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83 Cards in this Set
- Front
- Back
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Criminal remedies - statutory basis
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Penalties available under the Sherman Act Only with Antitrust Division/DOJ Enforcement
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Criminal penalties for individuals
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Up to 10 years in prison and/or 1 million in fines
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Criminal penalties for corporations
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Up to 100 million in fines under the Criminal Fines Enforcement Act
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Civil remedies available and who make seek them
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Injunctive relief
Money Damages No private right of action, but Parens Patriae provisions authorizing state atty general to recover treble damages on behalf of persons (not corp.) of the state that is distributed to those injured or treated as a civil penalty for the state fund. |
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Why a demand or supply curve can shift inward or outward and the consequences for market price and output
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Demand curve shifts outward because of an increase in consumer income, positive changes in tastes, increased price of substitutes, and/or reduced price of complementary goods. Shifts inward when those factors go the other way.
When the curve shifts outward, output and/or price must change to match. When the curve shifts inwards, output and/or price must decrease to match. The demand curve shifts when something affects consumer spending. The supply curve shifts when something affects the quantity in the market (e.g., new entry). |
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Elastic versus inelastic demand
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Elastic means that price changes generate much more than proportional percent changes in quantity.
Inelastic means that price changes generate much less than proportional percent changes in quantity. |
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Price or “own price” elasticity of demand
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% change in quantity over % change in price (responsiveness of total quantity to price fluctuations)
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Cross-elasticity of demand
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% quantity A / % price B
positive = substitutes complements = negative |
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Fixed supply costs
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Fixed costs are business expenses that are not dependent on the activities of the business such as monthly salaries.
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Variable supply costs
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Variable costs are volume-related and paid per quantity.
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Average total cost
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Total cost (fixed plus variable) divided by the quantity of goods.
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Average variable cost
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Total variable cost divided by the quantity of goods produced.
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Marginal cost
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The change in total cost of producing one more good. Firms will produce up until the marginal cost is equal to the market price.
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Supply curve for an individual competitive firm
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A graphic representation of the relationship between quantities supplied at each price for a given time period. A competitive firm produces up to the point where the marginal cost intersects the market price.
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Supply curve for an industry and relation to individual supply curves
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Found by summing up the individual supply curves. Shows total amount of quantity all firms would bring to market at various prices.
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Economic consequence of monopoly power by a firm charging the same price to all buyers
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The monopolist firm will sell at the level where the marginal cost is equal to the marginal revenue.
This results in higher prices and lower output which is described as an allocative inefficiency or “dead weight” loss. Also, wealth transfer from consumer to monopolist, costs to obtain monopoly, losses to victims of monopolizing conduct, decline in service/offerings. |
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Consumer surplus
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The amount that consumers benefit by being able to purchase a product for a price that is less than they are willing to pay.
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Producer surplus
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The amount that producers benefit by selling at a price that is higher than they would be willing to sell for, i.e., profit.
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Allocative efficiency
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Optimal point of goods going to those who want them where there is maximum consumer surplus and maximum producer surplus.
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Productive efficiency
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When the average cost is equal to the marginal cost (i.e., each good is produced by the firm that can make them at the lowest cost possible).
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Consumption efficiency
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People willing to bid the most will get the goods first.
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Monopsony
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A market form in which only one buyer faces many sellers. As the only purchaser of a good or service, the "monopsonist" may dictate terms to its suppliers in the same manner that a monopolist controls the market for its buyers.
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Economic effects of Perfect Price Discrimination on output
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Perfect price discrimination expands output to reach the maximum amount of customers who are willing to pay something.
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Economic effects of Perfect Price Discrimination on consumer surplus
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The firm extracts all consumer surplus that lies beneath the demand curve and concerts it into extra producer revenue. The firm maximizes revenue.
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Economic effects of Imperfect Price discrimination
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Firms lose the opportunity to convert all consumer surplus to revenue because they cannot capture the consumers who are willing to pay more than the marginal cost, yet less than the market price.
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“Antitrust Injury” Doctrine and What it Requires a Private Plaintiff to Prove
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Antitrust Injury is the type of injury that the antitrust laws were intended to prevent and that flows from that which makes the defendant’s acts unlawful. (Brunswick)
STANDING: Plaintiff must show that there was such an antitrust injury. |
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“Collusive” versus “Exclusionary” Effect as Defined in the Casebook
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Collusive are direct effects, whether or not through coordinated group action, that has a direct effect on market competition.
