 Sherman Act Sec.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.
 Sherman Act Sec. 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.
 Clayton Act Sec. 7. No person engaged in commerce or in any activity affecting commerce
shall acquire, directly or indirectly, the whole or any part of the stock or other share capital
and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the
whole or any part of the assets of another person engaged also in commerce or in any activity
affecting commerce, where in any line of commerce or in any activity affecting commerce in
any section of the country, the effect of such acquisition may be substantially to lessen
competition, or to tend to create a monopoly.

Anticompetitive Effect
 Per se, irrebuttable unlawful categories: price fixing, market division, group boycott.
 Defense under rule of reason: cost reducing, output expanding.
o Defense not cognizable: ruinous effect, reasonableness of price. They do not diminish the
likelihood that anticompetitive effects would occur.
 Burden under per se category: show the agreement.
 Burden under rule of reason: agreement and anticompetitive effect -> procompetitive effect.
o Procompetitive effects: lower price, improved quality, innovation, increase in output,
reduction in transactional cost.

1
 Anticompetitive effect can be proved by direct evidence, or circumstantial evidence if direct
evidence is insufficient.
o Direct evidence: higher price, lower quality, reduced output.
o Circumstantial evidence: market definition, market shares, inference of capacity to harm
competition from market power.
 Bd. of Trade of City of Chicago v. U.S., U.S. (1918): The Board’s rule prohibits sales
between the close of one session and the opening of the session on the next day. Court:
Every agreement concerning trade restrains. The test of legality is whether the restraint
merely regulates or suppresses competition. To determine that, courts consider: the facts
peculiar to the business, its condition before and after the restraint is imposed, the nature and
the effects of the restraint, the history of the restraint, the evil believed to exist, the reason
and purpose for adopting the restraint.
o The nature of the Board’s rule: The rule makes members to attend the sessions to make
the final bid high enough to enable them to buy from country dealers.
o The scope of the rule: The rule applies only to a small part of the grain shipped day to
day. Members can purchase grain already in Chicago any time in a day. They can also
purchase in other markets.
o The effect of the rule: No appreciable effect on general market price or total volume
coming.
o Pro-competitive effects: to make price public; to bring sellers and buyers into more direct
relations; to increase number of dealers; to eliminate risks necessarily incident to private
market; to make the market more attractive.
o Knowledge of intent may help interpret the facts and predict consequences.
 Trenton Potteries, U.S. (1927): The power to fix price, reasonably or not, involves power to
control the market and to fix arbitrary and unreasonable price. Agreements that create such
power may be held to be in themselves unreasonable, without necessity of inquiry whether a
particular price is reasonable.
o Price fixing is per se unlawful only when D has market power.
 U.S. v. Socony-Vacuum Oil Co., U.S. (1940): The independents’ sale of oil amounted to less
than 5% of all gasoline sold in Midwestern but produced a significant downward pressure on
price. So, the majors purchased and held independent’s oil off the market. Price went up as a
2
 result. There is no direct agreement on price, but an agreement to engage in this program of
buying surplus gas. Court: D’s intent is to ultimately raise price in consumer market. It is
assumed that price fixing by those controlling in a substantial manner a trade or business is
unlawful, despite the reasonableness of the price. Here, Ds had the purpose to raise price.
The fact that competition still exists in the market is of no consequence because competition
was restricted by removal of part of the supply which would have been a factor in
determining the price.
o Elimination of competitive evil is no justification. Agreed price would not be subject to
continuous administrative supervision and adjustment in light of changed conditions.
Even if they were in no position to control the market, they would be directly interfering
with the free play of market forces.
o That the fixed price is flexible is not important.
o The power to fix price exists if D has control of a substantial part of the commerce . But
such power can be found though D doesn’t control a substantial market. Such market
power may be established when D has effective means, such as strategic placement of
orders.
o FN 59: Unlike in a Sec. 2 case, power to achieve the anticompetitive effect is not
necessary under Sec. 1.
 But the court talks about market share and market structure anyway. Anticompetitive
effects are unlikely to arise absent significant market power.
 National Society of Professional Engineers v. U.S., U.S. (1978): The society’s rule prohibits
discussing price with potential clients until the client has selected that engineer for a
particular project. D’s defense is that pressure to offer lower price would affect the quality of
engineering, thus dangerous to public. Court: Legislative history indicates that court should
interpret Sherman Act with its common-law background, like rule of reason. The rule focuses
on the impact of the restraint on the competition, whether it promotes or suppresses
competition, not its impact on public interest.
o In a first category, the restraint’s nature and effect are so plainly anti-competitive that
they are per se unlawful.
o In a second category, the competitive effects can be evaluated only be facts peculiar to
the business, history of the restraint, and the reason why it is imposed.

3
 o On its face, the D’s rule here is unlawful because it is an absolute ban on competitive
bidding.
o The public interest defense doesn’t satisfy the rule of reason. It is a frontal assault on the
basic policy of the Sherman Act, which assumes that competition is the best method of
allocating resources in a free market. D prevents consumer from comparing prices and
imposes its view of costs and benefits of competition upon the entire market.
 Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., U.S. (1979): D offers blanket
licenses to P of the rights to perform all music composed by D’s member musicians. The
license fee often is a percentage of revenue of a flat fee and doesn’t depend on amount of
music used. P argues this is illegal price fixing. Court: In antitrust law, “price fixing” is a
short way of describing certain behavior to which per se rule had been held applicable. It is
only after considerable experience with certain business that courts classify them as per se
unlawful. We have never examined a practice like this.
o DOJ has a decree in this industry: composers grant only nonexclusive right to D, and
network like P must have a genuine choice of per-program license. That guarantees the
legal availability of direct licensing. This practice should not be ignored. D had a real
choice.
o This business exists only because of copyright law. Agreements reasonably necessary to
effectuate copyright are not per se unlawful. The blanket license developed out of
practical situation: Individual sales and individual monitoring and enforcement are
expensive or prohibitive. A middleman is necessary. The blanket license is a necessary
consequence of integration necessary to achieve efficiency, and price fixing is necessary
to the license.
o The blanket license is a different product. It is the individual compositions plus the
aggregating services. D creates a market in which individual composers are inherently
unable to compete effectively. The blanket license is quite different from what any
individual composer can issue.
o Not all agreements among competitors that affects price are per se unlawful.

4
Per se rule
 Even in a per se rule case, there is often a well-developed record, showing some harm to
competition.
o One perspective: per se rule only defines certain inadmissible defenses.
o One perspective: the anticompetitive effect is so likely that it is not worth the cost to
consider reasonableness.
o Indicia that per se rule is appropriate: the conduct is likely to harm competition;
evaluation of reasonableness is expensive though not likely to prove valid; little
procompetitive conduct will be deterred if per se prohibition established.

