Antitrust

• + - Key concepts
  • + - Free market vs. central planning
    • + - [ <-- we didn't go down this node past this point in class]
      • Rationale for a free market (private producers/sellers; no regulation)
      • + - Rationales for government being producer/seller
        • + - Public goods the free market wouldn't provide
          • National defense
          • Police and courts
          • Highways
          • Basic science research
          • Clean air and water
        • + - Fairness/justice in providing things that are basic human rights to those who couldn't afford them
          • Health care
          • Minimal food and shelter
          • K-12 education
          • Higher education
          • Art and culture
      • + - Rationales for regulation
        • + - Information
          • Lemon laws
          • Labeling
          • Disclosures
        • + - Irrationality
          • Funeral homes
          • Door-to-door sales
        • + - Realism / complexity
          • Insurance regulation
          • Safety standards
        • + - Lack of bargaining power
          • Fair credit practices
          • Debt collection
  • Freedom of contract, property rights
  • + - Supply and demand
    • Learn the diagram ...
  • + - Competition vs. cooperation
    • People tend to think of businesses as rivals, always out to get one another
    • but their natural affinity is to cooperate ...
    • + - Competition among businesses selling products and services doesn't help those businesses
      • It helps consumers who are buying
  • + - Rule of reason vs. per se
    • + - Per se rule
      • It's just illegal - no debating about it
    • + - Rule of reason
      • Case-by-case determination - the court will listen to alleged  pro-competitive justifications
  • + - Horizontal vs. vertical
    • + - Horizontal
      • + - relationships
        • + - e.g.,
          • FedEx and UPS
      • + - agreements
        • + - e.g.,
          • oil companies sharing a pipeline
      • + - mergers
        • + - e.g.,
          • Bass Pro and Cabela's
    • + - Vertical
      • + - relationships
        • + - e.g.,
          • Ford and Firestone
      • + - agreements
        • + - e.g.,
          • Amazon and UPS
      • + - mergers
        • + - e.g.,
          • CVS and Aetna
  • The Chicago School
  • + - Economic efficiency
    • the right number of things get produced
    • with the ideal quality
    • with the ideal distribution to the people who can make the best use of them
  • + - Think of antitrust law as ...
    • + - Statute

      • The basis of legal authority for the vast majority of what we will study in this class is federal statute

        These statutes were made incredibly vague by Congress

    • + - Common law

      • The vagueness of the statutes is understood as an instruction to courts to evolve a federal common law of antitrust

        Thus, antitrust works on doctrine, precedent, fuzzy rules and factors

    • + - Constitutional law

      • Antitrust can be thought of as the fundamental rules that structure and limit economic power in society

        + - As the federal Constitution structures and limits political power in society

        • (Elhauge said something long these lines)

        Like a Con Law course, Antitrust is largely about getting to know U.S. Supreme Court cases and applying them

    • Applied economics
• + - Historical context and philosophy
  • + - Late 19th Century
    • + - America industrializes

      • Movement away from agrarian, locally focused generalist craftsmen

        Movement toward cities, nationally and regionally focused economic activity, extreme division of labor

        Mechanization, railroads, factories, interchangable parts

        Electricity, steel, petroleum usage

        Highly capital intensive industry

    • + - Massive trusts control economic inputs and outputs
      • Natural resources
      • Production
      • Transportation
      • Retail
    • + - Era of trusts and robber barons
      • + - Examples:
        • + - U.S. Steel
          • + - Andrew Carnegie
            • Carnegie Mellon University, 1901
            • Carnegie Hall in New York
            • Carnegie libraries across USA
            • Carnegie Endowment for International Peace
            • Carnegie Foundation for the Advancement of Teaching
        • + - American Tobacco Co.
          • + - James Buchanan Duke
            • Duke University, 1924 (from existing Trinity College)
          • controlled over 90% of cigarette market
        • + - Central Pacific Railroad, Southern Pacific Railroad, Pacific Life Insurance
          • + - Leland Stanford
            • Stanford University, 1891
        • + - Standard Oil
          • + - John D. Rockefeller
            • University of Chicago, 1889
            • Rockefeller University, 1901
            • Rockefeller Foundation
    • Sherman Antitrust Act passed in 1890
  • + - 1920s to today