Exclusionary are indirect effects on market competition, such as conferring market power by raising a rival’s costs or limiting access to a market. |
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Horizontal agreement “Per Se Rules” Most important advantages and disadvantages as opposed to employing an unstructured rule of reason
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GOOD: deterrence, enforcement clarity, judicial efficiency, and minimal believed risk of deterring beneficial conduct
BAD: false positives, overly broad |
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Meaning of the Terms “False Positive” and “False Negative”
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False positive is an erroneous condemnation of legitimate competitive behavior.
False negative is an erroneous allowance of anticompetitive behavior. |
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Quick Look Rule of Reason – Basic Concept, to exonerate, to condemn
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Harm to competition so evident that court will shift burden of production to defendants to justify their conduct without doing extended Rule of Reason analysis (NCAA).
Plaintiff shows anticompetitive effect, then defendant gets a chance to rebut. Can be to exonerate or condemn based on who meets the burden. |
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Distinction Between Collusive and Exclusionary Group Boycotts
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A Collusive Boycott is an attempt to directly affect price by a concerted refusal to deal (purchase or sell) that has a direct impact on output and price of the boycotted product.
An Exclusionary Boycott is an attempt to indirectly affect price by excluding the rival from needed suppliers, soliciting customers to avoid the rival, or by otherwise excluding the rival from the market in a way that will affect price. |
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DOJ/FTC Collaboration Guidelines “central question” for evaluating agreements under the Rule of Reason
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Whether the relevant agreement likely harms competition by increasing the ability, or creating an incentive, to profitably raise prices above a competitive level.
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Three Basic Challenges or Problems All Cartels Must Overcome to Be Successful
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Reaching Agreement
Deterring Cheating Preventing New Entry |
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Major Factors Facilitating Coordination or Collusion Among Rivals
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Small number of firms, simple/stable product, excess capacity, stable demand, open and public transactions, numerous small sales with small buyers.
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Major Factors Frustrating Coordination or Collusion Among Rivals
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Large number of firms, complex/changing product, elastic demand, lumpy sales with large buyers, private transactions.
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What is a “Hub and Spoke” Conspiracy
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A series of OVERT agreements between a common dealer and its suppliers that can be used as circumstantial evidence of a COVERT horizontal agreement among the suppliers (cartel management at center similar to Toys R Us)
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Information Sharing – Key Factors in Determining Legality
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Current/Future (bad) vs. past (good) sales info
Specific (bad) vs. vague (good) info Private (bad) vs. public (good) info Evidence of frequent meetings between firms |
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“Plus Factor” definition
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Evidence that tends to exclude the possibility of independent action by the parties and tends to show that the parties had a conscious commitment to a common scheme to achieve an unlawful objective (Monsanto).
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“Plus Factor” leading examples
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Industry structure (homogenous, difficult entry, lots of buyers)
Communication or opportunity to communicate Rational motive to act collectively Market conduct that appears irrational absent agreement or has no efficiency explanation Past history of industry collaboration Facilitating practices such as pre-announcing prices, info exchanges, etc. |
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“Plus Factor” Situational versus Volitional Distinction from Blomkest dissent
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Situational factors are background that not controlled by the parties
Volitional factors are controlled by the party (Blomkist: should be focus) |
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Potential Economic Justifications for Vertical Non-price Restrictions
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Induce competent retailers to carry new products or promote existing ones
Ensure safety and quality Defeat market imperfections such as free riding |
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Potential Economic Justifications for Vertical Price Restrictions
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Stimulates interbrand competition by reducing intraband competition and facilitating new market entry for new firms and new brands
More options among brands and prices Reduces free riding |
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Potential Economic Dangers of Vertical Price Restrictions
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Facilitates manufacturer cartel by identifying cheaters
Enables dealer cartels using RPM to prevent price cutting Protects manufacturer market power by giving dealers an incentive not to sell products of smaller rivals |
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“Free riding” defined
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When a firm benefits from brand or product promotion by its competitor without contributing to the cost of the promotional effort.