Price fixing
 Catalano, Inc. v. Target Sales, Inc., U.S. (1980): Ds had an agreement: they would sell to
retailers only if payment were made in advance or on delivery, eliminating extended credits.
Court: Certain agreements are so plainly anticompetitive that lack any redeeming virtue. A
horizontal agreement to fix price is an example of such a practice and is per se unlawful.
Extending interest-free credit is equivalent to giving a discount. This agreement thus falls in
the per se rule against price fixing. It is to eliminate one form of competition among the
sellers. Anticompetitive effect is clear and there is no apparent potentially redeeming value.
That this practice may ultimately lead to a competitive market (by removing barriers
perceiving by some sellers, and by increased visibility of price), but that is not necessarily
anticipated.
o An agreement to fix price may make the market more attractive to new entrants. That
cannot be a defense or otherwise a more successful agreement to fix price would be safer
from antitrust attack.
o The agreement doesn’t merely make prices more transparent, but actually fixes the price.
So, the transparency defense doesn’t work.
 Joint Venture
o Formation of joint venture may lead anticompetitive effects, such as exclusion. Market
share of JV may be more than what efficiency demands.
o Inclusiveness: JV may have market power as a result.

5
 o Spill over: competitors talks through JV improperly. Therefore, JV should have a
different board.
 Texaco Inc. v. Dagher, U.S. (2006): Two gas sellers formed a JV, which sells gas under the
two seller’s individual brands. Court: The two did not compete with each other but
participated in the market jointly. They share profits as investors, not as competitors. The JV
fixed price, but that is not price fixing in the antitrust sense. The JV has discretion to sell the
two brands at a single price set by the JV. Per se analysis is inappropriate.
o P did not proceed with the case once per se analysis was ruled out.

Market division
 Market division includes dividing geographically, assigning customers, and dividing product
lines.
 Palmer v. BRG of Georgia, U.S. (1990): Local bar review course had an agreement with
nation-wide review course, dividing the market into one in the state and the other outside the
state. The nation-wide course shared a portion of the revenue in the state. Price of the course
then went up. Court: The agreement is formed for the purpose and with the effect of raising
price. Such market division agreements are anticompetitive regardless of whether they split a
market in which both parties do business, or they merely reserve one market for one and
another for the other.

Group boycott
 Collective refusal to deal with a buyer or a supplier that results in collusive effect like price
fixing.
o Must be applied in a commercial agreement.
o Boycott may be considered a constitutionally protected right to free speech.
o Courts are reluctant to apply per se rule to professional association’s boycotting someone.
 FTC v. Superior Court Trial Lawyers Ass’n, U.S. (1990): A group of lawyers agreed not to
represent indigent criminal defendants until government increased lawyers’ compensation.
Court: We assume that the increased compensation produced better legal representation for
indigents. This agreement is a classic restraint of trade violating Sec. 1. The social
justification doesn’t make it lawful. Previously we have held, that if the alleged restraint of

6
 trade is the intended consequence of public action, it is not unlawful. But here, the boycott is
the means by which D seeks to obtain favorable legislation. The desired legislation would put
an end to this restraint. The objective of the boycott is economic advantage, not elimination
of inequality.
o Lower court ruled that the expressive component of the boycott, protected by the First
Amendment, outweighs administrative convenience of a per se rule. But, in antitrust law,
administrative efficiency is unusually compelling. Every concerted refusal to deal has an
expressive component and that cannot be a defense. The boycotters may enlist public
support, but this level of expression is not an element of the boycott.
o Price fixing and boycott are condemned without proof of market power, for its substantial
potential for impact on competition, and administrative convenience. Small conspirators
may impede completion over some time because of market inertia and information
failures.

Rule of reason
 Quick look approach: proof of actual detrimental effect can obviate the need for an elaborate
market analysis. But actual harm is a sufficient, but not necessary, condition for quick look.
o Double inference: from market share to market power, and from market power to
competitive harm.
o Single inference: there is direct evidence on market power, then infer competitive harm
from market power.
o Actual harm cannot be rebutted by lack of market power.
 Ultimately the harm and the benefit must be weighed against each other. Practically, cases
hardly reach this point.
 NCAA v. Bd of Regents of the University of Oklahoma, U.S. (1984): NCAA adopted a plan to
reduce adverse effects of television on football game attendance. So, a television committee
has rights to contract for the telecasting of NCAA members to two networks. Each member
gets a lump sum payment. No member can appear on TV more than six time in two years. P,
a member university, negotiated with other TV networks to make more appearance. NCAA
threatened to discipline. Court: NCAA’s plan constitutes a restraint of trade in that it limits
members’ right to negotiate their own TV contracts. Its horizontal agreement prevents

7
 members from competing on price of TV rights. Because of the ceiling of the number of
games that can be televised, it limits the quantity of games. Networks have to pay more due
to the agreement. The price is unresponsive to demand. Members have no real choice but to
adhere to the plan It seems a per se case. But a per se rule is inappropriate because horizontal
restraint on competition is essential if the product is to be available at all. The product here is
college football, a competition itself, which requires rules on which competitors agree to
create. NCAA enables the product to consumers and athletes; this is procompetitive. Under
rule of reason, D’s rebuttal is that it has no market power. However, market power is not
necessary for a naked restriction on price or output. And D does have market power in the
market of college football broadcast, as a factual matter. College football has an audience
uniquely attractive to advertisers. Unlike BMI where each composer could still sell
individually, the members cannot sell, and output is limited. The agreement on price is not
necessary to market the product. Since college football is a separate market, there is no need
for collective action to enable a product to compete against others. So, the plan cannot be
justified as a joint venture’s rule of cooperation. D’s fear is that live games cannot compete
with TV. That is no valid justification. D also argues that the plan maintains competitive
balance among members, which will maximize consumer demand for the product. But this is
not supported by evidence.
o The essential inquiry of per se rule or rule of reason is the same: whether the restraint
enhances competition, judging its impact on competition.
o Market power is the ability to raise price above what would be charged in a competitive
market.
 Cal. Dental Ass’n v. FTC, U.S. (1999): There is no categorical line between per se unlawful
cases and cases that need more detailed treatment. What is required is an inquiry meet for the
case, looking to the circumstances, details, and logic of the restraint, to see the tendency of
the restriction from a quick look. At least a quick look is needed for an initial assessment of a
market where our experience of the market has not been so clear.
o The restraint itself is not clearly anticompetitive, therefore even quick look is
inappropriate.
 Polygram Holding v. FTC, Dist. of D.C. (2005): D jointly market an album. They agree not
to market two earlier albums, which they marketed separately in the past. Court: FTC’s

