) * in both ; and ; 2) econdary=line price discrimination (competition between downstream retailers) * in both ; and ; 3) onsumer harm a) ;: no claim for 9ust harming consumer welfare directly b) ;: if 9ust harms consumer welfare directly *
Pri"$ S7u$$8$( ,$itio@ E"oomi"(@ a! Poli"# 1) -rice s
/urr$t ,o"tri$ 1) +n order to prove price s
R$'u(al( to ,$al ,$itio@ E"oomi"(@ a! Poli"# 1) Cefusals to deal
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a) Cefusal to deal N e'actly that ! a refusal to do business with another &rm in some manner b) +f a court refuses to allow an e'clusion, it is essentially imposing a $duty to deal% c) Gith all duties to deal, there is a concern that imposition of the duty would create an incentive to rivals to free=ride and reduce incentives for e' ante investment d) ourts may be more willing to impose a duty to deal on an unearned monopoly 2) 7wo=tier mar"ets a) 7wo components i) ;pstream mar"et ii) ownstream mar"et b) uccessive monopolies problem i) +f you have two successive monopolies, you will get two deadweight losses instead of one ii) Bowever, the upstream monopoly has two options: 1) charge the downstream &rm a higher price and eat up its margin (eKgK, through a two=part tariF) or 2) vertically integrate iii) Bowever, an upstream monopoly should only vertically integrate if it can operate in the downstream mar"et more eQciently than the incumbent downstream &rm c) ssential facilities and two=level entry barriers i) +f * owns an essential facility upstream and it refuses to deal with downstream competitors, they cannot enter the downstream mar"et because they won’t have access to supplies from upstream ii) -arado' (1)+f the upstream facility truly is essential and non=duplicable, then two=level entry is actually impossible (2)Jut if the upstream facility is not essential and non=duplicable, then one could theoretically enter upstream (3) o the idea of erecting $two=level entry barriers% as a form of * conduct doesn’t ma"e a whole lot of sense 3) *dministrative problems with imposing duties to deal a) Bow to set the price dealing must occur at i) ould use terms from prior dealing, but things change b) Cegulatory power to impose duty and price on wholesale mar"ets may ma"e antitrust duty unnecessary or diQcult to administer, or may violate legislative compromise c) -rice regulation upstream but not downstream may incentivize non= allocatively eQcient integration to evade upstream regulation d) +mposing duty may reduce e'=ante investment incentives (especially in +- cases) .) $iscrimination among buyers% as a potential alternative doctrine a) *dvantage is it can provide terms for the imposed duty
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b) -roblem is that such a rule could create incentives for a &rm not to deal with anyone, or may increase upfront transacting costs for all of &rm’s dealings (because all dealings could provide the base terms for a future imposed duty) #) *lthough e' post eQciency 9usti&cations not allowed under current doctrine, they are theoretically possible: a) eal with successive monopolies problem b) haring ineQcient (eKgK, sharing assembly line would probably not wor")
/urr$t ,o"tri$ US
EU
-ype of &efusal
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traight refusal onstructive refusal -rovision of inferior service (see Trinko) o -rice s
&egulatory Duty to Deal Screen. Market Power &efusal -erms Essential 0acility / %t)er # onduct
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/ormal elements re
+mpose duty (uidance -aper)
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? has mar"et power in upstream mar"et
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enial eliminates rival in downstream mar"et and: 4n $reasonable% terms o about essential non= duplicable facility (lower courts interpreting /tter TailO never ruled on by 47;, see Aspen) enial impairs rival competitiveness and: o 4n same terms as with other non=e'cluded rivals ( Aspen, /tter Tail , 0odak ) 4n same terms as prior o dealing with e'cluded rival ( Aspen, 0odak ) Jut potentially no duty to deal if (Trinko citing Aspen): /o sacri&ce of short=run o pro&ts /o discrimination among o outsiders vsK for self /o termination of prior o #oluntary dealing
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&efusal -erms 1P S)aring
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enial eliminates rival in downstream mar"et and: 4n $reasonable% terms o about essential non= duplicable facility ( Bronner )
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enial impairs rival competitiveness and: 4n same terms as prior o dealing with e'cluded rival about essential raw materials (X 'o!!ercial "ol#ents)
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Cefusal to license +- R +essential for production of $new product% ( %a(ill , I%") or $improved product% ( %icroso.t ) not oFered by dominant &rm R
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unsatis&ed demand for new product
Defenses
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/o e' post eQciency 9usti&cations have been upheld
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/o e' post eQciency 9usti&cations have been upheld • an 9ustify based on e' ante incentives (eKgK, e' ante investment) Cegulatory gap: agency can specify terms of dealing but cannot impose the duty itself
A't$rmar&$t( ,$itio@ E"oomi"(@ a! Poli"# 1) *ftermar"et: primary product with long life and complementary product sold after purchase of primary product for use with that product (eKgK, printer and printer cartridge) 2) ain
/a($ La% Uit$! Stat$( 2odak 345567 1) 6acts a) -rimary product: e
(b)Ioc"ed=in and new customers (3)ervice competitors wouldn’t provide this information because they themselves might bene&t from the lac" of information by reaping supracompetitive pro&ts 3) /otes a) ain point: things should be clear at the time of purchase b) igni&cance: overcomes ellophane fallacy by saying what matters is that you’re ma"ing monopoly pro&ts, not a high cross=elasticity of demand c) calia’s argument: antitrust $coming to the nuisance% claim i) /ot convincing, because when a consumer comes to a mar"et they assume they will be protected by *7 law ii) : but it’s still true there was no mar"et power over you at the time you made the choiceO might we want to say you should contractually protect yourself@ (a) Jut problems of contracting transaction costs, une
PRO=ING SEPARATE ENTITIES ,$itio@ E"oomi"(@ a! Poli"# 1) 7wo main ertical *greements% sections, in.ra
/urr$t ,o"tri$ US Separate Entities Subsidiaries Separate Entities $oint 8enture
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EU
Gholly=owned subsidiary same entity ('opper1eld ) no agreement
5oint venture entity functional test ( A!$ +eedle) +f 5> sub9ect to ongoing o control by members with independent economic interests evidence of separate entities agreement +f members retain ongoing o ability to unilaterally compete in the relevant
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Gholly=owned subsidiary same entity (2iho) no agreement
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@@@
1.
