Overview
S1/C3/S2
Conduct Summary
| Conduct | Per Se | ROR | S1/C3/S2 | Test (if not ROR/burden shifting) | Authority |
|---|---|---|---|---|---|
| Concerted action among competitors | |||||
| Price Fixing | Y | Y | S1 | ||
| Market division | Y | Y | S1 | Timken | |
| Exclusionary group boycotts | Y | Y | S1 | (1) agreement to exclude (2) market power (not necessary) (3) no procompetitive justification | Northwest Wholesale |
| Collusive group boycotts | Y | Y | S1 | Treat the same as price fixing; usually occurs with exclusionary group boycott | SCTLA |
| Joint ventures | N | Y | S1 | American Needle | |
| Facilitating practices (collective and unilateral) - also supports inference of agreement | |||||
| Information sharing | N | Y | S1/S2 | American Lumber | |
| MFN clauses | N | Y | |||
| Competitor price matching | N | Y | S1 | ||
| Exclusionary conduct | |||||
| Unilateral refusals to deal | S2 | (1) gains market power (2) breaks from past practice (3) sacrifice present profits | Trinko | ||
| Predatory pricing | N | N | S2 | (1) monopoly power (2) price below cost (3) dangerous probability of recoupment | Brooke Group |
| Predatory bidding | N | N | S2 | (1) monopsony power (2) price below cost (3) dangerous probability of recoupment | Weyerhaeuser |
| Attempted monopolization | N | N | S2 | (1) exclusionary conduct (2) specific intent to monopolize (3) dangerous probability of success | Spectrum Sports |
| Vertical across-brand restraints | |||||
| Tying (S1/C3) | Y | Y | S1/C3 |
| Jefferson Parish |
| Tying (S2) | N | Y | S2 | ROR: same as tying (S1) but with monopoly power for (2) | Jefferson Parish |
| Exclusive dealing | N | Y | S1/C3/S2 | ROR: forecloses a substantial share of the market (S1 > 40%, S2 > 70%) | Tampa Electric |
| Conditional pricing practices | N | N | S1/C3/S2 | Price-cost test: if the main driver of exclusion is price, then apply the Brooke Group test for predatory pricing; otherwise, apply Tampa Electric for exclusive dealing | ZF Meritor |
| Anti-steering | N | Y | S1/C3/S2 | ROR, but need indirect evidence in vertical markets and harm on both sides of market in 2-sided transaction platform markets (network effects) | American Express |
| Vertical within-brand restraints | |||||
| Minimum resale price | N | Y | S1 | Leegin | |
| Maximum resale price | N | Y | S1 | Khan | |
| Non-price restrictions | N | Y | S2 | Sylvania | |
| Exclusive distributorships | N | Y | Doman | ||
S1 Frameworks
- Per se (Socony): (1) agreement (2) restraint of trade (3) actual or high likelihood of anticompetitive effects (4) D has no cognizable procompetitive justification
- Abbreviated rule of reason (NCAA/IFD): (1) agreement (2) restraint of trade (3) actual or high likelihood of anticompetitive effects (4) D's plausible procompetitive justification demands further investigation but is weak or restraint is overbroad
- Horizontal rule of reason (Alston):
- P's prima facie case: (1) agreement (2) in restraint of trade (3) has high likelihood or actual anticompetitive effects
- D's rebuttal: substantive procompetitive justification for the restraint
- P's response: actual harm outweighs benefits or restriction not reasonably necessary to achieve the benefits
- Vertical rule of reason (American Express): same as horizontal, but need indirect evidence of harm
- In transaction platform markets: P must prove net harm on both sides of the platform market
Restraint evidence: nature, scope, and effect (CBT)
- Direct: increased price, reduced quantity/quality/variety/innovation, worse terms of credit, evidence of exclusion
- Indirect: market definintion, market shares, inference of market power, high barriers to entry (consider ROT in light of market power)
Agreement evidence:
- Type 1: indications of express collusion (improbable uniformity, frequent and unusual communication, sharp break from past behavior, history of collusion)
- Type 2: industry is conducive to collusion (industry features, history of coordination, adoption of facilitating practices, actions that only make sense if done jointly)
S2 Frameworks
- Burden shifting (Microsoft)
- P's PF case: (1) monopoly power (2) acquired, maintained, or enhanced by exclusionary conduct (Grinnell)
- D's rebuttal: procompetitive justification for the conduct
- P's response: harm outweighs benefits
- Attempted monopolization: (1) exclusionary conduct (2) specific intent to monopolize (3) dangerous probability of success