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Minimum Showing that a Private Antitrust Plaintiff Must Make as to the Existence of Concerted Action, as Announced in Monsanto Co. v. Spray-Rite Service Corp. (1984) and Matsushita Electric Industrial Co. v. Zenith Radio Corp. (1986)
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Plaintiff must show evidence that tends to exclude the possibility of independent action by the parties by showing evidence that reasonably tends to prove that the parties had a conscious commitment to a common scheme designed to achieve an unlawful objective.
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The “Single Monopoly Profit” Theory as Originally Articulated by Chicago School Theorists
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If there are multiple dealers, the manufacturer can extract the entire monopoly profit simply by raising the wholesale price. There is no additional advantage for exclusivity.
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Motives for mergers among rivals
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Efficiencies in costs and development
Improve profitability by consolidating and upgrading management Tax advantages Hubris Acquiring Unique assets |
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“Structural Presumption” Announced in United States v. Philadelphia National Bank (1963) and what can Rebut it
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Strong presumption of merger illegality based on undue percentage share of relevant market and a significant increase in concentration.
Rebuttal achieved by showing easy of entry, trends away from concentration, continuation of active price competition, and unique circumstances. |
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DOJ/FTC Horizontal Merger Guidelines 5 Stages of Analysis
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Part 1: Market definition, participants, shares and concentration
Part 2: assess Anticompetitive Effects Part 3: would Entry deter or counteract Part 4: Procompetitive Efficiencies Part 5: Failing Company Defense |
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Definition of a market for horizontal merger analysis
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Product market plus geographic area where a monopolist could impose a small but significant nontransitory increase in price (SBSNIP)
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Herfindahl-Hirschman Index formula
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Market concentration value found by summing the squares of each firm’s market share (A^2 + B^2 + C^2)
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Uncommitted versus Committed Entry
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Committed entry requires expenditure of significant sunk costs.
Uncommitted entry can be done quickly (under a year) with little in the way of sunk costs. |
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Under the Guidelines, Three General Things that Must be True with Regard to Possible New Entry in Order for Such New Entry to Counteract Competitive Dangers Otherwise Posed by a Proposed Merger
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Possible entry must be Timely, Likely, and Sufficient
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What Must be Established for Efficiencies to be Cognizable Under the Horizontal Merger Guidelines
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“Cognizable” means
1. merger specific 2. substantiated and verifiable, 3. not arising from an anticompetitive reduction in output or service. |
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Direct method of proving substantial market power
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Demand elasticities (inelastic = considerable power to raise price)
Exclusion by means other than superior performance Econometric analysis |
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Circumstantial method of proving substantial market power
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Persistently high market shares
Currently high profits or price cost ratios Market definition calculation of market share |
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Single and Double Inference Methods of Measuring Market Power
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Single - direct evidence such as diminished quality/service/buyer choice/innovation or direct measures of demand.
Double: high market share (define relevant market then calculate shares) plus direct measurements of market power. |
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The “Cellophane Fallacy”
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High cross elasticity can be a misleading measure of relevant market because it could be a result of the firm already exercising market power.
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Why, in General, the Possession of a Large Market Share in a Properly-Defined Market is thought to Make Possible the Exercise of Greater Market Power than Possession of Only a Small Market Share
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The higher the market share, the more market power, and thus greater possibility for anticompetitive concerns.
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The Bain and Stigler Definitions, Respectively, of Barriers to Entry
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Bain – Barriers include the cost advantage held by incumbents, product differentiation, and economies of scale.
Stigler – Barriers include additional long run costs incurred by new entrants relative to incumbents |
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Definition and Potential Significance of a “Maverick Firm”
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Firms which can constrain coordination because they do not differentiate between coordinating activities and cheating.
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Legal Elements of the Offense of Illegal Monopolization under Sherman Act § 2, as Announced in United States v. Grinnell Corp. (1966)
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Possession of Monopoly power in relevant market PLUS
Conduct in willful acquisition or maintenance of that power |
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Legal Elements of the Offense of Illegal Attempted Monopolization under Sherman Act § 2, as Announced in Spectrum Sports, Inc. v. McQuillan (1993)
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Plaintiff must prove that defendant engaged in predatory or anticompetitive conduct with
Specific intent to monopolize, AND a dangerous probability of achieving monopoly power |
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Definition of “Monopoly Power” Given in United States v. E.I. DuPont de Nemours & Co. (1956)
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Power to control prices or exclude competition.
