Means of ordering the US will be through competition
Resources allocated to consumers
Good and services allocated to purchasers
Economic efficiency concepts
Operating efficiency
Better to expend fewer resources in accomplishing a
task
Allocative (resources) efficiency, speaks in global
fashion toward the performance of an economy or a nation
Where consumer satisfaction is maximized, the
resource allocation is greatest
The primary benefit of competition is to produce
lower prices, better produces and greater purchasing convienience.
This will happen when things are near pure competition (e. g. a number
of independently functioning economically viable competitors in the
Untied States)
Market structure
Number of seller in the market
Relative percentage of the market that they sell
monopolies were bad
used to be a problem that oligopolies were bad
(could be reinvigorated)
business conduct
has to do with behavior by individual firms in
the market
in 1890 there was a clearer perception that some
forms of collusive business conduct, or collusion were bad for
economic performance
where one has competitors in the market to fix
prices, that the Economic effect, was that they monopolize the
market
general consensus -- but there can be good things
(there can be good things)
monopolies were not a good thing (bad market
structure)
collusive business conduct has been seen as
a suspect type of activity
what would have the potential of harming
market structure
Foreclosure by a seller of access by a
competitor to purchases or inputs that are needed to produce
what the competitors would like to make
Predatory pricing: pricing that is designed
to price competitors out of the market
The views these things have changed over the
past several years
There could be a reason for anti-trust laws
that is to preserved political and social values (political
and social life best preserved when there are smaller
competitive markets)
Aloca and Brown Shoe
Exemptions (Congressional or Constitutional)
Common law exemption for major league baseball
Constitutional
Patent rights (US Supreme court has not views in
restrictive manner)
17 year exclusive right to control who makes sells,
and uses the invention in the economy.
Statutory
Organized Labor Activities (Section in Clayton Act)
Union activities
Management collective bargaining
Agreements that are struck through collective
bargaining activities
Government regulated (viewed restrictively)
When congress spells out that regulation is to be
the federal policy in an industry or market
E. g. SEA, Power
Congress needs to be specific in the extent to
which it wants an exemption created
Insurance to the extend that the insurance business
at issue is regulated by state authorities
Regulation has to be active
State action: Federalism
In order to preserve federalism, the supreme court
established an exemption from the anti-trust laws, states act in
their governmental capacity, in areas where the states have reserved
rights and the powers to act
States, local, and private parties that operate
under some action by the states or those local governments
States have no liability when a state official
is operating pursuant to a clearly expressed policy adopted by
the state in question – but if the state is a commercial
participant, this doesn't count
Local governments: if operating by a clearly
articulated policy on the part of the state to give the local
government the ability to regulate, and thereby restrain
competition in a particular market
The local government will have no liability
under the anti-trust laws
This is also true, if it is clearly
foreseeable, if local governments would restrain this from
free and open competition
There is a commercial participant to local
government activity
There is no exception for conspiracy
Supreme court was faced with the issue of
whether or not, if these facts were true, there would be
some liability for the local government involved, the city
of Columbia, that there is no such exemption for
conspiratorial or illegal activities
Immunized private parties if there is active
government supervision
Industries that are regulated by the state,
if the regulation is pursuant to an expressed policy, or if
they are acting under the regulation of the local government
State or the local government must actively
supervise the activity
Political action (from first amendment)
Commercial entities have the rights to free speech
and petition
Lobbying
Advertising
Political action activity is exempt
The entities must have as the focus some type of
legislative action which is the restraint of trade
The restraint of trade can't be produced by the
lobbying, advertising in and of itself (Sham)
Omni: Will apply even if the Plaintiff alleges
that the private party engaged in bribery activity with the local
