what is antitrust/competition law? what is its purpose?
DESCRIPTION
What is antitrust/competition law? What is its purpose?. What is antitrust/competition law? What is its purpose?. Concerned with: Fears of concentrations of economic power in the hands of a few harmful effects of some forms of business cooperation misuse of “monopoly” power - PowerPoint PPT PresentationTRANSCRIPT
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What is antitrust/competition law? What is its purpose?
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What is antitrust/competition law? What is its purpose?
Concerned with:Concerned with:Fears of concentrations of economic power in Fears of concentrations of economic power in
the hands of a few the hands of a few harmful effects of some forms of business harmful effects of some forms of business
cooperationcooperationmisuse of “monopoly” powermisuse of “monopoly” power
Simultaneous rise of regulatory agencies Simultaneous rise of regulatory agencies and antitrust lawand antitrust law
National laws: 1800s through early 1900sNational laws: 1800s through early 1900s EU laws: 1980sEU laws: 1980s
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History of Antitrust
How did Standard Oil acquire market power?
John D. Rockefeller believed that monopoly was beneficial because it protected members of an industry from “destructive competition.” What does that “destructive competition” mean? Destructive to whom?
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• Market divisions
• Price fixing & bid rigging
• Predatory pricing
• Boycotts
• Tying arrangements
• Mergers
• Misuse of monopoly power
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Overview of Antitrust/Competition Laws
Antitrust/Competition laws place faith in Antitrust/Competition laws place faith in the market. the market.
EC Art. 81: EC Art. 81: prohibits agreements “which have as their object or effect the prevention, restriction or distortion of competition within the common market”
US Sherman Act: outlaws "every contract, combination . . . , or conspiracy, in restraint of trade"
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Economic definition of monopoly Economic definition of monopoly
vs.vs.Legal definition of monopolyLegal definition of monopoly
KEY: market power
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Market Power
“BAD” ACT
Collusion
Market share
Monopoly power in another market
Etc.
Power to increase prices above “competitive” price
Is the power to increase the market price sustainable?
Ease of entry to market
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Who decides what is “reasonable” or “unreasonable”?
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Who decides what is “reasonable” or “unreasonable”?
EU: European Comm’n Competition Directorate ECJ
US: FTC/Justice Dept US courts Private suits
Defining “harm” – “per se” vs. “rule of reason” violations
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Who decides what is “reasonable” or “unreasonable”?
Structural approach Chicago School IO approach
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Horizontal Agreements
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Horizontal Agreements Price Fixing and Bid Rigging
When competitors agree on the prices at which When competitors agree on the prices at which they will buy or sell, their price-fixing is a they will buy or sell, their price-fixing is a per seper se violation of EC Article 81 and §1 of the Sherman violation of EC Article 81 and §1 of the Sherman Act. Act. PharmacistsAirline ticket prices / retail gasoline pricesSports club ownersWorld steel market and the EUBeer distributors and credit termsTrade shows
Bid-rigging – public contractsBid-rigging – public contracts
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Horizontal Market Divisions Any effort by a group of competitors to divide Any effort by a group of competitors to divide
its market is a violation of EC Article 81 and its market is a violation of EC Article 81 and the Sherman Act Section 1.the Sherman Act Section 1.
Customer divisions:Customer divisions: By class (religion)By class (religion) Geographically (side of town)Geographically (side of town)
Supply divisions: Supply divisions: We won’t sell X in competition with you, if you don’t We won’t sell X in competition with you, if you don’t
sell Y in competition with us.sell Y in competition with us. E.g., two hardware stores in a small town agree E.g., two hardware stores in a small town agree
that one will not stock plumbing equipment while that one will not stock plumbing equipment while the other will not stock electrical equipmentthe other will not stock electrical equipment
OPEC production quotasOPEC production quotas
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Horizontal Market Divisions
What about joint ventures between What about joint ventures between competitors?competitors?
What about professional codes of What about professional codes of conduct: don’t these restrict conduct: don’t these restrict competition?competition?
What about franchising operations? What about franchising operations? Aren’t these geographic market Aren’t these geographic market divisions?divisions?
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Illegal Horizontal Agreements (cont’d)
Refusals to Deal / BoycottsRefusals to Deal / BoycottsConcerted refusals to deal vs. Concerted refusals to deal vs.
individual refusals individual refusals A refusal to deal violates the law if it A refusal to deal violates the law if it
harms competition.harms competition.South Improvement SchemeU.S. v. Hilton Hotels
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Illegal Competition: Tying Arrangements
Selling a product on the condition that Selling a product on the condition that the buyer also purchases a different (or the buyer also purchases a different (or tied) product. tied) product.
To determine if it is illegal, ask:To determine if it is illegal, ask:Are the two products clearly separate? Are the two products clearly separate? Is the seller requiring the buyer to purchase Is the seller requiring the buyer to purchase
the two products together?the two products together?Does the seller have significant power in the Does the seller have significant power in the
market for the tying product? market for the tying product? Is the seller shutting out a significant part of Is the seller shutting out a significant part of
the market for the tied product? the market for the tied product?
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Illegal Competition: Predatory Pricing
Predatory pricing occurs when a Predatory pricing occurs when a company lowers its prices below company lowers its prices below cost to drive competitors out of cost to drive competitors out of business. business.
The Walmart problem
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Illegal Competition: Predatory Pricing To prove predatory pricing, show:To prove predatory pricing, show:
The defendant is selling its products below cost.The defendant is selling its products below cost.The defendant intends that the plaintiff goes out The defendant intends that the plaintiff goes out
of business,of business, If the plaintiff does go out of business, If the plaintiff does go out of business, the
defendant will be able to earn sufficient profits to recoup its prior losses.
Bad intent is not enough; bad intent + fatal Bad intent is not enough; bad intent + fatal damage to competitor may not be enoughdamage to competitor may not be enough
Why have such a test for predatory pricing?
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Mergers and Joint Ventures
Horizontal MergersHorizontal MergersA horizontal merger involves companies that A horizontal merger involves companies that
compete in the same market. compete in the same market. FTC and European Commission halt/approve FTC and European Commission halt/approve
mergers, based on likely impact on competition:mergers, based on likely impact on competition:HHI as measure of market concentration: too as measure of market concentration: too
much concentration creates rebuttable much concentration creates rebuttable presumption of violationpresumption of violation
Herfindahl-Hirschman Index Calculator = sum of the squares of the market shares of firms in
industry. Threshold inquiry.
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Mergers and Joint Ventures
Horizontal MergersHorizontal Mergers
FTC and European Commission halt/approve FTC and European Commission halt/approve mergers, based on likely impact on competition:mergers, based on likely impact on competition:
HHI as measure of market concentration: too HHI as measure of market concentration: too much concentration creates rebuttable much concentration creates rebuttable presumption of violationpresumption of violation
What is market? What is market? Product market:Product market:Geographic marketGeographic market
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Hewlett-Packard / Compaq mergerProduct Market?
Geographic Market?
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Hewlett-Packard / Compaq mergerProduct Market?
Geographic Market?
Laptops PCs workstations
HHD
Access Devices?
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Hewlett-Packard / Compaq mergerProduct Market?
Market shares?
• Access devices?
• Entry level servers?
Geographic Market? EEA
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Office Depot/Staples MergerOffice Depot Staples Other office supply
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Mergers and Joint Ventures (cont’d)
Vertical MergersKey is foreclosure of opportunities for Key is foreclosure of opportunities for
non-merging firmsnon-merging firmsTime Warner – Turner Broadcasting
What makes this merger worrisome for What makes this merger worrisome for regulators?regulators?