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“Raising Rivals Costs” Theory
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By raising rivals’ costs, colluding firms can reduce output to raise prices without fearing new competition.
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“Life Cycle Pricing”
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Managing prices over the lifetime of a product from the market introduction to eventual saturation/decline (e.g., setting high initial prices before competition steps in)
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Switching Costs
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The costs associated with switching suppliers (e.g., when a consumer must duplicate part of his previous purchase investment to switch to a new seller)
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“Network Effect”
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When value increases as more people use something.
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“Applications Barrier to Entry” in the Microsoft Case
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The applications barrier to entry was the power Microsoft had by Windows supporting a significant (over 70,000) number of applications. This attracted customers who wanted lots of software choices and software developers who wanted a wide OS customer base.
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As Announced in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (1993), the Two Basic Prerequisites for Recovering on a Theory of Predatory Pricing Under the Sherman Act or the Robinson-Patman Act
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Rival prices below “appropriate measure” of its costs
Likelihood of rival recouping the lost earnings |
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The “Areeda-Turner” Test
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prices can be found to be predatory only if they are below marginal cost or, if that cannot be determined, below average variable cost
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“Bundled Discount” and Efficiency Concern Posed by Such
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Focus is on differential between the firm offering a bundled discount on many things it offers when the other firm is not in a position to offer such a package.
Predatory pricing (Brooke Group) or Exclusionary non-price tactics (Aspen) |
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Monopoly “Leveraging” and its Legal Status
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Firms using monopoly power to refuse to deal with rivals
Rejected as a valid claim in Trinko over sharing local exchange carriers, Ct stated firms can’t be compelled to share facilities with rivals |
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The Essential Facilities Doctrine and its Legal Status
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1. Control of facilities by monopolist
2. Inability to reasonably duplicate by rival 3. Denial of use 4. Feasibility of providing access to the facility Status: STILL VALID |
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Exclusionary Group Boycotts defined
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Joint efforts by firm or firms to hurt competition by getting suppliers or customers to deny rivals what they need to compete
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Legal Standard for Judging Exclusionary Group Boycotts Announced in Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co. (1985)
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“Qualified” per se rule – To get per se analysis, must show exclusionary conduct, market power, no pro-competitive justification
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General Economic Dangers that a Tying Arrangement Could Pose
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Leveraging, deprives consumers of choice, evade rate regulation, mechanism for price discrimination, create barriers to entry in tied market, lose R&D possibilities, predatory pricing
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General Economic Benefits that a Tying Arrangement Could Generate
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Quality control, efficiencies, cheaper to produce certain combos, cheat on cartels, facilitate entry into tied market, price discrimination
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Most Significant Difference in Potential Economic Consequences Between a “Fixed Proportion” and a “Variable Proportion” Tying Arrangement, Respectively
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A variable proportion tying arrangement is one in which the amount of the tied product that is used can vary from one user to another (e.g., a printer that requires buying name brand ink cartridges affects a heavy user more).
Fixed proportion tying has a single ratio between tying and tied products (e.g., fork / knife / spoon sold in sets). Consequently, variable proportion tying enables price discrimination. |
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Federal Antitrust Statutes Under Which Tying Arrangements May be Challenged
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Sherman § 1 – goods and services
Clayton § 3 – specific prohibition of tying for goods only |
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Legal Standard for Judging Tying Arrangements Announced in Jefferson Parish Hospital District No. 2 v. Hyde (1984) as Compared with the Legal Standard Proposed in Justice O’Connor’s Concurring Opinion
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The majority advocated a qualified per se rule, while the concurrence suggested that it would not cause harm unless there was a substantial threat the tying seller would acquire market power in the tied market and there is a clear economic basis for treating the products as distinct.
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Chief potential dangers and benefits of Exclusive Dealing
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Dealer benefits: spur promotion and dealer dedication, restricts free riding, avoid vertical integration
Buyer benefits: assurance of supply and price Dangers: deter new entry |
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Key General Characteristics Associated with High-Technology Markets in the Modern “New Economy”
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Importance of intellectual property, new pricing where marginal cost may equal nothing, rapidly changing market conditions, network effects
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