government
Superior Court Trial Lawyers: supreme court
said that the restraint of trade was imposed by the process
(which they engaged in) -- the process in and of itself
Allied Tube: First amendment doesn't apply to
private action: Doesn't apply to activities on the part of firms
to influence private orderings (even if this is to put out a
uniform code) -- t
Act of state exemption
If foreign governments were subject to judgments,
this would create a foreign relations committee
If a foreign state officially acts, the activity
of the foreign state is exempt from the application
Private parties who operate abroad under compulsion
from foreign government, also enjoy – but it really has to be
compelled
Doesn't cover acts of firms seeking foreign
government action
Allegation that a defendant bribed an official,
in order to get a contract to build something has cause of action
under the anti-trust laws
Principle of commity is applicable. Might lead
a court to decline to exercise full jurisdiction
No first amendment right to petition foreign
government
statutes
Sherman act: any act or practice is subject to its
prohibitions (the application of the Sherman act is every bit as broad
as the power of Congress to legislate) -- acts or practices that have an
effect on the US, or have an effect on exports
Combination in restraint of trade (business conduct):
Types of contracts were restraints of trade in and of themselves (illegal
per se)
Between competitors
Price fixing (between competitors)
Market division (between competitors)
Boycott (between competitors)
E. g. excluding a surgeon
Between sellers and buyers
Price fixing (between sellers and buyers
(vertical))
Market division (between sellers and buyers
(vertical)) -- no longer considered to be per se
Tie-in sales agreements Price fixing (between
sellers and buyers (vertical))
Monopolize or attempt to monopolize (market
structure)
Clayton act (more specificity) – have to predict an
anti-competitive effect (smaller, scope, there must be actual sales
involved in interstate commerce)
§ 2: prohibited price discrimination by sellers
(smaller, scope, there must be actual sales involved in interstate
commerce)
Robinson-Patman Act (six concepts)
§ 3: prohibited tie-in selling agreements and
exclusive dealing agreements and exclusive dealing agreements by which
the seller restricted the activities of the buyer
§ 7: mergers
for tripple damages
violation
harm must have been casued in fact by the violation
damage that the Plaintiff has suffered constitutes
anti-trust injury: the activity of the defendant must actually harm
competition
this is still undergoing development, stemming
from the Brunswick case, as it is still somewhat vague
the general idea is that harm to competition or
anti-trust injury occurrs when there is a decrease in
competitors or higher prices
pass on concept: price-fixing
the purchasers of such a product cannot recover
for the payment, unless the buyer is a direct buyer from the
defendant's who engaged in the price-fixing or, more generally
the violation of the anti-trust laws
Federal Trade Commission act (doens't need to be actual
sales)
Unfair methods of competition
Any activity that is illegal under the Sherman or
Clayton Act
Any act or practice which violates "the
spirit" of the Sherman or Clayton act prohibition
Penumbra power: the power of the FTC to find that a
competition violates the spirity
Horizontal agreements: agreements between competitors
§ 1 of Sherman Act makes illegal contracts,
combinations, or conspiracy in restraint of trade
per se treatment concept and its application to
horizontal restraints
can't mean all contracts that restrain are illegal,
but progression
contracts between contracts between competitors
has been considered legal, and these contracts contract has been
considered legal, and were ancillary retraints that were
subsidiary to a lawful contract (Adyston)
Ancillary
Covenants not to compete: preserves good will
Contracts not to compete between persons
forming a partnership
Necessary if you are going to have people
in a professional business
Naked restraints: Trenton Potteries
Agreements between competitors to eliminate
competition between them
These price fixing agreements or market
division were not ancillary to any other type of agreement
Later there were only unreasonable restraints
of trade
Trenton Potteries: Although there was an
agreement to fix price, it was a "reasonable range"
Reasonableness of fixed prices is not a
justification
Socony: any agreement that tampers with price
structures will be illegal per se under §1 of Sherman act:
Fn 59: all that is necessary is to show
that a particular contract falls into a category of contract
that do not have any reasonable justification in the sense
of furthering competition in any way.