mar"et evidence of separate entities agreement
HORIONTAL AGREE+ENTS O)$r)i$% ,o"tri$ O)$r)i$% US Statutory *asis
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herman *ct § 1
EU •
101(1): * eFects shown if: o $4b9ect% is * -resumed if hard=core +f not, presumed if mar"et share P 10H (or 1#H!2#H for cooperation agreement) *ctual eFects shown to be o * 101(3): e'emptions from 101(1) Borizontal price=&'ing Borizontal output limitations Borizontal mar"et divisions ;nless part of a valid o cooperation agreement Borizontal agreements not to deal with particular &rms (boycotts) *greement advances - purpose of a productive business collaboration (iKeK, 9oint venture)
Per Se 1llegal / 9ardcore &estrictions
Eemptions from Per Se / 9ardcore &ules
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P $usti"cations
•
Borizontal price=&'ing Borizontal output limitations Borizontal mar"et divisions Borizontal agreements not to deal with particular &rms (boycotts)
*greement advances - purpose of a productive business collaboration (iKeK, 9oint venture) Jut does not apply if -J is o unrelated to the 9usti&cation oFered or a mere &g leaf *greement is a professional self=regulation to further a - purpose (eKgK, correcting mar"et failure) *greement is non=professional self=regulation to further a - purpose where the non= professional group is not &nancially interested in the regulations ame as ; e'cept for $eliminate competition in a substantial part of the mar"et% factor
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101(3) e'emptions: - eFects shown if: o /ot a hard=core restraint -roductive eQciency o onsumer welfare increases o o /o less * alternative
1#
o
annot eliminate competition in a substantial part of the mar"et iFerent from ;
Pro)i Hori8otal Ar$$m$t( ,$itio@ E"oomi"(@ a! Poli"# 1) 'plicit evidence of horizontal agreements hard to come by 2) /ote: this doctrine interacts with T1o!3ly-I3al plausibility pleading (not covered by ) a) rawing all innocent inferences for the ?s, is it plausible the ?s acted unlawfully@ i) T1o!3ly : draw if $natural and obvious% ii) I3al: draw if $plausible% or $possible%
/urr$t ,o"tri$ US EU eneral Standard
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Parallel onduct 1ndependent Moti!e Parallel onduct 9idden #greement
Parallel onduct %P
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•
vidence must be more consistent with an agreement than with independent parallel action ( %atsushita, T1o!3ly ) o /eed some $plus factor% in the complaint and must ultimately prove it annot use evidence of what is happening in foreign mar"ets (; ! %atsushita, probably ; also) /ote: see T1o!3ly-I3al note, supra -arallel conduct at least e
1A
Hori8otal Pri"$ Fi5i ,$itio@ E"oomi"(@ a! Poli"# 1) Borizontal price &'ing N any agreement whereby competitors agree with purpose and eFect of raising prices a) omewhat counter intuitively, price=&'ing need not involve an actual &'ed price 2) ompetitive process standard: with price=&'ing, there is an under= deterrence concern but no over=deterrence concern because a competitive mar"et will set the correct price 3) ; policy concerns: a) Gant to encourage &rms from diFerent nations to wor" together in fostering a common mar"et favors deference to 9oint ventures b) Gant to prevent &rms from diFerent nations from conspiring not to compete too much outside of their traditional mar"ets favors being suspicious of 9oint ventures
/urr$t ,o"tri$ US EU 0irms Not in
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0irms in
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Borizontal price &'ing per=se illegal (;) and a hard=core restraint (;) Cegardless of whether price is a minimum price, ma'imum price o (aricopa), reasonable price (7renton -otteries), or non=uniform price (-olypropylene) 6ocus is on the agreement and intent, not the actual eFects o (-olypropylene) /eed not be an e'plicit &'ed price ( Pal!er ) o +f horizontal price=&'ing agreement legitimately advances - purposes of some productive business collaboration Z CoC applies (J+ vK J, 7e'aco, uroche
/a($ La% Uit$! Stat$( *M1 != *S 345>57 1) 6acts a) ?s **- and J+ represented composersO each received none'clusive copyright licenses for compositions from composers, then pac"aged them up and sold blan"et licenses to use the compositions to broadcastersO broadcasters paid a [at fee or H of revenue to use the licensesO broadcasters, **-, and J+ all pay composers royalties in proportion to the nature and use of their compositions 2) Bolding L Ceasoning:
1
a) Bolding: the blan"et licenses are not per=se illegal and should be sub9ect to CoC i) Bere, the price=&'ing is ancillary to a productive business collaboration ii) - 9usti&cation for price=&'ing: transaction costs (monitoring, trac"ing) (1)Jroadcasters are still paying owner for each useO but if thre were diFerential prices, they the broadcasters would have an incentive to lie about uses 3) /otes a) : shows that ourt’s $per se% rule is really 9ust CoC b) +mportant features of fact pattern: many sellers, hard to contract with sellers individually, hard for sellers to monitor use of their product
Euro9$a Uio Euroc)eques 345?@7 1) 6acts a) 7riangular arrangement between issuing ban", cashing ban", and consumer i) +ssuing ban" charges fee to consumer ii) harging ban" charges commission to issuing ban" iii) onsumers get cash from charging ban" in e'change for chec" b) *greement &'ed 1) ma'imum amount of each uroche
Hori8otal Out9ut R$(tri"tio( ,$itio@ E"oomi"(@ a! Poli"# 1) +n practice, output restrictions tend to wor" better than price=&'ing (thin" of 4-) 2) imilar to horizontal price=&'ing in most respects
/urr$t ,o"tri$ 1) ame as horizontal price=&'ing (see supra) 2) +f horizontal price=&'ing agreement legitimately advances - purposes of some productive business collaboration Z CoC applies (+'AA, "ynthetic Fi3res )