8
 finding is conclusive if supported by evidence. The tendency is that the analysis is tailored to
each case, moving away from fixed categories toward a continuum. We accept FTC’s
framework of analysis. The JV’s agreement to restrain price of products not part of the JV;
this looks like naked price fixing. D’s justification is that the restriction would enhance long-
term profitability of all three albums, preventing free riding of the two on the new album. But
the free riding is just competition of products that are not part of the JV. If a new product is
made more profitable by restraining competition of older products, whether consumers are
benefited is in serious doubt. Therefore, D fails to provide a justification, and so we don’t
need to consider actual harms.
o Mass. Board analysis: First determine whether the conduct’s nature would likely harm
consumers, based on economic learning and experience of the market. If so, the conduct
is inherently suspect. Then D comes forward with cognizable justifications that there is
no anticompetitive effect or there is procompetitive effect. Then P may show without
actual evidence that the restraint indeed is likely to harm consumers or prove with
evidence that anticompetitive effect is likely. Then D may show that the restraint in fact
doesn’t harm consumers or has procompetitive virtues that outweigh anticompetitive
effects.
 Presumption of illegality arises not necessarily from something inherent in this
business practice, but from resemblance with another practice that already stands
convicted.
 Realcomp II v. FTC, 6th Cir. (2011): D is an association of local real state boards with a
database of real properties. Facing Internet’s threat, D had a policy limiting publication of
and search for nontraditional listings, to promote traditional, full-service brokerage. Court:
The policy is an agreement among member brokers. Under rule of reasons, if D’s policy is
shown to have anticompetitive effects, or if D is shown to have market power and nature of
its policy is likely to have anticompetitive effects (so that it has potential to harm
competition), burden shifts to D to provide justifications. Under quick look, likelihood of
anticompetitive effect is obvious, so burden shifts for justification without showing market
power. We uphold FTC based on rule of reason analysis without reaching the question of
whether to apply quick look analysis.

9
 o The market is real estate brokerage service in southeastern Michigan. D has a large
market share in that market. There is a network effect: the more users there are, the more
valuable the database is. Broker without the database is at a significant disadvantage. Due
to its market share, the network effect, and barrier to entry, D has market power.
o D’s policy creates barriers to the dissemination of discount listings, imposing additional
cost on the marketing of discount listings, which exert price pressure on full-service
brokerage. The policy is likely to protect full-service brokerage and so its nature is likely
to be anticompetitive. Though the policy prevents discount listing from reaching only
10% of buyers, exclusion of nascent threats is still an anticompetitive effect.
o Expert showed a reduction of discount listing’s share in the market. The number of those
listings grows more slowly in the local market than in the nation. The number would be
higher absent the policy, based on regression analyses. Actual anticompetitive effects are
supported by evidence.
o D’s justification is to prevent free riding. But those who provide discounted services are
also member brokers and there also paying regular membership fees. There is no free
riding.
 In re Sulfuric Acid Antitrust Litigation, 7th Cir. (2012): Canadian firms have cheaper
product. Fearing that Canadian firms would develop their own distribution network, US firms
agreed to curtail their own production and devote their distribution capacity to Canadian
products. They each received an exclusive US territory to distribute. Establishing distribution
or storing in Canada is expensive for the Canadian and selling at a loss could be subject to
antidumping claims. Court: We have never seen an antitrust case like this, so per se
treatment is improper. But even under rule of reason, proof of raising price would have made
a prima facie case, without showing of market power.
 U.S. v. Apple, Inc., 2d Cir. (2015): Apple orchestrated an agreement among eBook publishers
to set prices for their own books, instead of letting retailers to determine prices as on
Amazon. Apple also had publishers guaranteed that price at Apple’s store would be the
lowest retail price, therefore diminished lower prices at Amazon. Prices on Amazon then
increased. Court: This is vertical agreement, not horizontal, but per se analysis may still be
appropriate. Vertical organizer of horizontal price fixing may still be per se unlawful. The
focus is the nature of the restraint, not identity of the party. Per se rule is not fit for business

10
 where the economic impact of certain practice is not obvious. The agreement also helps D
enter the market, which enhanced competition. But competition is not served by elimination
of price competition as a condition of entry. Helping fix prices, as a response to Amazon’s
dominant market power, is unlawful.
 Cal. v. Safeway, Inc., 9th Cir. (2011): Faced with labor union negotiations, stores agreed that
who makes more profit would reimburse others. The agreement involves some but not all
competitors, and its duration is limited. Court: The effects are uncertain, and there is no
evidence of actual anticompetitive effects, so neither quick look nor per se is appropriate.
Although lost sales would be reduced by revenue sharing, a rational competitor might still
compete vigorously.
o The justification that lower labor cost would enable lower price to store’s consumers is
too speculative.
o Possible evidence: incentive of stores to discount has lowered, price and sales at other
stores not participating in the agreement, whether potential entrants are waiting to exploit
any anticompetitive effects.
 In re Southeastern Milk Antitrust Litigation, 6th Cir. (2014): Agreement is a mixed of
horizontal and vertical agreement. Per se rule is a poor fit, so court should at least proceed to
quick look, where P is not required to establish product or geographic market.

Conspiracy
 Parent company and its wholly owned subsidiary are a single economic actor, and therefore
lack the capacity to conspire under Sec. 1.
 Agreement among separate economic actors can be reviewed under Sec. 1 if it deprives the
marketplace of independent centers of decision making, thus the actual or potential
competition. Am. Needle, Inc. v. Nat’l Football League, U.S. (2010).
 Cartel problems
o Reaching consensus on terms of coordination;
o Deterring cheating;
o Preventing new competition from current rivals or new entrants.
 Factors of ease of collusion

11
 o Number of firms, including potential entrants;
o Product heterogeneity, hard to agree on price of heterogeneous products, hard to detect
cheating; firms may come up with ways of exchanging information or publishing price,
dividing geographic markets, or incomplete coordination;
o Excess capacity of the colluding firms and non-colluding firms, or other features of the
industry allowing for rapid expansion; others’ excess capacity may deter cheating;
o Inelastic market demand may increase gain from coordination and may deter cheating;
o Whether transactions are public or private;
o Unpredictable demand may make it harder to detect cheating;
o Long-term contract in large amount makes coordination more difficult, a cheating
generating much profits;
o Prior collusion;
o Ease of checking colluding firms’ price.
 Tacit collusion or mere parallelism is not unlawful.
 Parallel conduct and a plus factor are required. The concern is that over-inclusiveness may
chill competition.
 Interstate Circuit, Inc. v. U.S., U.S. (1939): Distributors owned copyrights of movies.
Exhibitors were local theatres. Two exhibitors had monopolies in different cities. They were
both affiliated with one distributor and were run by the same management. Manager sent
letter to eight distributors asking for increase in ticket price and reduction in exhibition.
Distributors later had meetings. Court: This issue is whether there is an agreement among
the eight distributors. There is no direct testimony. But they all know that the same demand
was presented to each other, and that the proposed plan wouldn’t succeed unless they all
participate. There is motive for concerted action to get profits. They unanimously acted
accordingly, which is a radical departure from past profitable business practice; this could
have been risky if not for an agreement. Numerous variations in each’s provisions do not
weaken that there is an agreement. This inference is strengthened by their all falling to tender
testimony about the existence of testimony.