    • Trend of lessening susupicion of business tactics and combinations and increasing reliance on economic theory and academic research

  • + - 1990s to today

    • Over last 20-30 years, there's been increasing acceptance in courts of Chicago School of economic thinking, which is distrustful of antitrust law, believing the market will provide for the most efficient solutions, with law only hindering competition

  • + - Recent

    • Increasing current of voices to embrace a more commodious view of antitrust law, one more welcoming of enforcement and more skeptical of business tactics and combinations; increasing calls for antitrust to be a check on business such that it is also a check on political power

  • + - Goals
    • + - Competition, the free market
      • Both proponents and opponents of strong antitrust law claim to be in favor of unfettered competition
    • + - Economic efficiency

      • This is the most straightforward reason we desire competition, a free market. It creates economic efficiency, which necessarily increases societal wealth. This is widely accepted and is the theory engine that powers the legal doctrine.

        The "Chicago School" view, shared among many, is that the purpose of antitrust law is to create economic efficiency

        The Chicago School also incorporates a distrustfulness of antitrust law, implying it's largely unnecessary and that the market can handle things on its own

    • + - Checking the concentration of power

      • Prevent the concentration of wealth and economic power in too few hands

        When wealth and economic power is concentrated, it concentrates political power and undermines democracy

        This is called the "Populist View" or sometimes, derisively, "Hipster Antitrust"

        This is controversial, disfavored by the Chicago School, but increasingly popular

    • + - Ensuring opportunity for market entrants
      • A possible goal, but incompatible with Chicago-School-style thinking
• + - Legal frameworks
  • Common law
  • State statute
  • + - Federal law
    • + - Sherman Act
      • + - Sherman Act §1
        • + - Restraints
          • Horizontal restraints (cartels; horizontal collaboration)
          • Vertical restraints (vertical collaboration)
        • + - Text

          • 15 U.S.C. §1: 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 $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

        • + - Interpretation
          • + - Only unreasonable restraints outlawed
            • + - Per-se illegality
              • Unreasonable as a matter of law
              • No justifications or defenses entertained
              • + - Examples:
                • Agreement between competitors to maintain (fix) minimum prices
                • Agreement to divide up market into exclusive territories
                • Agreement between competitors to fix output levels
              • + - Current trend is away from per se illegality

                • Example: Vertical price restraints no longer per-se illegal. Reversed 96-year precedent. Leegin Creative Leather v. PSKS (U.S. 2007)

            • + - &
              • + - "Quick look" rule of reason analysis
                • + - Case-by-case, but detailed analysis not necessary, for inherently suspect restraints
                  • Exchange of price information between competitors
            • + - Rule-of-reason analysis
              • Case-by-case determination
              • Look at pro-competitive justifications
              • + - Examples:
                • Joint-ventures between competitors
                • Vertical price maintenance
                • Exclusive distribution arrangements
      • + - Sherman Act §2
        • Monopoly (horizontal domination)
        • + - Text

          • 15 U.S.C. §2: 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 $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

        • + - Interpretation
          • + - Monopolization
            • + - Monopoly power
              • + - Power to control prices, or exclude competition
                • + - Factors
                  • + - 1st
                    • + - Market share
                      • 70% or more is strongly suggestive
                      • 40-70%, possibly
                      • 40% or below, not sufficient
                  • + - 2d
                    • Barriers to entry
                    • ... and others
              • + - in a relevant market
                • market definition is key
                • + - product market
                  • what are the substitutes?
                  • who are the customers?
                • + - geographical market
                  • how far will customers travel?
                  • how near will sellers venture?
            • + - Exclusionary conduct

              • "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” U.S. v. Grinnell Corp (U.S. 1966)

                Exclusionary conduct can also be called by other names, such as "monopoly conduct," "anticompeititve conduct," and more

                + - Examples:

                • Denial of access to essential facilities
                • Predatory pricing
          • + - Attempted monopolization
            • Exclusionary conduct
            • Dangerous probability of success of gaining monopoly power, and
            • Specific intent
          • + - Monopsony
            • Monopsony counts as monopoly for Sherman Act §2
    • + - Clayton Act
      • Tie-in sales
      • Anti-competitive mergers
    • + - Robinson-Patman Act
      • Price discrimination
    • + - FTC Act
      • General prohibition of unfair and deceptive business practices
      • Enforcement through government commission
    • + - Hart-Scott-Rodino Act
      • Pre-merger notification, merger review, DOJ enforcement
• + - Fact patterns
  • + - Restraints
    • + - Kinds of restraints
      • + - Horizontal
        • Cartels, collaborating competitors
      • + - Vertical
        • Exclusive deal between distributor and retailer, e.g.
  • + - Monopoly
    • Note that Sherman Act §2 and/or §1 might be usable
  • + - Intellectual property and antitrust
    • + - IP
      • Legal monopolies
      • Patents
      • Copyrights
    • + - When does antitrust limit IP monopolies?
      • + - Generally, trying to get more than the monopoly is supposed to grant
        • + - [<-- we didn't go down this node past this point in class
          • + - Permitted
            • + - Charging customers monopoly rents
              • + - Example:
                • Charging ultra-high prices for drugs that cancer patients will die without
            • Exclusive licenses
            • Limiting output
            • Refusing to manufacture
          • + - Generally okay
            • Patent pools
          • + - May violate Sherman Act
            • Grant-back clauses
            • Patent accumulations
            • Tying arrangements
            • Blockbooking
          • + - Not allowed
            • Fixing prices of unpatented articles made by patented machine
  • + - Price discrimination
    • + - Robinson-Patman Act
      • + - [<-- we didn't go down this node past this point in class
        • + - 15 U.S.C. 13(a) (amendment to Clayton Act)
          • + - Text

            • 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

              (With numerous exceptions)

          • + - Elements
            • + - Engaged in interstate commerce
              • Construed narrowly - must generate discrimination across a state line
            • Discriminate in price between different purchasers
            • + - Commodities of like grade and quantity
              • must be tangible goods
              • services and intangible goods do not count
            • + - Injure competition with any person who grants such discrimination
              • + - Primary-line injury

                • a substantial and sustained price drop in a limited area which has the intended effect of hurting a smaller competitor

              • + - Secondary-line injury
                • a competitor of an advantaged buyer who received a discriminatorily low price
              • + - Tertiary-line injury

                • a customer of a buyer who was disadvantaged by discriminatory prices, when that customer is then disadvantaged in competition with customers who received the advantage of lowered prices

          • + - Defenses
            • + - Justified cost differences
              • + - Examples:
                • higher transporation costs
                • higher production costs
                • higher distribution costs
            • + - Changing conditions
              • + - Examples:
                • Spoiling produce
                • Shifting market demand or supply
            • Meeting competition in good faith
            • De minimis effect
  • + - Mergers
    • + - Clayton Act §7
      • Prohibits mergers where effect may be to substantially lessen competition
      • Prophylactic
    • + - Hart-Scott-Rodino
      • + - Requires advance notice of some mergers
        • DOJ or FTC can then review and conduct a hearing
    • + - Competitive justifications for mergers
      • Smaller competitors merging to tackle a bigger rival
      • One company won't survive without merger
      • Barriers to entry are low
      • Increased operating efficiences
    • Private plaintiffs usually lack standing, enforcement generally by government
• + - About this mindmap ...

  • Antitrust Mindmap. This version copyright 2020 Eric E. Johnson. Konomark. Most rights sharable. If you would like to modify this document for your own use in studying, go ahead. If you'd like to redistribute this document or modify for teaching purposes, please contact me through ericejohnson.com. I like hearing from fellow teachers and lawyers, and I'm almost always happy to give permission to re-use my materials on a gratis basis. (For publishing companies and large educational services corporations, however, licensing fees are nice.)