/a($ La% Uit$! Stat$( N## != (ni!= of %kla= 345?@7 1) 6acts
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a) /** had contract with 7> networ"s that limited number of televised games generally and of individual teams b) /** wanted to be able to punish renegade schools that entered into their own 7> contracts 2) Bolding L Ceasoning a) Bolding: legitimate 9oint venture so CoC applies, but agreement * on net and therefore illegal i) +n this industry (college football), some horizontal restraints are essential if product is to be available at all (need to preserve academic eligibility of athletes) ii) Bowever, evidence shows agreement reduces
Euro9$a Uio Synt)etic 0ibres 345?@7 1) uropean synthetic &bers mar"et had e'cess capacity, &rms were losing money, came to agreement regarding capacity reductions 2) Bolding: agreement 9usti&ed under CoC 3) : there were theoretically possible - and * eFects here .) risis=era caseO seems li"e ourt is eFectively subsidizing the industry
Hori8otal +ar&$t ,i)i(io( ,$itio@ E"oomi"(@ a! Poli"# 1) Borizontal mar"et division: &rm * and &rm J divide up a mar"et such that they are selling to diFerent customers a) Ii"e price discrimination e'cept it is being done by more than one &rm 2) enerally involve territorial divisions, but can be done other ways a) 7ype of customer (eKgK, commercial and regular) b) 7ype of product c) Jid rigging d) ources of supply 3) 6irms do not need to currently compete in the mar"et being divided (see Pal!er #$ B&G ) a) Bowever, if one of the &rms is a new mar"et entrant, * eFects are less and agreement is more li"ely to be upheld .) 7hese are probably even worse than price=&'ing or output=restrictions, as they allow the cartel to avoid the problem of coordinating prices or output or mar"et share #) 6urthermore, unli"e price and output restraints, they cannot be undermined by non=price competition (
1W
A) >ertical supply relationships can create some doubts about * eFects, but also li"ely could 9ust be a &g leaf for * conduct (see Pal!er #$ B&G)
/urr$t ,o"tri$ 1) ;: per se illegal (Pal!er #$ B&G) 2) ;: per se illegal ("oda-Ash-"ol#ay ) a) Jut $specialization agreements% allowed (these agreements couple a product division with an agreement to supply the product in which one &rm specializes to the other)
Hori8otal Ar$$m$t( Not to ,$al %ith Parti"ular Firm( ;Bo#"ott(< ,$itio@ E"oomi"(@ a! Poli"# 1) e&nition: multiple &rms agree not to deal with a particular &rm a) *lso "nown as a $concerted refusal to deal% 2) iFerent from other horizontal agreements in that aim is to harm a competitor, not competition necessarily 3) /oneconomic 9usti&cations are more plausible .) an ta"e the form of an e'clusive distribution agreement
/urr$t ,o"tri$ US EU #greement #mong 0irms Not in
•
-er se illegal ( 0lor5s, Fashion /ri(inators ) Jut if e'clusive agreement (usually distribution) not targeted at o particular &rm probably CoC ; especially on the loo"out for agreements meant to enforce a cartel or to hinder trade in the ommunity ( Po1erpipe, A+"EAU)
• •
+f agreement advances legitimate - purposes of -J CoC Jut illegal if: o 5oint venture has mar"et power against e'cluded rivals ( +1$ "tationers)O • +KeK, lac" of access to 9oint venture puts other &rm at a competitive disadvantage *nd 9oint venture e'cludes or discriminates against non= member rivals for reasons unrelated to the - 9usti&cation for the 9oint venture ( Ter!inal , AP) o /ote: tighter review of e'pulsions than of refusals to admit ( +1$ "tationers) • 'tra=governmental attempt at regulating and enforcing property rights through e'clusive dealing \ legitimate 9oint venture ( Fashion /ri(inators ) /ote: ; seems li"e same approach as ;, but never summarized ; doctrine, only 2 ; cases
20
/a($ La% Uit$! Stat$( #ssociated Press != (nited States 345@A7 1) Bolding: 9oint venture itself &ne, but discrimination against non=members is not 2) /otes a) ase unstable i) egree of monopoly not the same as in 7erminal CC because ;-+ and Ceuters e'ist ii) ' ante problems ignored iii) - 9usti&cation that new towns add more valuable newsO newspapers in towns where they already have a partner do not Euro9$a Uio Powerpipe 345557 1) Joycott used to enforce a cartel
illegal
#NSE#( 345?B7 1) Gater companies agreed with manufacturers to refuse to connect washersDdishwashers to water supply unless they had a label that said they were from the oQcial distributor 2) oal was to prevent parallel importers from buying products in low=price nations and reselling in high=priced nations (made possible by trade laws in ;) 3) +llegalO re9ected - 9usti&cation: protects public health and ensures conformity chec"s
Pro'$((ioal S$l'-R$ulatio ,$itio@ E"oomi"(@ a! Poli"# 1) Yey
/urr$t ,o"tri$ 1) -rofessional self regulation R &nancially disinterested a) ;: CoC (Pro.5l En(5rs, Indiana Dentists)
21
i) 4r, CoC applies at least when professional self=regulation is aimed at curing informational mar"et defects ( 'al$ Dental) ii) ourt does not always accept their - 9usti&cations (Pro.5l En(5rs, Indiana Dentists ) b) ;: e'emption from 101(1) possible (Wouters ) 2) -rofessional self=regulation R &nancially interested a) ;: per se illegal if the professional group e'ists purely for self= interested reasons ("up$ 't$ Trial *a1yers ) b) ;: @@@ 3) /on=professional self=regulation R &nancially disinterested probably legal under CoC .) /on=professional self=regulation R &nancially interested illegal under CoC
/a($ La% Uit$! Stat$( ProfCl EngCrs 345>?7 1) ngineers’ professional organization’s canon of ethics banned discussions of fees for pro9ect bids until after engineer was selected a) ngineers’ - 9usti&cation: competitive bidding would pressure engineers to cut eFort, endanger public welfare (lead to dangerous buildings, etcK) 2) Bolding: agreement illegal under CoCO - 9usti&cation cannot be that a form of competition is unreasonable 0- != 1nd= 0edCn of Dentists 345?7 1) entists agree not to submit '=rays to insurers who were using them to decide when to reimburse treatmentO claims it is doing this to ensure