12
 o Court said that knowing participation in a plan that they know is anticompetitive is
enough to prove Sec. 1 violation; there is no need for any agreement. This is the outer
edge of Sec. 1 conspiracy.
o This is hub and spoke conspiracy.
 Matsushita Electric Industrial Co. v. Zenith Radio Corp., U.S. (1986): P alleged that Ds
conspired to sell below cost in US to drive P out of market. Court: This is summary
judgement stage. P must represent evidence that tends to exclude the possibility that the
alleged conspirators acted independently. P argues a conspiracy to monopolize in US market
by pricing below market level. The short-term loss is certain, but the long-term monopoly is
uncertain. And the monopoly must be maintained for long enough to recoup losses and to
harvest additional gain. Predatory pricing is rarely tried, and even more rarely successful.
And this case is more difficult for conspiracy because a large number of firms must conspire.
Losses and gains must be allocated among them. Due to long-term speculations, each firm
has incentives to cheat, keeping fruits itself and leaving losses to partners. One cheater may
destroy the plan. After two decades, Ds still have not got enough market shares while P’s
share remains unchanged. This means that they will have to maintain monopoly for even
longer. When succeed, they will need an agreement to fix price, which can be identified and
punished at that time. Ds are cutting prices, which is often the essence of competition.
Mistaken inference is especially costly because it chills the very conduct that antitrust law
seeks to protect. That Ds tend to raise price (evidence on market division) actually benefits
competitors.
o That Ds got supra-competitive gains in Japan is irrelevant. They may have means to
sustain losses in US, but they still have no motive to do so.
 Lower court’s sliding scale interpretation: if the conspiracy is economically sensible, broader
inferences are permitted.
 Bell Atlantic Corp. v. Twombly, U.S. (2007): 1999 Act sets conditions for local carriers to
enter long-distance telecommunication market. Each incumbent carrier must share its
network with competitive competitors. P alleges that incumbent carriers conspired to impede
entry and refrain from competing against each other. Court: This case is at pleading stage. P
must show that an agreement is plausible. Conscious parallelism is not in itself unlawful.
Parallel conduct must be placed in a context that suggests an agreement.

13
 o Each incumbent carrier’s action is the natural, unilateral reaction to keep reginal
dominance, resisting competition which is a routine market conduct, on its own intent.
o Incumbent carriers do not enter each other’s territory. Before the 1999 Act, monopoly
was the norm. Carriers’ natural action is sitting tight, expecting neighbors to do the same.
The pleading doesn’t allege that entering another’s market is more lucrative. And
entering another market may be faced flagrant resistance to network sharing. Firms do
not expand without limit.
o The current market is a result of regulatory regime. If not because of the regulation, the
carriers probably violate Sec. 1.

Plus factor
 Some plus factors:
o Opportunity to communicate;
o Conduct that cannot be explained by parallel behavior;
o Conduct lacking an efficiency explanation.
 Factors suggesting ease of coordination but do not alone distinguish conscious parallelism:
o Industry features, such as number of firms, homogeneous products, high barrier to entry,
large number of buyers and transactions, transparent price;
o History of coordination (interdependent or collusive);
o Rational motive, such as inelastic demand, barrier to entry;
o Market power, such as sustained profitability and market share;
o Information exchange.
 The aggregate of evidence, though each piece being inconclusive, may be highly suggestive
of an agreement.
 Am. Tobacco Co. v. U.S., U.S. (1946): Old tobacco was dissolved but the business remained
within the same general group of organizations. Court: The community of interest in the
industry provides a natural foundation for conspiracy. Ds’ prices have been identical since
1923. Only seven changes have been made and the changes have been identical. When the
costs were lower for Ds, they raised price on the same day. No economic justification for this
raise was demonstrated. Total volume sold decreased, but they made more profits.
Conspiracy is inferred entirely from circumstantial evidence.
14
 o D argues that it had to raise price in order to follow another who raised price first,
otherwise it would not have similar amount for advertising. But it could have lowered its
price to gain competitive advantage and therefore got more profits.
 U.S. v. Foley, 4th Cir. (1979): D, a realtor, hosted a dinner party. D said his firm would raise
commission rate to 7% and he didn’t care what others would do. Other attendants’ firms also
raised rate to 7% in the following months. Court: Some of Ds were planning a change in
commission rate prior to the dinner but were afraid that it would fail due to other firms not
participating. Another firm’s president testified that D told him that the plan wouldn’t work if
they didn’t all raise to the same rate.
 In re Text Messaging Antitrust Litigation, 7th Cir. (2010): P alleges price fixing of text
messaging service. Court: This is pleading stage and the standard is plausibility. Parallel
behavior is a symptom of price fixing. Industry structure is supporting evidence: four Ds sell
90% of messaging service; it would be easy to detect cheating; Ds belong to an association so
that they can exchange price information at meetings; Ds increased prices when costs fall, to
a uniform pricing structure.
o Complex and historically unprecedented changes in pricing structure made at the same
time by multiple competitors and made for no other reason would support a plausible
inference of conspiracy.
o Discovery may reveal direct evidence or additional circumstantial evidence.
Circumstantial evidence can establish an antitrust conspiracy.
 In re Text Messaging Antitrust Litigation, 7th Cir. (2015): P alleges that Ds increase the price
of messaging per use. Court: The flip side of the number of firms being small is that it is
easier for them to engage in “follow the leader” pricing. They maybe all decide
independently that they are better-off with higher prices, generating greater profits when
costs are falling, if consumers have no alternatives. Antitrust law doesn’t require firms to
compete vigorously. In messaging industry, bundle plans have largely replaced price per use
method. Consumers still using price per use method are infrequent users who pay very little
and barely notice any price increase. They won’t go through the hassle of switching
companies just because they pay a few dollars a year more. One D charging less didn’t gain
to many consumers. Ds would not risk antitrust liability for such a small portion of their
revenues. Members of the trade association which are not alleged to be part of collusion also

15
 attended the meetings, so the presence of non-colluder diminishes the probability of
collusion. There are lags between the meeting and price raises. Undermining a competitor’s
strategy may invite retaliation. P’s evidence is equally consistent with independent parallel
behavior as with collusion.
o Sleeper: consumer that don’t shop but instead is loyal to which ever seller he has been
accustomed to buy from. Firms may be reluctant to awaken other firms’ sleepers.
o When the leader increase price: others may think that the leader has more insight into the
market; the leader will have more resource to finance improvements.