If such an agreement is proved, then
there is no need to show any effect
Doesn't need to show the power to
restrict the price
Illegality is established by the type of
agreement entered into
Could conserve judicial resources (Northern
Pacific Railway)
Provides certainty for business community
(Northern Pacific Railway)
Price fixing (From Northern Pacific)
Thins that interfere with competition as
a means of setting price
Where competitors act together persuant
to an agreement, for something that restricts the
avilability of product persuant to the agreement
Market division (From Northern Pacific)
Collective boycotts (From Northern Pacific)
Tye-ins (From Northern Pacific)
Geographic divisions (Topco)
Old Market division agreements are illegal
per se
Price fixing
In Superior Court Trial Lawyers, it was
hinted that one should look at the purpose of the agreement
(uncertainty)
Rule of reason: There could be subtleties in
commercial life which render things not unreasonable (still could be
unreasonable)
Has to be shown that they will limit directly the
price they quote: National Professional Engineers: Needs to be
quite clearly warranted
Forshortened rule of reason analysis:
Differentiation between This was not a price-fixing agreement,
this was an agreement to restrict bidding
Price fixing
In Superior Court Trial Lawyers, it was hinted
that one should look at the purpose of the agreement
(uncertainty)
Maricopa county: would consider a maximum price
fixing agreement illegal per se, but the court still hints at a
rule of reason
Conspiracy: If the defendant's were allegedly in
agreement to follow a per-se illegal horizontal restraint. There is
no difference, between contracts, conspiracies, or combinations
All we need is proof of agreement.
Consciously Parallel conduct: independant action
by competitors
There is no agreement or illegality under § 1
– has to be an ageement that anyone would infer
Oligopolistic interdependence
Each competitor anticipates that whatever it
does, each competitor will be known, and after having
considered what is the anticipated reaction by the competitors
in the market
Theory is that competitors will be slow to
cut prices individually
Some people had the idea that price would
ratchet upwards
This meant that the US supreme court took a
bad view of mergers
Conspiracy: Plus factors that would
support a finding by the judge that there was a conspiracy.
(Interstate circuit)
Course of parallel action: Each of the
competitors had ended up in the same place, even though each one
of them was negotiating separately. Interstate circuit
In dicta: Conscious parallelism might, alone,
be enough
Matsushita: conscious parallelism enough is
not enough, alone, to get the issue of whether there was a
conspiracy to a jury
Contractual terms constituted a radical
departure from past industry practice
Though it was individually advantageous for a
supplier sell to a retailer at a price, if it sold to everyone
at that price it wouldn't best
Exception (rule of reason) for horizontal
restraints
Where the price fixing agreement is part of a
"novel economic arrangement" the court won't apply
per-se treatment: Broadcast Music
Flat fees could be considered price-fixing,
where the "price fixing agreement"
Necessary agreements: Output restricting
agreements, would not have per se treatment, because the
particular product may require horiztal restraints, in order to
make the product possible: NCAA
Agreements to withhold information from consumer,
would not get per-se treatment. Indiana Dentists
Rule of Reason Criteria (CBOT): once the court
determines what the nature of the contract is, then the court is
to look at the purpose (good purpose), and what the likely effect
of the rule
What did the rule do (nature of the contract)
What was the purpose
Competition is the best way to organize
resource allocation: Indirect fear of members doing a sloppy
job is not enough
Court looks at whether the premise on
which the rule is based, is consistent with the intent of
anti-trust (competition is good)
Power of the parties to the agreement – by
looking at the net effect
The amount of the market that was under the
agreement
The historical effect, and prediction on competition
will be observed
Continental TV (vertical): the effect is
whether, competition, is, on the whole promoted by the
restraint, or there is retraction from the restraint.