22
a) - 9usti&cation: ?s claim this prevents deceptive advertising about matters that cannot be veri&ed in a mar"et with asymmetric info 2) Bolding: agreement upheld (for now)O court says 67 must prove actual * eFects before ?s need prove actual - eFects under CoC, plus - eFects here are plausible
Euro9$a Uio Fouters 3667 1) utch bar ass’n prohibited lawyers from partnering with accountants 2) Bolding: this is not prohibited by 101(1) even though it has * eFects because the - 9usti&cation (that it preserves lawyer independence and con&dentiality and avoids con[icts of interest) outweighs these
Ar$$m$t( Fa"ilitati Olio9oli(ti" Pri"$ /oor!iatio ,$itio@ E"oomi"(@ a! Poli"# 1) 6actors for identifying an oligopolistic mar"et a) /umber of competitors (lower ma"es oligopoly more li"ely) b) ase of entry (harder ma"es oligopoly more li"ely) c) -roduct homogeneity (ma"es oligopoly more li"ely) d) ontinued e'cess capacity (ma"es oligopoly more li"ely) 2) Ce
/urr$t ,o"tri$ US Statutory *asis
• •
%P,
•
Pure %P 1nterdepende nt Practice 0acilitating %P
• •
EU
• 102 (collective dominant herman *ct § 1 (conspiracy) position) 67 *ct § # (unfair trade practices) ust &rst identify mar"et as one in which 4- might occur (see supra) /ot illegal an theoretically be challenged • an theoretically be CoC (under 67 *ct § #O see challenged ( U0 Tractors, 'e!ent Inst$) though that case involved an agreement) o 7reat it as a horizontal
23
agreement (101(1)) probably per se illegal 7reat it as unilateral o conduct (abuse of a collective dominant position, 102) probably per se illegal +llegal ( Dyestu4s, U0 Tractors ) uspicious without secret o agreement (Dyestu4s) Jut high level of price o transparency ma"es 4- unli"ely in absence of other evidence suggesting an agreement (Woodpulp II)
#greement 0acilitating %P
•
*greement (e'plicit or tacit): +nter=seller price veri&cation per se illegal ( Gypsu!, 'ontainer ) 7hough unclear if 'ontainer says per se illegal or CoC o haring past individuated info R estimated future output and prices probably illegal ( A!$ 'olu!n) haring past o aggregateDaverage info per se legal 4C CoC applies (%aple Floorin( ) ould agreementDconduct plausibly facilitate 4-@ -lausible independent o motive@ ettle on price@ o onitor deviations@ o Cetaliate against o deviations@ +s there a - 9usti&cation for the 4-@ +f so, is there a less restrictive alternative@ o
•
&o&
•
• •
/a($ La% Uit$! Stat$( Maple 0looring 3456A7 1) ase could stand for two things a) *greement to e'change past aggregatedDaverage info, standing alone, is per se legal even among oligopolistsO or b) CoC applies to such agreements (nited States != ontainer orp= 34557 1) eems unli"ely &rms would e'change individual price
0- != ement 1nst= 345>?7 1) 4ne possibility: say that this &ts in a line of cases that even interdependent adoption of a practice as evidence of an agreement 2) *nother way to approach this case: whether or not we &nd an agreement doesn’t really matter, 9ust say a unilateral adoption of a basing point pricing system facilitates 4-, and that’s * and illegal under 67 *ct § #
=ERTI/AL AGREE+ENTS O)$r)i$% O)$r)i$% 1) *greements between &rms at diFerent mar"et levels (upstream L downstream) 2) enerally raise less scrutiny than horizontal agreements because eFects on competition are usually more indirectO we’re generally concerned with vertical agreements that have an eFect on horizontal competition
Pro)i =$rti"al Ar$$m$t( /urr$t ,o"tri$ US #greement Standard
•
•
EU
vidence must be at least e
•
Celevant factors may include (Bayer ): 'press agreement o ;nity of purpose o o onitoring of conduct +nvitations to ful&ll a goal o 9ointly vsK unilateral e'pressions
2#
noncomplying dealers to get bac" into line
E5"lu(i)$ ,$ali a! R$(tri"tio( o ,$ali( %ith Ri)al( ,$itio@ E"oomi"(@ a! Poli"# 1) e&nition: an agreement to buyDsell a product on the condition that the counterparty not deal with rivals in that same product a) /ote: e'clusive dealing called $single branding% in ; 2) -ossible * and - eFects a) * concerns i) ain concern is foreclosure in the product mar"et: 1) deter entry or drive rivals out sub=optimal number of &rms for full competition, 2) lower rival e'pandability ii) conomies of scale (including networ" eFects) andDor learning economies iii) Cecouping CL investments iv) iscourage price competition v) 6acilitate oligopolistic coordination vi) *llow for seller to serve as regional cartel ringmaster b) - 9usti&cations i) Ceduce uncertainty of price and supplyDsales (inventory, ris" management) ii) ncourage relation=speci&c investments that increase eQciency (1)KgK, reduce transportation costs relative to one buyer by moving plant closer to them (2)KgK, encouraging manufacturer investments in things (li"e advertising) that increase dealer sales but which have positive e'ternalities for other competitors’ products iii) Ceduce transaction costs (either upfront negotiating costs or monitoring L enforcement costs of contracts) iv) -ossibly less restrictive alternative to a vertical merger 3) ollective action problem a) ollective action can be especially problematic here, as buyers may bene&t individually from agreeing, but not collectively b) 7his is particularly a concern when rivals are not yet in the mar"et or when they cannot compete for all of the buyer’s demand because some of that demand is loc"ed up and non=contestable, or when the agreements have long durations that ma"e consumer switching diQcult .) Cegulation can also foreclose part of a mar"et #) 4ver=deterrence here will encourage ineQcient vertical integration
/urr$t ,o"tri$ US
EU ;2010 Gui!$li$(< 2A
-ec)nical -erm Statutory *asis
•
$'clusive dealing%
•
$ingle branding%
•