Monopolization
 Elements of monopolization:
o Monopoly power in the relevant market;
o Willful acquisition or maintenance of monopoly power, as distinguished from growth or
maintenance.
 Lorain Journal Co. v. U.S., U.S. (1951): D is the only newspaper in the city. It refused to
advertise for those who also advertised over a radio station. Many abandoned advertisings
over radio. Court: The complaint is an attempt to monopolize in the local advertisement
market. D had monopoly power in newspaper with indispensable coverage. Its refusal to
advertisement amounted to an effective prohibition of use of the radio station, though many
wished to advertise over radio. D reduced customers of the radio and tend to destroy it and
strengthened its own monopoly.
o To establish Sec. 2 liability, it is not necessary to show that success rewards the attempt
to monopolize.
o The right to select customers is qualified; it may not violate antitrust laws.
o Now P probably cannot win a unilateral refusal to deal case.
 U.S. v. Aluminum Co. of Am., 2d Cir. (1945): Alcoa grew to monopoly through securing
patent rights. It produced over 80% of total virgin ingot. Secondary ingot, made from
aluminum scrap, is faced with sales resistance, though assumed is of equal quality. Court:
o 90% is enough to be a monopoly; 60% is doubtful; 33% is certainly not. The market
includes the ingots that Alcoa itself consumed, since they necessarily have effects on the

16
 market. As to secondary ingots, they compete with virgin ingots on a substantial equality.
The difference in price between secondary and virgin is not great; sometimes secondary
is even more expensive. Secondary probably sets a limit or ceiling on the virgin.
However, secondary is not considered to compete with virgin, since it is made from scrap
of virgin and therefore its production is within Alcoa’s control, based on Alcoa’s past
estimation of future demand. Within the limits set by tariff and the cost of transportation,
Alcoa is free to raise its price.
o That Alcoa’s profit is fair is no defense. That it is a monopoly doesn’t mean it
monopolized. Without intent to monopolize, one may become monopolist by force of
accident. The successful competitor, having been urged to compete, must not be turned
upon when he wins. Alcoa actively maintains monopoly: by building new plants and
expanding production, anticipating increase in demand and preparing to supply, facing
newcomer with new capacity.
o That a monopolist cannot expand to meet new demand is no long good law.
 U.S. v. United Shoe Mach. Corp., D. Mass (1953): D leased its machines and the lease terms
forced consumers to obtain maintenance and service from D only. Court: The charge
depends solely on economic considerations. The policy is not the inevitable consequence of
D’s capacity or natural advantages. D’s social advantage justification that this industry can
exist only through some monopoly has no merits. Congress decides what monopoly is
allowed.

Market definition
 U.S. v. Du Pont De Memours & Co., U.S. (1956): D produced 75% of cellophane sold in US.
Cellophane constitutes 20% of all flexible packaging material. Court: Monopoly power
depends on availability of alternative commodities, i.e., whether there is a cross-elasticity of
demand between cellophane and other wrappings. When a monopolist has market power over
price and competition, an intent to monopolize may be assumed. Products don’t have to be
fungible to be in the same relevant market. Commodities reasonably interchangeably by
consumers for the same purpose are in the same market. Cellophane’s characteristic is similar
to other packaging material and has no qualities that others do not have. It accounts for 18%
of all flexible wrapping materials. The record doesn’t show that consumers would switch to

17
 cellophane when its price goes down, nor that D’s rate of return is greater. D has no
monopoly power.
o Cellophane is two or three times more expensive than other materials. But the necessity
for flexible wrappings is unchanged.
 Cellophane fallacy: The current price and therefore current market share of cellophane may
be a result of past monopolization. The price has been raised above competitive level. The
market share could have been much larger if its price was at a competitive level.

Conduct
Exclusion
 Aspen Skiing Co. v. Aspen Highland Skiing Corp., U.S. (1985): P and D together offered
interchangeable tickets to their ski resorts. D stopped this profitable program and refused to
negotiate. D even refused to sell its own tickets to P. D admits monopoly power. Court: A
monopolist has no general duty to engage in a joint marketing with a competitor. But the
right is not unqualified. Intent is necessary to prove attempt to monopolize. And intent is
merely relevant to whether the challenged conduct is exclusionary or anticompetitive. Here,
the monopolist made an important change in the pattern of distribution that had originated in
a competitive market and had persisted for years, willing to forgo daily sales. Similar tickets
are offered in other skiing areas. It is thus assumed that such tickets satisfy consumer demand
in free competitive markets. If a firm excludes rival on some basis other than efficiency, its
behavior is predatory. Therefore, we must examine the effect of the conduct on consumers.
Consumers generally prefer interchangeable tickets for convenience and expanded vistas,
according to experts.
o D offers no efficiency justification. D itself participated interchangeable ticket plan in
other skiing areas. P offers to have a reputable accounting firm to audit usage of tickets.
Consumer may freely choose which resort to go, so the alleged inferior service of P
should not be a concern
o D is willing to sacrifice short-run benefits and consumer goodwill in exchange for a
perceived long-run impact on rivals.
o It is relevant to note that similar conduct by multiple rivals would be a per se violation of
Sec. 1.

18
 o Court later identified this case as near the outer boundary of Sec. 2.
o If there is no history of dealing, justification would not be required.
 Essential facility doctrine. D controls an essential facility without which P cannot compete. It
must be feasible for D to produce the facility and impractical for P to reproduce.
o The doctrine will probably be rejected because it encourages free riding. People will not
build the facilities in the first place.
 Eastman Kodak Co. v. Image Tech. Servs., U.S. (1992): D sells replacement parts only to
customers who used D’s service. An independent service provider sued. D contends that it
lacks market power in the market of original sales. Court: Consumers cannot substitute parts
from other brands of copiers. The market of copiers is competitive, but D has monopoly in
the aftermarket. D in fact raised price in the aftermarket so efficiency justification won’t
work.
o If consumers of copiers are well-informed of aftermarket costs, the question is whether
the increase in profits in aftermarket exceeds the reduction in profits arising from losses
of sales in both the aftermarket and in the original market. If the original market is
declining, D is more likely to raise price in the aftermarket.
 U.S. v. Microsoft Corp., D.C. Cir. (2001): Court: Monopoly power may be inferred from
possession of a dominant share of a market that is protected by entry barriers.
o The relevant market is the licensing of all PC operating systems worldwide.
 Consumers wouldn’t switch to Mac in response to a substantial price increase because
of the cost of acquiring new hardware needed to run Mac OS and compatible software
applications, and the effort in learning the new system and transferring files to its
format, and that Mac OS is more expensive and support less applications. Mac cannot
perform all functions of a PC, so consumer would consider it only as a supplement to
PC.
 Application could run on any operating system if sufficient APIs or middleware (Java
etc.) are exposed. But middleware would not soon expose enough APIs to serve as a
platform for popular applications. The interchangeability test considers only
substitutes in the reasonably foreseeable future. But Sec. 2’s prohibition of conduct
isn’t limited to actions against well-developed threat.