There could be other forms of competition
that were being promoted
Note: it is only pro-competitive –
social, lifestyle, etc. Doesn't count
What the effect of the agreement would be
Also what the observed effect should be
Things that get rule of reason
Ancillary agreements
Joint venture agreements
Formed for a pro-competitive purpose to
produce a new product
May be some restrictive side agreements
Agreements to share data will get rule of
reason
All parties to the market would need to
have this information, so that all parties to the market can
rationalize their planning
If the information is circulated among
competitor sellers
Container Corporation is an illustration
of a rule of reason analysis being given to a data-sharing
agreements
Boycotts (illegal per se under Northern
Pacific)
Fashion Originators: acting as an
extragovernmental agency
Boycotts by which competitors agree to
disadvantage another competitor by denying that customer an
asset, such boycotts have been found to be illegal.
This was a collectively generated asset
Per se treatment given if one or more of
three conditions (Northwest Stationiers)
Competitors agree to disadvantage another
competitor by denying the target competitor access to
customers, suppliers, or an asset, which is necessary in
order to compete
The boycotting competitors had a dominant
position in the market
No plausible argument was made in support
of their actions
(e. g. there could be some reasonable
requests)
things might really be a form of price-fixing
– where the target isn't a competiro, but an attempt to
force a purchaser to pay a higher price, and hence, per-se
treatment
Competitors who had created an asset through
a joint venure operation refused to allow a competitor to have
access to the product
Evidence that an agreement exists – has to be
evidence that someone would infer
Plaintiff or the prosecution has to produce
evidence that the conspirators acted independantly
Circumstantial evidence has to reasonably point
to the evidence of an agreement
§ 1 of Sherman as to boycotts
Vertical Agreements: between buyers and sellers:
Appraised under § 1 of the Sherman act as restraints of trade
Resale restrictions cases where a product is composed
of components that are purchased by a manufacture
RPM is illegal per se
Dr. Miles
Vertical price fixing with price fixing between
competitors
Somewhat dubious
Maximum resale price has been declared illegal:
Herald Tribune
If there is to be a change in the law, it will
have to be via Congress
From 1937-74 there was exemption in the Sherman
act – was repealed as an anti-inflation measure that would
legalize minimum resale prices
Agency and patent exception: Consignment (retention
of title):
1964: supreme court limited GE agency theory to
patented goods
Simpsoson: rule of reason will be given to a
consignment, followed by a sale. If patented, the good is legal
Manufacture can chose a sole outlet: doctrine of
trader's perogative
Territorial and non-price retails restrictions are
under the rule of reason
Sylvania: rule of reason: can have increase in
intra-brand competition make up for
In GTE-Sylvania, it required its retailers, to
sell from established location – non-price resale restrictions
will allow a manufacture to guaranteee to a retailer a competition
free enclave - -free of intra-brand competition
Says that the increase in inter-brand competition
increase will make up for any decrease in intra-brand competition
Reasons why manufactures impose resale price
restricts on retailers
Manufacutre is a pawn of powerful retailers
Retailers want force them to force them to do
something
Manufacturers may have agreed to fix prices and
maintain stable market shares
Setting minimum retail prices Could be a way of
manufacutres implementing a price-fixing agreement and market
division agreement
Promotion of luxury image
Interest in getting good retailers
Existence of agreement
No agreement if the manufacture recommends a price
(no agreement): Colgate
This could be "trader's prerogative"
(free to announce terms which it would continue to make sales)
But extracting any sort of commitment to future
action was enough'
There is no inference of an agreement, simply because
of recommendation, and later termination: Monsanto
Termination of one dealer by a manufacture because
the terminated retailer was selling below recommended resale price,
which had the effect of establishing something as the sole outlet:
Business electronics
Tying arrangements (§ 3 of Clayton act): illegal to
condition the sale (or fixing of lower good) on the condition that the
buyer buy another set of goods. Was never really per se
laws
Sherman: broader
Clayton: needs to be across state line, and only
goods
Tying arrangements are illegal per-se under the
Sherman act as long as there a not-insubstantial amount of
interstate commerce effected
for a Plaintiff to prevail under a per-se
analysis has to be a showing that people were "coerced" to