herman *ct §§ 1!2 +f it violates herman *ct o §1, then it violates 67 *ct §# layton *ct § 3 (limited to goods) 67 *ct § # .0H foreclosure suQcient ("tandard Fashion ) ar"et de&nition especially o important (see Ta!pa ElecK) o 0oreclosure s)are s)ould be measured by aggregating t)e foreclosure produced by t)e leading sellers wit) eclusi!e arrangements 3not Gust t)e H7 3Motion Picture #d!er= Ser!=7 o Bigh foreclosure share R 1 year term R eQciencies may be o"ay ( %otion Picture Ad#er$ "er#$) 6oreclosure share T .0H (possibly lower than 1#H! 2#H) may be suQcient if most eQcient distribution channels are foreclosed (see U" %icroso.t ) +llegal when substantial share of the mar"et is foreclosed teps to analysis: -roduct de&nition o o ar"et de&nition +s a substantial share of o the mar"et foreclosed@ Geigh * vsK - eFects o
• •
101 102
•
+mposes screens because e'clusive dealing deemed unli"ely to be harmful unless term of long duration ma"es consumer switching diQcult +f supplier L buyer mar"et share T 30H R term T # years Z presumptively legal ;nless mar"et share of # o largest &rms is P #0H or cumulative foreclosure P 30H!.0H +f foreclosure share P 30H but less than dominant R term T 1 year Z presumptively legal +f foreclosure share P 30H but less than dominant R term 1!# years Z CoC +f foreclosure share P 30H but less than dominant R term P # years Z presumptively illegal
•
Market S)are and -erm Screens
• •
•
&o& #nalysis
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•
•
•
•
• •
•
+llegal when substantial share of the mar"et is foreclosed +n addition to absolute re
Lo#alt# ,i("out( ,$itio@ E"oomi"(@ a! Poli"# 1) 7ension between two legal standards and their "ey concerns a) 'clusive dealing: substantial foreclosure b) -redatory pricing: below cost, recoupment, over=deterrence concerns
2
2) Jundled discounts a) -ay a lower price for product A if also buy product B from the defendantK Iower price may be on A separately or on A-B as a bundleK b) ame basic economics as tying but failing to buy product B causes a price change on product A rather than absolute denial 3) Ioyalty discounts a) Juyer pays a lower price if they buy a higher H of purchases from seller b) Jasically, can function li"e partial e'clusive dealing or partial tying .) >olume discounts a) -ay lower price for * if you buy a minimum amount from the ? i) ould be lin"ed to volume=based eQciencies ii) Jut could have same practical eFect as a loyalty discount #) Bybrid discounts a) Jundled loyalty discount: buying high share of J from the ? gets you lower price for product * b) Jundled volume discount: pay lower price for * for buying some minimum amount of J from the ? i) 7reated better by antitrust law because easier to lin" to eQciencies A) +s the price diFerence a $discount% for compliance or a $penalty% on noncompliance@ ) ontractual issues: may not involve an e'plicit contractual promise to comply (unli"e usual case with e'clusive dealing), because you can always 9ust withhold the discount 8) * eFects a) +f unbundled prices P but=for prices, bundled discounts achieve the same price discrimination or consumer surplus e'traction as tying b) 4therwise, the main concern is mar"et foreclosure (see general section notes, supra) W) - 9usti&cations a) Qciencies (but usually only wor"s for volume=based discounts)
/urr$t ,o"tri$ US Statutory *asis
Substantial 0oreclosure
• •
• •
•
herman *ct §§ 1!2 layton *ct § 3 (goods onlyO te't e'plicitly covers these "inds of discounts) 67 *ct § # (probably) ubstantial foreclosure re
EU ;2004 Gui!a"$ Pa9$r< •
102
•
ame, e'cept ; uidance paper adopts C test approach
28
) Juyer commits to buy for $discount,% or -rice diFerence conditioned on restricting purchases from rivals is either signi&cant or is proven to have eFect on rival sales 4r C test met (see below) o *dopted by some lower courts but legally inconsistent with 47; cases : does not ma"e sense because more focused on costs, here we’re focused on foreclosure Iower courts split on: Ghether discount must o re
•
• •
*undled Discounts 3et %!erall Discount -)roug) *uying -wo Products7
•
•
•
•
• •
#P Feig)ing
• •
etermine incremental eFectiveDprice "ee calculator E6cel doc o +f +- T IC*+ could be e'clusionary +f +- T ** presumptively e'clusionary +f +- P IC*+ not e'clusionary
etermine incrementalDeFective price: attribute whole discount to the tied product o "ee calculator E6cel doc +f +- for J T IC*+ could be e'clusionary +f +- for J T ** presumptively e'clusionary (probably)
•
*bbreviated CoC: need not prove actual * eFects (%ichelin II ) ? must oFer - 9usti&cation Celative levels of suspicion Ioyalty discounts o disfavored (7o4!an) +ndividualized discounts o more worrisome than &'ed ones (%ichelin I)
•
2W
o
>olume=based discounts less suspicious Jut can be if they have no - 9usti&cation and tend to be loyalty= inducing or give the discounting &rm the ability to pressure &rms it supplies ( %ichelin II ) +ncremental discounts (to incentivize sales above a threshold) are less suspicious
o
/ote: ; doctrine above summarizes current lower courts doctrineO old 47; cases (*oe15s, Bro1n "hoe) still good law, but have diFerent re
T#i ,$itio@ E"oomi"(@ a! Poli"# 1) 7ying: a refusal to sell one product unless the buyer also buys another product 2) 7ying occurs in three ways: a) Suantity=forcing (ma"e someone buy ] units of V when they buy M) b) ;nbundled penalty pricing (products usually available as a bundle, may be available separately but at a higher $penalty% priceO this doesn’t happen often in the real world) c) 7echnological conditions (eKgK, ma"e your product only interoperable with other technology produced by you, li"e operating systems and software) 3) ingle monopoly pro&t theory a) hicago chool line of thought that said tying could not lead to * eFects b) Jut according to now=famous article, when their assumptions don’t hold, * eFects are possible, given some additional assumptions (see below) i) 6or , this means tying should be 9udged according to CoC