19
o D has 95% share of the market. But because of the possibility of competition from new
entrants, looking to current market share alone can be misleading. But there are structural
barriers: most consumers prefer system for which a large number of applications have
been written; most developer prefer to write for systems that has a substantial consumer
base. This gives a reason to prefer the dominant system, though consumers don’t need to
use all applications written for it.
 Not only new entrants but all current firms in the market are faced with the same
application barrier. We don’t resolve the issue whether cost borne by all market
participants should be considered entry barrier. When D entered the market, there was
no dominant firm. And D included API from earlier versions of D’s system so D
could be able to bypass the barrier, making porting applications to D’s system much
less costly than porting them to other systems.
 That the industry is dynamic doesn’t change the barrier analysis, which is to
determine whether potential substitutes can constrain D’s ability to raise price above
competitive level in near future.
o Direct evidence of market power. D sets price without considering rival’s price. Its
conduct could be rational only if it possessed monopoly power.
o The monopolist’s conduct must have an anticompetitive effect, which P has the burden to
prove. The anticompetitive effect can be harming the competitive process and thereby
harming consumers. Harming competitors wouldn’t suffice. The D may provide
procompetitive justification, to be balanced against anticompetitive effect. Intent is
relevant only to the extent it helps understand the likely effect of the conduct.
 A middleware like a browser must have a critical mass of users in order to attract
developers. D’s efforts to gain market share in browser market would serve to meet
the treat in the OS market. Though D did bar rivals from all means of distribution, it
did bar them from cost-efficient ones.
 D had OEMs pre-install its browser. OEM could not install an additional browser
because it would increase support costs, consumes space on PC, and lead to confusion
among novice users. And OEM is one of two primary channels for distribution of
browsers.

20
  D prohibited OEMs from modifying boot sequence, thus decreasing competition from
other browsers that are used in the altered boot sequence.
 D prohibited OEM from substituting desktop interface. That would be a drastic
alteration of D’s copyrighted work and outweighs the marginal anticompetitive effect.
 D reduced rival browsers’ usage not by improving its own product.
o It is not required that anticompetitive effect must be attributable to anticompetitive
conduct. It is impossible to reconstruct a world absent D’s anticompetitive conduct. The
real question should be whether exclusion of nascent generally is a threat to continued
monopoly, and whether P was such threats when D engaged in anticompetitive conduct.
 Verizon Communication v. Law Offices of Curtis V. Trinko, U.S. (2004): Under the 1996 Act,
incumbent carrier must share its network with competitors. P alleges that, D improperly filled
competitor’s orders, to discourage customers from becoming customers of the competitor.
Court: Mere monopoly is an important element of free market. It is what attracts business
acumen in the first place. Compelling sharing essential infrastructure will lessen the incentive
for monopolist and the rivals to invest, requires courts to be central planners, and may
facilitate collusion. Unilateral termination of a voluntary and profitable course of dealing
suggest a willingness to forsake short-term profits to achieve an anticompetitive end. But
here, D never have dealt with rival absent statutory compulsion. Prior conduct sheds no light
upon the motive of refusal to deal. The Act imposed a new obligation on D to deal at D’s
expense and effort.
o The 1996 Act specifically stated that nothing in the Act shall be construed to modify,
impair, or supersede the applicability of antitrust law.
o Essential facility doctrine gives no help. For the doctrine to apply, P must have no access
to the facility. But here the Act requires access; there is no need for judicial intervention.
o The existence of regulatory structure makes the benefit of antitrust enforcement small.
Against the slight benefits, cost may be significant: false positive and chilling effect on
competition, practical ability of courts, continuing burden supervision

Predatory pricing
 Brooke Group Ltd. V. Brown & Williamson Tobacco Corp., U.S. (1993): P offers cheap
generic cigarettes, had 97% of generic market which accounted for 4% of cigarette market. P

21
 alleges that D sells generic cigarettes at below-cost price, pressures P to raise P’s price in
generic market in order to avoid losses, and therefore pushes consumer back to branded
cigarettes preserve supra-competitive profits in the branded market. Court: P must prove that
D’s price is below an appropriate measure of its rivals’ cost, and that D has a dangerous
probability of recouping its investment in below-cost prices, including time value of the
investment. To estimate recoupment requires an understanding of the extent and duration of
the alleged predation, the relative financial strength of the predator and its rival, and their
incentives. D must have enough market power to set price higher than competitive level and
sustain that price long enough to earn what was given up in below-cost price. Here, D
wouldn’t have power to raise price for generic cigarettes above a competitive level. The
generic market had actually expanded since D’s entry. D offered generic cigarettes to many
whole sellers who had never before purchased generic and provided rebates etc. to
incentivize whole seller to sell generic. The gap between the generic and the branded
cigarettes has actually grown due to discounts to generic and the emergence of the sub-
generic market.
 Measurement of cost
o Average variable cost
 Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., U.S. (2007): D purchased much
logs. P exited the market because its key input, logs, was too expensive. Court: To prevail on
a predatory bidding claim, P must prove below-cost pricing of D, and that recoupment is
likely.
o But if D has monopoly power in the finished wood market, it can raise price of finished
wood above competitive level, so that the price is not below cost.

Attempt to monopolize
 Elements of attempted monopolization:
o Predatory or anticompetitive conduct;
o Specific intent to monopolize;
o Dangerous probability of achieving monopoly power.

22
  The market share required by dangerous probability may be below that required by
actual monopolization and may be adjusted by the height of entry barriers. 50% may
be enough.
 Spectrum Sports, Inc. v. McQuillian, U.S. (1993): D wanted P to relinquish P’s shoe
distributorship as a condition for retaining the right to develop equestrian products. Court:
Intent is necessary but not sufficient to establish the dangerous probability achieving
monopoly power. P must prove that D engaged in predatory or anticompetitive conduct with
specific intent to monopolize and a dangerous probability of actual monopolization, which
requires definition of market and examination of market power. Conduct may be sufficient to
prove the necessary intent. The dangerous probability cannot be inferred from merely
conduct.