buy the tied product or that competitors were placed at a measurable
disadvantave
Services Tied to Land: Northern Pacific
Seller has sufficient economic power to appreciably
restrain in the tied product market
Supplementary product : International Salt
Repair services are a separate market and defined
the market as being a market of only one brand: Kodak
Exceptions
Don't have to tie in the sale to the machines, and
one can write product specifications, and a general agreement is
acceptable (e. g. to use high quality supplemental product)
There could be problems with infinite industry and
trade secret issues
Continuing obligation to repair (but see Kodak)
Jefferson Parrish (hospital and anesthesiologists)
analyses
(lower courts said illegal per se)
court recognized that although there were two
products (using a commercial reality test – whether the two
products could be sold seperately)
court was divided as to whether or not tie-ins
should receive per-se treatment
majority: per se treatment authorized only when a
substantial volume of commerce is effected
seller needs to have enough market power in the
tying market to force people to buy things in the tied market power
could be patent
could be dominant market share in tying market
Jefferson Parrish was 30%
if the market product is so unique, so that
people need it
concurrance – consumer welfare
must have tying power
risk that the tied marked will fall prey to
the tied agents (very little if stable providers)
must be a cherant economic for treating the
tied product as distinct
Exclusive dealing contracts: promise that they won't
buy from a competitor
Where the is a substantial quantity of product then
these exclusive details may be less under the Clayton act
Substantial Quantity is a market share :National
Coal Company
Good things Could be price protection, and assured
source of supply (as prevelent in the market): Standard Stations
Jefferson Parrish: court may be interested in
purposes and advantages, and the court won't be fixated on a small
market share as triggering an automatic finding
Patent exemption (Constitution): has to be non obvious
and novel
Types of products
Product patents
Process patents
Improvement patents (separate patents)
Patent misuse: patents won't be enforced if abused
(e. g. if one abuses a patent and license a non-patented part of it)
– this is because it is in equity
Or for longer than the 17 years
First sale doctrine
Creator of the patent can sell the patent, but if the
buyer sells the product the creator has no control
Patent settlements problem
Cross licenses
Unless market dominance is obtained though market
dominance, there can be no anti-trust challenge, because of
cross-licensing pursuant to a settlement agreement between those
firms: Standard Oil
"Cracking case": protection of the
Standrd Oil docttrine, and the cross licensing was done for an
improper purpose: In a patent settlement agreement, we are talking
about an agreement to stop competing.
In patent validity considerations, there is a problem
with adaquate representation for everyone else
General Electric doctrine: Setting of price at which
the licensee will sell a patented product is valid under the patent
code, and has no anti-trust implications, whatsoever
Heavily critisized
If a patent holder gives a license, it still isn't a
matter of concern to the courts
Monopolization (market definition)
Market definition
Defining what a market is
Step 1: define the market in which a firm or firms
are competing
Merger guidelines provide definition
General principle is to isolate the firms that a
given firm must take into account in pricing products
Determining a group of sales of various
products, which if one hypothetical seller made all of the sales,
that manufacture could successfully raise its price for a
substantial period of time, and continue to operate properly
Determining the products that are in
competition with one another in the marketplace
Hypothesize a theoretical price rise that is
"small but insignificant" and not transitory (e. g.
for a while) – this is the foiling standard -- this
would foil the hypothetical monopolist
Define the relevant geographic market (taking a
location where it is sold) and one can hypothesize a standard
price-rise, consumers in that geographic area, consumers would
set it away in the adjacent area, than the new area would be
included in the geographic markets
Will be defined by consumer convenience
When we are talking about goods that are sold
to other business's – shipment costs are what is important
there
Identify the sellers in the market: using the
foiling standard
New entrants: if there is a foiling standard,
there may be new entrants or an increase in competitor
production
Ascertaining the market share of the market
share of the firms in the market
What would be the total market if you had one
standard price rise, and you had production facilities
shifting in the market.