A((um9tio o' Sil$-Prot +oo9ol# Th$or# ;nvarying 7ied -roduct ;sage (&'ed ratio) ;nvarying 7ying -roduct ;sage (&'ed ratio) trong -ositive K orrelation (no separate utility) 7ying ar"et
Po((i3l$ A/ EC$"t Dh$ A((um9tio R$la5$! +ntraproduct -rice iscrimination 'tracting +ndividual onsumer urplus +nterproduct -rice iscrimination +ncreased 7ying ar"et
A((um9tio( R$7uir$! 'or A/ EC$"t 7ying mar"et power 7ying mar"et power 7ying mar"et power R 7ied mar"et power ubstantial tied
30
ompetitiveness 6i'ed 7ied ar"et ompetitiveness 6i'ed
-ower +ncreased 7ied ar"et -ower
foreclosure ubstantial tied foreclosure R /o &'ed ratio R /o separate utility
.) -ossible * eFects (if single monopoly pro&t theory does not hold ! see table supra) a) /ote: tying that impairs tied rival competitiveness without increasing the degree of tying mar"et power cannot increase monopoly pro&ts if the products are usedDbundled in a &'ed ratio */ the tied product has no utility without the tying product #) -ossible - eFects a) Jundling lowers costs b) Jundling increases value to consumer c) Jundling improves
/urr$t ,o"tri$ US Statutory *asis -ype of &e!iew -ie,
• •
Separate products,
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102 (7ilti, Tetra-Pak II )
*bbreviated CoC: if ? cannot prove * eFects oFset by - 9usti&cations illegal
•
•
Substantial
herman *ct § 1 layton *ct § 3 (for goods)
EU
•
elling the tying product on the condition that the purchaser ta"es the tied product ould be show in > set) • ubstantial dollar amount of ubstantial dollar amount of
31
sales in tied product
sales,
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Market power in tying product,
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#P Feig)ing
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7ying product mar"et power P 30H (unclearO 8e4erson Parish) -atent \ presumption of mar"et power (Illinois Tool Works) Ceminder: abbreviated CoC +f above elements met, do not need to show actual * eFects before ? must oFer a - 9usti&cation, otherwise illegal Qciency 9usti&cations probably admissible (no clear doctrine)
•
• •
•
sales in tied product Bowever, ; uidance -aper suggests substantial foreclosure share may be re
Ceminder: abbreviated CoC +f above elements met, do not need to show actual * eFects before ? must oFer a - 9usti&cation, otherwise illegal 7ie must also be the least restrictive way to further the - 9usti&cation that oFsets the * eFects ( Tetra-Pak II)
/a($ La% Uit$! Stat$( Eastman 2odak != 1mage -ec)nical Ser!s= 345567 1) 6acts a) Yoda" sold replacement parts only to buyers of Yoda" e
=$rti"al Pri"$ a! No-Pri"$ R$(trait( ,$itio@ E"oomi"(@ a! Poli"# 1) >ertical intrabrand distributional agreements a) 4verview i) *greement between upstream &rm and downstream &rm on upstream &rm’s brands only ii) 7a"e 3 forms (1)/on=price (usually territorial) (2)a'imum price=&'ing (3)inimum price=&'ing
32
iii) ain policy concern: distortion of competition in downstream mar"et among those (usually dealers) restricted by the agreements b) conomic critiertical non=price restraints a) 4verview i) on’t aFect interbrand price competition but can completely eliminate intrabrand competition ii) ;sually ta"e the form of downstream mar"et division, give retailer sole possession of a territory iii) *im is to protect the downstream entity from competition, but speci&cally from other competitors selling products produced by the same manufacturer b) * vsK - Fects i) * eFects: all e'cept oligopolistic coordination by manufacturers are possible ii) - eFects: possible eQciencies are somewhat greater than vertical price restraints (1)ncourage dealer to ma"e manufacturer=speci&c investments to develop demand (2)*ssure ertical ma'imum price restraints a) 4verview i) on’t aFect interbrand price competition but restrict intrabrand competition 33
b) - 9usti&cations i) eal with successive monopolies problem (1)ay be eQcient only to have one distributor in a given territory (eKgK, newspaper) but that leaves them vulnerable to local mar"et power (2)Jut even though it may be eQcient to have a local distributor with mar"et power, that leads to the successive monopolies problem (3)4ne way to deal with the problem is by an agreement that the retailerDdistributor 9ust won’t charge more ii) eal with low=price brand reputation (1)KgK, conald’sO one conald’s with higher prices than others can free=ride oF of the other stores’ low prices and conald’s corresponding brand reputation .) >ertical minimum price restraints a) Iess common, more suspicious
/urr$t ,o"tri$ US 8ertical NonI Price 3-erritorial7 &estraints
•
CoC (GTE "yl#ania )
EU •
o not get bloc" e'emption e'cept for following e'ceptions: an restrict dealers to particular locations from o which to sell an restrict $active% sales (but not $passive% o sales, li"e over the internet) into e'clusive territories of other dealers /ote: says this distinction does not ma"e sense, 9ust creates middlemen an restrict wholesalers from selling at retail o an restrict sales to unauthorized distributors o o an restrict sales of components that others would use to ma"e the same product 4therwise, get abbreviated CoC (can condemn without showing * eFects if no - 9usti&cation proven) 6ostering common mar"et concerns especially o acute here, ma"es it highly li"ely court will &nd the agreement net * ( Grundi(, 2W, Gla6o ) +ncludes $price recommendations% +f mar"et share T 30H per se legal (bloc" e'emption applies) +f mar"et share P 30H CoC (abbreviated@)
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8ertical Maimum Price &estraints 8ertical Minimum Price &estraints
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CoC (0han)
• • •
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CoC (probably abbreviate d, but unclear ! *ee(in)
•
overed by abbreviated CoC (can condemn without showing * eFects if no - 9usti&cation proven) (Binon)
3.