Remedy
 Conduct remedy: prohibit or mandate a conduct. May need continuing supervision.
 Structural remedy: divestiture. Divestiture is risky since it may reduce efficiency and
employment and impose losses on investors. More common when monopoly is acquired
through merger.
 U.S. v. Microsoft Corp., D.C. Cir. (2001): District court order divestiture of D into one
operating system business and one for the balance of D’s business. Court: The remedy must
seek to unfetter a market from anticompetitive conduct, to deny to D the fruits of violation,
and to ensure there remains no anticompetitive practice. Divestiture has traditionally been the
remedy for violations whose heart is intercorporate combination and where the acquisition of
asset or stock violates antitrust laws. A unitary company designed to operate effectively as a
single entity cannot be dismembered without loss of efficiency. D may be a unified company
without free-standing business units and not organized along product lines and has only one
sales department, one finance department etc.
o Structural relief requires a causal connection between the conduct and the creation or
maintenance of market power. Absent such causation, the remedy should be an injunction
against continuation of that conduct. In this case, causation has been only inferred and
may be insufficient.

23
  Causation was enough to find liability but is here not enough to grant structural
remedy.
o There should be a remedy specific evidentiary hearing. D could have challenged based on
feasibility of dividing D, the likely impact on consumers and on shareholders, raising
software prices, lowering rates of innovation.

Merger
 Motives of merger
o Reduce cost or improve products in ways unavailable to individual firms;
o Replace ineffective management;
o Obtain tax benefits.
 Results of merger
o Coordinated effects: easier for rivals to collude tacitly or consciously.
o Unilateral effects: merger to monopoly, raising price or impairing rivals’ access to key
inputs or distribution channels.
 Merger Guidance’s adverse effects
o Higher price;
o Reduced product quality or variety;
o Diminished innovation.
 Merger Guidance’s market definition
o Elasticity: how would consumer respond to an increase in this product’s price, or to an
increase in another product’s price.
o Evidence of buyer substitution: consumer survey; buyers’ response to part price changes;
characteristics of products or geographic locations; switching cost; shipment cost; seller’s
identification of rivals; seller’s choice of price-cost margin; expert testimony.
o Hypothetical monopolist test: a market is a collection of products and a geographic
region that would form a valuable monopoly. If a hypothetical monopolist would not find
a SSNIP (small but significant and nontransitory increase in price) profitable, add the
next substitute product or region to the candidate market.
 Often, SSNIP is a price increase of 5% lasting for the foreseeable future.

24
 Merger Guidance’s market participants: all firms currently earning revenues from the market
and firms committed to entering the market in near future (who would likely enter in the
event of SSNIP without significant sunk cost), including vertically integrated firms that may
transfer a product to a downstream division.
o Sunk cost: investment that would not be recoverable if the firm later exits the market.
 Merger Guidance’s market concertation
o Shares: past or projected sales; physical units; sales to recent customers, capacity, or
reserves; potential entrants’ shares.
o HHI: sum of each firm’s share squared. If the post-merger HHI is below 1500, or if
increase in HHI is less than 100, the merger is probably safe. If the post-merger HHI is
above 2500, or if increase in HHI is more than 200, the merger is likely to be challenged.
 Until merger in complete, parties are independent entities and are bound by Sec. 1.
 Merger Guideline requires a timely, likely, and sufficient entry in order to undermine
inference drawn from market statistics.
o Little unrecoverable sunk cost.
o Profitability after entry is affected by increase in output and other firms’ reactions.
o Entry needs to be rapid enough to make unprofitable the anticompetitive acts, or rapid
enough to ensure that those acts do not impose significant harm on consumers.
o Intangible assets like goodwill may be difficult for an entrant to replace.
 Efficiency generated by merger can enhance competition if the combination of
complementary assets permits the merged firm to form a more effective competitor.
o Unilateral incentive to reduce price or improve quality.
o Creation of a maverick.
o Combination of research and development.
o Under Merger Guideline, efficiency defense rarely succeeds. Efficiency must be verified,
merger-specific, and do not arise from anticompetitive reductions in output or service.

Horizontal merger
 U.S. v. General Dynamics Corp., U.S. (1974): Two coal producer want to merge. Top firms
in the market accounts for 75%. Court: Even small increases of market share in highly

25
 concentrated market may prove that de-concentration is important. Coal is increasingly less
able to compete with other sources of energy. Usually producer enter long-term contracts
with consumers for a fixed period of time and at predetermined prices. Therefore, sales do
not represent market power but rather the obligation to fulfill prior contracts. The focus of
competition is on procurement of new long-term contract, and thus uncommitted reserves of
recoverable coal. D’s current reserve is considerably weaker than in the past. Its reserves are
to be depleted. And D is unlikely to procure new reserves. Therefore, the merger will not
substantially lessen competition.
 U.S. v. Baker Hughes, Inc., D.C. Cir. (1990): Ds sell hydraulic drilling rigs. Court: P has the
burden of showing that a merger will lead to undue concentration in a market. Then D has
burden of rebuttal, including low barrier of entry. Then P has the ultimate burden of
persuasion. The probability of anticompetitive effect depends on the totality of
circumstances. The drilling rig market is minuscule and market share is shifting, one sale
may increase market sale by 5%. There is no evidence of overpricing or excessive profits.
Consumers are sophisticated who closely examine available options and insist on receiving
multiple, confidential bids. Entry of newcomers is likely; the standard is not “quick and easy”
entry which conflates the ultimate burden of persuasion. Foreign companies may enter US
market because distribution is in expensive since market is small. There had been tremendous
turnover in US market.
o Since it is easy to establish a prima facie case, the burden of rebuttal shouldn’t be
particularly onerous.
 FTC v. H.J. Heinz Co., D.C. Cir. (2001): In baby food market, the market leader has
unparalleled brand recognition with loyal consumers. The second and third firms, a value
brand and a premium brand, have 32% in total and want to merge. Court: This is preliminary
injunction to merger stage, where P needs to show fair ground for investigation and
determination by FTC and by courts. P first needs to show that a merger would produce
concentration and significant increase in concentration. D then needs to show that the market
share statistics is in inaccurate. Then P introduces additional evidence of anticompetitive
effect. Here, the market was already highly concentrated, and the increase will excess the
threshold. This merger will eliminate competition between two rivals who are the only
competitors as second position and competed vigorously in the past. Barrier to entry is high.