Estimate what the new entrants would be
producing at the end of the year
Take into account the existing production,
and one would get the total production
Would fix each firms' share of the market
Would get the estimated production of the
individual firm, as a percentage of the total the total (for
each of the four steps) – would derive the percentages for
each firm for the percentages
This would give you market shares in the
market
Sometimes people accept the idea that market share is
a surrogate for market power
This isn't necessarily true
Supreme court established a presumption of market
show from market share
Market shares held by the firms were not the
proper indicator :General Electric
Since market share is presumed to reflect market
power, and is therefore crucial, even though there is a presumption,
the presumption is rebuttable
Market power: needed to show some form of conduct on
the part of the defendant
Ability of a seller in the market to price its
product in a way the produces the greatest profit for the firm
The ability of a firm to ignore its competitors
Total market power is defined as a market for a
product for which there are no substitutes
The vast majority of firms function in a competitive
environment in which there are substitutes and there are competitors
– market power is not total, and dependant on how close the
substitutes are
Question of how much name brand identification the
firm has
Defining monopolization (§ 2)
Any of the offenses as defined in § 2 of the Sherman
act section
Crimes (§ 1 of Sherman act includes any contract, or
restraint of trade prohibition in § 1 without the showing of the
possibility of obtaining monopoly power)
Monopolization
Power element: Alcoa: set 90% floor – just
needs to be approaching total power
"a monopolist has the ability to exclude
competitors and to set its own prices in the market" (same
thing)
doesn't need to be an absolute power
market share is going to determine whether or
not someone has monopoly power
the process of market definition will be crucial
as to whether the firm holds monopoly power
market power
can be difficult (e. g. different types of
product defintiino
monopolization behavior for violation of the
Sherman act -- there must be some element or taint in § 2
it would be unfair to say that the winner of a
commercial struggle did it through illegal conduct
Alocoa: Skill, foresight, and industry will
never me enough for monopolization conduct
Shoe: whether or not a monopolist had engaged
in monopolziation power, there is the following defintion
Government proves that once that company has
monopoly power, the burden shifts to the defendant to prove that
it got there by skill, forsight, and industry
Any illegal conduct which positively effects
market share is going to be monopolziation conduct (torts,
included)
Fraudulent sales
Filing of frivolous lawsuits
Tortious behavior
Cannot merge to monopoly (not illegal, but
still monopoly)
Long term exclusive supply (tie up exclusive
supply)
Exploiting leverage
Bundling of repair services in the sales of
machines (
Shoe Machinery because by doing so, no
independant repair industry grew up
Predatory pricing
Background: sales below ATC
Exception: could also be below sales below
AVC
Another formulation was: anything other than
socially desireable conduct on the merits -- irrational in the
short run that becomes rational only when the holder of the
monopoly power can figure that they will drive the competior out
of business
Aspen Skiing: Can monopolize by withdrawing
from a JMA that pre-existed
Failure to accept full purchase price unless
there is a long run goal in driving a competitor out of business
Criteria
Hard for a competitor to complete
Economically irrational in short run
Long run is defined as length of time to
enter and exit
Where there is a business purpose which is
compatible with "socially desireable competition on the
merits" – if the alledged monopolzation conduct is
motivated by one of these legitimate business purposes, than it
won't be considered to be legitimate business monopolies
Attempting to monopolize
Two requirements
Defendant, unless restrained, will obtain a
monoply
Conduct must reveal a "specific
intent" to acheive a tainted monopoly
Hard to define
Bad conduct or makes no senses, unless
predicated on the idea that the alleged pretender will drive
everyone from the market
Coercive refusals to deal can constitute
monopolization attempt: (e. g. we will do business, if you
refuse to do business with competitor)
Dangerous probability: Needs to show either
market power, or a common senses substitute. Also needs to show
a reasonable amount of market power, or its common senses
substitute: Spectrum Sports:
Doubt in 9th circuit
Combining to monopolize
Mergers: § 7 of Clayton act (market definition): any
type of activity by which two companies become one: all for supreme court
to be restrictive on mergers.