/a($ La% Uit$! Stat$(> =$rti"al No-Pri"$ R$(trait( -E Syl!ania 345>>7 1) comments a) ourt cites hicago=school type theories as basis for decision, so basically, what we’ve got here is an CoC that hardly ever turns out being net * b) Ghy couldn’t a bunch of retailers agree horizontally for the very same reason@ Ghy does a manufacturer have to do it for them@ with horizontal restraints, retailers generally do not have any incentives to limit themselves to situations that have a good - 9usti&cation
Euro9$a Uio> =$rti"al No-Pri"$ R$(trait( rundig 3457 1) 6acts a) rundig made onsten its sole outlet in 6rance b) -arallel importers began to buy rundig products in ermany and resell them in 6rance at prices 2#H less than onstenO rundig and onsten sued parallel importers 2) Bolding L Ceasoning a) Bolding: vertical territorial restraint illegal under CoC analysis b) 4Fered 9usti&cations re9ected i) ervice argument: rival service not inade
+ERGERS +$r$r( i G$$ral ,$itio@ E"oomi"(@ a! Poli"# 1) Yinds of ergers and Celevant * oncerns a) Borizontal mergers i) ;nilateral power ii) 4ligopoly b) >ertical mergers i) 6oreclosure via post=merger unilateral refusals to deal 3#
c) onglomerateD%-otential Borizontal ompetitor% mergers i) liminating potential horizontal competition (1)/ew guidelines seem to ta"e the view that this is a horizontal mergerO agencies will 9ust pro9ect the mar"et share ii) *bility to engage in post=merger vertical e'clusionary conduct 2) +nternational ergers a) 6or international mergers, the most aggressive regulator is usually the most decisive one i) 4ver=enforcers tend to prevail 3) 7otal Gelfare vsK onsumer Gelfare a) 7otal welfare standard: more friendly to &rms which want to merge b) onsumer welfare: less friendly to &rms which want to merge because they must show that the bene&ts of the merger will be passed on to consumers rather than retained as increased pro&ts c) /et importing nations have a stronger incentive to apply the consumer welfare standardO net e'porting nations have stronger incentive to apply the total welfare standard (and 9ust about every nation e'empts e'port cartels from antitrust scrutiny)
Hori8otal +$r$r( ,$itio@ E"oomi"(@ a! Poli"# 1) Yey * concerns a) ;nilateral power b) 4ligopoly 2) ar"et e&nition a) ar"et de&nition very important in horizontal merger analysis b) ee ar"et e&nition section, supra c) *gencies generally apply $threshold% approach 3) 6iling -rocess a) ; i) +f merger has * eFects only in certain mar"ets: (1)6irms may agree to divest assets in those local mar"ets (preferred) (2)6irms may oFer conduct remedies, li"e guarantees not to raise prices ii) +f merging parties and agency cannot come to an agreement, agency may see" in9unction in court (private parties can also do this but rarely do) iii) ;sually, though, merging parties drop the merger as soon as the agency disapproves (1)Bistorical (still standing) caselaw very unfriendly to ?s b) ; i) decides whether to approve, sub9ect to 9udicial review
3A
ii) Bistorical concern: mergers creating a dominant position shift: mergers creating a collectively dominant position (oligopolistic mar"et structure) now: focus on speci&c * theories .) e'ico’s *pproach a) ;ses a $dominance inde'% b) Ii"e a sliding scale approachO if mar"et more concentrated and merging &rms’ shares are larger relative to largest incumbents, more li"ely to challenge
/urr$t ,o"tri$ Hori8otal +$r$r( US Merger Statute s
•
/ormally: layton *ct § -rohibits ac
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o
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-)res)o lds
EU
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•
•
•
# E'ects: (nilater al
• •
•
# E'ects: %P
•
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C +ncorporates dominant position standardO dominant position can be collecti!e (unli"e ;) Qciencies may be ta"en into o account erged share threshold T 2#H merger presumptively o legal P #0H merger presumptively o illegal 2#H!#0H evaluate further o oncentration o ;nli"ely *: - BB+ T 1000 -resumptively unli"ely *: - o BB+ 1000!2000 L ⇑BB+ T 2#0, or - BB+ P 2000 and ⇑BB+ T 1#0 Ii"ely *: - BB+ P 2000 and o ⇑BB+ P1#0 (by implication) /umber of &rms +f concern is 4-, at least covers o mergers leading to mar"ets with 2!3 &rms (0ali 9 "alz, Gencor, Airtours) o
/ote: remember to as" whether competition is occurring at retail or at 1holesale ar"et power o 7urns on mar"et share and barriers to entryDe'pansion ould also be monopsony power o iFerentiated mar"et iversion: brands too close to each other but not very close substitutes o (would allow merged &rm to pro&t by raising the price of one or both of the products) ost common ob9ection to mergers o +f 4 before merger assume merger worsens it by increasing concentration J4- on ? to show coordination unli"ely in the relevant mar"et o +f no 4 before merger as" if merger ma"es it more li"ely
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6ewer &rms in mar"et Caise entryDe'pansion barriers o o a"e it easier to settle on price a"e it easier to notice deviations o a"e it easier to respond (many repeat transactions) o 4utlierDmaveric" &rm merger ecreasing innovation, CL, or product variety o
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# E'ects: %t)er Defense sJ EKcien cies:
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Defense sJ EKcien cies: 0ailing 0irm Defense
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onsider &rms that would enter in response to /+ntry must be timely, li"ely (iKeK, pro&table), and suQcient to constrain prices
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ame as ;, e'cept that assumes entry within 2 years is $timely% (this borrowed from ; guideline that has since been abandoned)
*llowed (; ! Procter 9 Ga!3le ) ust be 1) veri&able, 2) merger=speci&c, and 3) passed on to consumers ("taples) 6ocus on immediate customers, not end=users o o >ariable cost decreases more li"ely to be passed on than &'ed cost decreases ust have - eFect in e#ery mar"et -ossible e'ception if mar"ets are ine'tricably lin"ed o $leansing% possible (mar"et power increases, but no increases in consumer pricesO caused by big enough cost decrease) • ame (see BA"F ) omplete defense (Int5l "hoe, 'itizen Pu3l5( ) *c
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insolvency to get the defense
Partial Sto"& A"7ui(itio( 1) layton *ct § also applies to partial stoc" ac
/a($ La% Uit$! Stat$( 0- != Staples 3455>7 1) 6acts a) taples and 4Qce epot were 2 of 3 oQce superstores in the ;K Jut sold same oQce supplies (paper, pens, etcK) as many other stores b) any geographic mar"ets with few &rms in each c) ar"et de&nition i) taples and 4Qce epot: mar"et is $all oQce supplies,% and 4 have low share ii) *gencies: mar"et is $oQce superstores,% and 4 have high share iii) -rice evidence (1)taples 4C 4Qce epot R other stores prices high (2)taples */ 4Qce epot R other stores prices low d) Jarriers to entry i) ore e'it than entry recently