- Essential facility doctrine (refusals to deal, not really used): (1) control of essential facility (2) inability of competitor to reasonably duplicate (3) denial of use (4) feasibility of access
Market power
- Reasonably interchangeable for the same use (Du Pont)/submarkets (Brown Shoe)
- Hypothetical monopoolist: SSNIP (relative to competitive level)
Mergers
- C7 blocks mergers that may substantially lessen competition
- 2023 Merger Guidelines provide a very plausible interpretation of merger law
- Courts apply a burden shifting framework (PNB/Baker Hughes)
(1) P's prima facie case
Product and geographic market
- Du Pont (reasonably interchangeable): use, price, characteristics, adaptability, quality, cross-elasticity of demand
- Brown Shoe (submarkets, P friendly): (a) recognition of the submarket as a separate economic entity, (b) product's characteristics and uses, (c) unique production factilities, (d) distinct customers, (e) distinct prices, (f) sensitivity to price changes, and (g) specialized vendors
- Hypothetical monopolist (judges like this, note that this is consistent with the legal standard in Du Pont): SSNIP (relative to current, not competitive, level)
Market participants
- Entrants vs. market participants/have committed to enter market soon/rapid entrants (H&R Block)
Market shares
- What is the best measure? Sales, quantity sold, capacity (General Dynamics)
(a) Horizontal merger between competitors
- Undue concentration: HHI > 1,800 or market share greater than 30% after merger
- Significant increase: change in HHI > 100
(b) Horizontal merger between market participant and potential competitor (Meta)
- Actual potential competition: available feasible means of entering other than by acquisition and independent entry would produce procompetitive effects (de-concentration)
- For nonstandard case of entrant buying incumbent, generally try to answer the quetions of whether entry is "reasonably probable" (if not, no anticompetitive effect of merger)
(c) Vertical merger between complements (AT&T)
- P must establish a prima facie case that the merger is substantially likely to harm competition in the relevant market: show there is going to be some exclusion (look at markets of the acquired and acquiring firms)
- P cannot rely on concentration statistics but must make a "fact-specific" showing that the proposed merger is "likely to be anticompetitive"
(2) P's theories of harm
MG2: Unilateral competitive effects (horizontal) (Kraft)
- Consider: strategic deliberations or decisions; prior merger, entry, and exit events; customer substitution; impact of competitive actions on rivals; impact of eliminating competition between firms; additional evidence, tools, and metrics
- Metrics: diversion ratio, value of diverted sales, GUPPI (which can be divided by 2 to get the approximate price increase that would result from the merger, which can be compared to a SSNIP)
MG3: Coordinated competitive effects (horizontal or vertical) (HCA)
- Primary factors: highly concentrated market, prior actual or attempted attempts to coordinate, elimination of a maverick
- Secondary factors: market concentration, market observability, competitive responses, aligned incentives, profitability or other advantages from coordination, rebuttal based on structural barriers
MG5: Vertical mergers (merger of complements) (AT&T)
- Substantial foreclosure: consider exclusion in each merged market
MG6: Entrench or extend a dominant position (horizontal or vertical): usually looks like a tie (Microsoft)
- Extend: use power in one market to buy into a complementary market, extending power into a complementary market
- Entrench: reinforce power in one market by purchasing competitors from another market
(3) D's rebuttal
Basics (between Baker Hughes, where the industry was special, and Heinz/HCA, where the industries weren't special)
- P calculated the wrong shares (General Dynamics)
- The merger is unlikely to harm competition (Baker Hughes): easy entry (WM, not Heinz), expansion (Baker Hughes)
Entry and repositioning (WM)
- Timeliness (fast and durable), likelihood (certain), sufficiency (replace one of merging firms)
Procompetitive efficiencies (H&R Block)
- Merger specificity, verifiability (reasons for efficiencies), prevents reduction in competition (pass on to transaction partner), not anticompetitive
Failing firms (MG 3.1)
- Grave probability of a business failure, prospect of reorganization is dim or nonexistent, acquiring firm is the only available purchaser