Horizontal: hard to know when a merger would
substantially lessen competition
Brown Shoe: The fact that, at a large number of
cities, there were maximums as much as 5% on both companies, joining
these competitors would probably lessen competition
Where there was a combined share in the merged
entity in a particular line of shoes, than the courts felt that this
could lessen compeititon
There could be an oligoply situation which congress
saught to avoid at hand
There could be a triggering of reactive mergers
toward oligopoly
Philadelphia Bank: where there is a merger which
produces a combined entity of a high share, unless this can be
rebutted.
Von's market was only 7.5%, but there was a trend
toward concentration
Merger guidelines (HHI) by 1984 guidelines
If the top 4 firms sell 75, and a merger between
two of 4%, would be challenged)
If the top 4 sold less than 75%, the government
would challenge mergers between 5%
If there were a trend to concentration, the numbers
do not matter
No credence in oligopolistic interdepednance, where
there are fewer sellers that need to be coordinate (in an oligopoly
it is easier to arrange an police)
HHI
Sum of the squares of the shares
No horizontal mergers of 1k or less than would be
challenged
If HHI above 1800, something that produces an
increase of 100 or more points
Multiplying the merging firms together, and
doubling it
Won't challenge if less than 50%
In a concentrated market where the increase is
between 50-100 the Justice department will challenge based on a
discretionary review of certain factors or circumstances
Entry (is it easy?)
Makes it harder or easy to price-fix
Is there a history of price-fixing
History of suspicious circumstances
indicating price-fixing
Between 1000-1800, the department won't challenge
if the increase in the Hhi is less than 100, if mo2re than 100, it
will review
There is "failing company defense"
Clear probability of business failure
The proposed merger must be less
anti-competitive than other possible mergers
Vertical:
Old guidelines: problem was foreclosing a manufacutre
from selling
New guidelines: foreclosure is not a concern, but is
important -- three points
Brown shoe: there could be a greater incentive to
price fixing, because the fruits could be entered into with lessed
fear of entry into that market
Entry: There vertical aquisition to entry must
increase entry costs
If there is enough purchasing power to buy the
output of two new entrants entering on an efficient scale, than
the justice department will consider a challenge
Entry by a manufacture, along with entry into the
retail merger – the added expense of two-level entry must be a
significant factor
Conglomerate: any merger which is neither horizontal
nor vertical
Reciprocity threat: (Consolidated Foods): where a
merger establishes a situation whre one firm can threated another firm
with drawing its patronage, this is reciprocity. If the potential was
significant this was a goal for producing a conglomerate merger
If a car company buys a coal company
Synergies If the car company now has a coal
division, and one now has reciprocity potential or threat which is a
congomerate
Disproportionate size
The court said there were two independant grounds
for striking down
Where a conglomerate merger produces a merger
between the firms that are merging, and the firms already there, it
is natural that they will be reluctant to compete agressively, the
threat to competition is clear
Potential entrant (still there) – 84 (reasonable to
do so for fear of collusion)
"wings effect": Firms in a market are
reluctant to increase their prices even if they are not colluding
for fear that they will draw the attention of a potential entry
the firm that in the market is acquired by the
people who are one of the most likely potential entrants in the
market, when this potential entrants merges into the market, the
anit-competitive effect requirements is met
three things neeed to be present
relevant has to be concentrated (Hhi greater than
1800)
entry barriers have to be significant enough, so
that less than 3 firms other than the entry have the power to
enter in responce to artifically high prices
the acquired firm has to have at least 5% market
sharare
at 20% market share, if the acquired firm has
20% market share it will challenge
between 5 and 20 % the jusitce department will
make a discretionary decision based on a review of the same
factors