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ii) Galmart planned entry, but not into same $oQce superstore% mar"et iii) -rice evidence comparing towns showed entry threat insuQcient 2) Bolding L Ceasoning a) Bolding 1 (mar"et de&nition): the mar"et is oQce superstores and the merged shares would be high enough to infer * eFects b) Bolding 2 (barriers to entry): entry threat was no suQcient
0- != 9=$= 9einL o= 3647 1) 6acts a) Jaby food mar"et dominated by 3 &rms, erber, Beinz, and Jeech=/ut b) B and J/ want to merge c) erber has unparalleled brand recognition and customer loyalty d) has A#H share, B 1H, J/ 1#HO local mar"et prices with all 3 around same as those with 9ust 2 in most but not all cities e) and J/
Euro9$a Uio #irtours != ommCn 3667 1) 6acts a) -roposed merger between two pac"age tour operators 2) Bolding L Ceasoning a) Bolding: merger o"ay because it met rigorous standards for showing that oligopolistic coordination was suQciently li"ely to constitute collective dominance: i) 7ransparency (&rms can monitor each other) (1)oordination was on capacity, not price, and was set 18 months ahead of time and non=homogenous
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ii) eterrence (deviations from oligopoly conduct are li"ely to be punished) (1)Bard to respond because if one &rm increases capacity, other &rms couldn’t increase capacity until ne't season iii) ollective mar"et power (oligopoly price will not be undermined by rival e'pansion, new entry, or consumer responses) (1)lasticity of non=oligopoly supply: fringe e'pandable (set capacity later than ma9ors), but less eQcient (2)lasticity of demand: consumers price sensitive (raises mar"et de&nition
Oth$r Natio( Superior Propane 3anada 667 1) Bolding L Ceasoning a) Bolding: eQciency must be $greater than and oFset% * eFect i) erger=speci&c test (1)*s"s whether eQciencies would (not could) be obtained without the merger ii) * price increases (1)/eed not entirely eliminate * price increase (2)/eed not oFset in each mar"et ! aggregate 9udgment (3)Ioo"ed at distributional eFects: W0H of propane sold to other businesses, 10H sold mainly to a^uent consumers, harm to 20H lowest income only _2KA iii) *nalysis e'cludes eFects on foreign producers or consumers 2) /otes a) 7his is the only decision out there trying out a total welfare standard b) anadian doctrine does not say merger must lead to zero * eFects, as ; doctrine says it mustO must 9ust oFset them c) ;ses weighted formula ! probably not widely administrable because we’d have to come up with new weights for every case
/olom$rat$ +$r$r( ,$itio@ E"oomi"(@ a! Poli"# 1) omparison with Borizontal ergers a) onglomerate mergers are essentially the same as horizontal mergers, e'cept that one of the merging &rms is a $potential% competitor who has yet to actually enter the other &rm’s mar"et
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b) 7heory is that the prospect of potential competition already constrains prices in the relevant mar"et, such that a merger could loosen these constraints, leading to * eFects 2) * concerns a) liminate potential competition i) -erceived (limit pricing) ii) *ctual (cfK entry barrier) b) nable post=merger misconduct i) Jundling (1)$+’ll "eep selling you product * but now you have to buy product J% (2);: bundling not really pursued as theory for bloc"ing a mergerO might owe to fact that tying doctrine is viewed as over=inclusive as it is, so no need to bloc" a merger (3);: more li"ely to bloc" merger on these grounds ii) Ceciprocity (1)$+’ll "eep buying product * from you but now you have to buy product J% (2)7heory prevailed in the 'onsol$ Foods case but has not been pursued sinceO unclear whether it is viable as a modern theory for bloc"ing a merger
/urr$t ,o"tri$ US 164 Gui!$li$( %!er!i ew F)o is a Potent ial Entran t,
EU 200 Gui!$li$(
2010 Gui!$li$(
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;nclear if 2010 uidelines supersede 1W8. 4n e'am, run both analyses
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-otential entrant only if: *lready committed to enter, or o Gould li"ely enter rapidly after /+without signi&cant sun" costs
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Jasically, same as ; -otential entrant if: ould easily o enter mar"et without incurring sun" costs, or *re li"ely to o enter mar"et despite sun" costs 7he higher the sun" costs, the more li"ely they are to be constraining -otential competitor already
# oncer
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-ro9ect post=merger mar"et share for potential entrant then
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ns F)ere
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run standard horizontal -ost=merger BB+ P merger analysisO this 1800 will ta"e entry erged potential advantages into entrant has entry account advantages over all but • ;nli"ely *: post=merger BB+ a few &rms T 1#00 or ⇑BB+ T 100 +f very strong, o • -otentially *: - BB+ 1#00! pro9ect post=merger 2#00 L ⇑BB+ P100, or - BB+ share P 2#00 L ⇑BB+ 100!200 +f not, there must be o • -resumptively *: - BB+ P 3 or fewer &rms with 2#00 L ⇑BB+ P 200 similar entry advantages erger illegal if but for the 9oint venture ( Penn-/lin ): Joth &rms would have entered the mar"et, or o 4ne &rm would have entered and the other &rm o would have continued to constrain the mar"et to the same degree +n a merger between &rm * and &rm J, if &rm * could simply not enter J’s mar"et because of a legal entry barrier, the merger is allowed ( %arine Bancorp )
$oint 8entur es
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constrains prices or is li"ely to grow into a competitive force 4ther potential competitors could not suQciently constrain the mar"et to the same degree post=merger
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ee $Borizontal ergers% section, supra ntry barriers o o Qciencies 6ailing &rm o
=$rti"al +$r$r( ,$itio@ E"oomi"(@ a! Poli"# 1) * vsK - Fects a) -ossible * concerns i) 6oreclosure (li"e e'clusive dealing) ii) 6acilitate oligopolistic coordination (li"e horizontal mergers) b) -ossible - eQciencies i) ncourage &rm=speci&c investments (li"e e'clusive dealing) ii) conomies of scale and scope (li"e horizontal mergers) iii) eal with successive monopolies problem (li"e unilateral refusals to deal) iv) ynergies D lower costs of integrating vertical production (uniertical L conglomerate mergers: enforcement less li"ely in Cepublican administrations 3) tate of the law in this area in a lot of [u' a) Bro1n "hoe is the controlling 47; authority on vertical mergers, and it says a 1H foreclosure share is grounds to bloc" the merger .3