26
 Courts have never approved a merger to duopoly. D argues that merger will give them the
ability to compete with the market leader, with substantial cost savings and quality
improvements. But in the baby food market, the cartel problems are not greater than in
another market. Duopoly still affords opportunity and incentive to coordinate to increase
prices.
o The presumption of anticompetitive effect may be irrebuttable if merger to duopoly.
 U.S. v. H & R Block, Inc., D.C. Cir. (2011): Two tax software providers seek to merge.
Court:
o An overall market may contain smaller markets which themselves constitute product
markets for antitrust purpose. Market may be determined by public recognition of the
relevant market, the product’s peculiar characteristics, unique production facilities,
distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.
Court may ask hypothetically whether it would be profitable to have monopoly over a
given set of substitutable products. Here, the question is whether enough user would
switch to assisted or pen-and-paper method in response to a five-to-ten percent increase
in software price to make such a price increase unprofitable. D’s documents show that D
vies other software as primary rivals and track their prices and ignore price of assisted
preparation. Software users’ experience is distinct in terms of technology, price,
convenience level, time investment, mental effort, and type of interaction. Assisted tax
preparation will not constrain software’s price after proposed merger. Not enough
consumers would switch to pen-and-paper in response to a SSNIP. Everyone has to pay
tax, so defining the market as broad as to include all tax filing methods would be
meaningless since the market would be completely inelastic.
o Merger would give the combined firm a share of 28.4%. HHI would raise 400 to 4691.
Whether a merger will make coordinated effect more likely depends on whether the
market conditions on the whole are conducive to reaching terms of coordination and
detecting and punishing deviations. P has established a prima facie case. D has burden to
show structural market barriers to collusion specific to this industry. Evidence that the
market leader will compete with the merged company is not inconsistent with
coordination, since coordination involves tacit understanding about how firms will
compete or refrain from competing. It will be in their mutual interest to reduce the quality

27
 of free software. The leading firm historically tried to oppose free software. Each firm
can easily monitor others’ price since they are on internet. Transactions are small and
numerous. Each consumer has little bargaining power. Price can be changed easily. There
are barriers to switching due to stickiness of software products. One of the merged firms
was an aggressive competitor, which constantly plays a role that constrains prices in the
market. It was the only competitor who offered full-feature products for free with
associated low-price products. The merged firm will have a greater incentive to migrate
consumers of the free to its higher-priced products.
 Hospital Corp. of Am. v. FTC, 7th Cir. (1986): If merged, the four largest hospitals would
have 91% market share. Court: Under Sec. 7, the ultimate issue if whether the challenged
acquisition is likely to facilitate collusion. The manager of the D sets prices for managed
hospitals. Hospital routinely exchange information on price. The fewer the competitors, the
easier for them to collude without detectable violation of Sec. 1.
o State requires any addition to hospital capacity of a certificate of need. Colluders may
keep excessive capacities. When others try to expand, colluders would oppose by
showing excessive capacities. At least the state law requires public notice before adding
capacity, thus making it harder for a colluder to cheat.
o Going to another city is out of the question in medical emergency.
o Most hospital services cannot be provided by other medical care providers.
o Doctors decide treatment but they don’t pay hospital bills. Insurance companies pay. So,
the demand is inelastic.
o There is history of hospital cooperation in the past.
o D is under pressure from government to cut cost. So, D has incentive to present a united
front in negotiations.
o D argues that hospital services are heterogenous and collusion is more difficult. But D
doesn’t prove that this market is more heterogenous than other markets where collusion
has been frequent. A mixture of services may be different from another mixture. But each
component service may be the same.
o Adoption of nonprofit form doesn’t mean immunity to antitrust liability.
o Technological advancement may make collusion more difficult but can also make
collusion more urgent.
28
 o Big buyer may inhibit collusion. But here the insurance company etc. cannot reject
reimbursement of service that is too expensive.
o Another hospital filed this complaint with FTC, suggesting that the merger would
actually lower the price. But that is only one competitor’s opinion.
 N.Y. v. Kraft General Foods, S.D.N.Y (1995): A firm can achieve unilateral price elevation
for differentiated products only if there is a significant share in the market accounted for by
consumers who regard the products of merging firms as their first and second choices, and it
is unlikely to reposition other firms products lines to replace the localized competition lost
through merger.
 FTC v. Staples, Inc., D.C. Cir. (1997): Ds are the largest and second largest sellers of office
products. FTC’s definition of market is consumable office supplies through office
superstores. D’s definition of market is the overall sale of office products. Court: Within a
broad market, well-defined submarkets may exist, which themselves constitute product
markets for antitrust purpose. In markets where D faces no competition from office
superstore, prices are 13% higher than in markets where it competes with office superstores.
Its price is primarily affected by other office superstores, and not by non-superstore
competitions. D changed its price zones when faced with entry of another superstore. So, a
small but significant increase in D’s price will not cause a significant number of consumers
to turn to non-superstore alternatives. Post-merger HHI could be 10,000 in some areas. D’s
current pricing practice shows that it has the ability to raise price above competitive levels.
Merger would eliminate significant future competition and an aggressive competitor, since
Ds are entering each other’s markets now.
o Practical indicia for determining the presence of a submarket : Superstores are in fact very
different in appearance, physical size, format, types of products, and type of consumers.
Industry and public recognize the submarket as a separate economic entity. D evaluates
only other superstores’ performance.
o Efficiency defense. D argues that post-merger cost will be lower and therefore price will
be lower. But it is unrealistic that D will pass cost savings to consumers. Historically, it
passed through only 15%.
 U.S. v. Waste Management, Inc., 2nd Cir. (1984): A post-merger market share of 48% is
sufficient to establish a prima facie case. Impact of merger on competition must take into

29
 account potential competition from firms not presently active in the market. Here, entry by
new firms is so easy that any anti-competitive impact of the merger would be eliminated
more quickly by competition than by litigation. Potential competitors may bid on contracts
before acquiring business facilities, so the risk of entry is low.

Vertical merger
 The question is whether a vertical merger would harm horizontal competition in upstream or
downstream markets.
o Extensive integration: entrant to one level may have to enter the other level
simultaneously. Then, vertically integrated firm can exclude new entrants.
o Vertical merger may facilitate horizontal collusion by making it easier to detect cheating
or by eliminating a disruptive buyer.
o More weight is given to efficiency defense than in horizontal merger.
 Input foreclosure: restrict downstream rival’s access to an important input. If the rival has no
substitute, its cost will rise.
 Customer foreclosure: restrict upstream rival’s access to a customer base. Downstream
rival’s cost rises because it is harder for rival to obtain input.
 O’Neill v. Coca-Cola Co., N. Dist. of Il (1987): Ds wants to acquire bottling facilities. P
argues that this will increase barrier to entry, increase interdependent pricing between Ds
(Coca and Pepsi). Court: P fails to show how elimination of competition between D and
bottler would increase price. Vertical merger may lead to economy of scale and reduce
prices.

30