Exemptions

Exemptions: there are many exemptions where the antitrust law doesn’t apply

Those areas are organized in a different way (see, e.g., Capper-Volstead Act and the agricultural economy)

• Left response: this is an effective use of industrial policy to organize agriculture
• Right response: these are the areas where regulation is causing issues

Appendix

S1/S2/C3 Issue Spotter Structure

General approach:

• P’s arguments

Identify the provisions P can bring its claim under (S1/C3/S2)

Identify each element of each provision: dispose of obvious elements immediately, flag elements that need explanation/overlap with other provisions

• S1/C3: unreasonable restraint of trade
  • Agreement: express vs. inferred
  • Restraint of trade: collusion or exclusion
  • Harm or high likelihood of anticompetitive effects
• S2: monopolization/attempted monopolization
  • Power: market definition
  • Conduct: exclusion

Consider each ROT/conduct element in turn, noting which provisions apply and relevant authority

• Consider each applicable type of analysis:
  • Per se
  • Abbreviated rule of reason
  • Full rule of reason: P’s PF case + harm or high likelihood of anticompetitive effects
  • Edge cases (e.g., Brooke Group for predatory pricing)
• D’s arguments:
• Go category by category and provide D’s arguments, addressing only those points that D has nonfrivolous arguments against
• At the end of each response, state what the court would hold

Conduct List:

(1) Price fixing: S1 (per se/ROR)

(2) Market division: S1 (per se/ROR)

(3) Concerted refusals to deal (exclusionary and collusive group boycotts): S1 (per se/ROR)

• Per se: exclusionary conduct, market power (optional), no procompetitive justification

(4) Joint ventures: S1 (typically ROR)

(5) Information sharing: S1 (per se/ROR)

(6) Unilateral facilitating practices: S2 (attempted monopolization)

(7) Unilateral refusal to deal: S2

• Gains market power, breaks from past practice, and sacrifices present profits

(8) Predatory pricing: S2

• Proof of monopoly power and conduct (pricing below cost and dangerous probability of recoupment)

(9) Predatory bidding: S2

• Proof of monopoly power and conduct (pricing below cost and dangerous probability of recoupment)

(10) Attempted monopolization: S2

• Exclusionary conduct, specific intent to monopolize (can infer), and dangerous probability of success (proof of likely harm)

(11) Tying: per se/ROR under S1/C3, ROR under S2 (but carveouts common)

• Per se: products are sold separate, market power in the tying product, coercion, more than minimum amount of commerce
• ROR: P’s PF case of separate products + market/monopoly power in tying market + coherent economic theory of exclusion; D provide procomp. justifications

(12) Exclusive dealing: S1/C3/S2 ROR (no per se)

• ROR: P’s PF case of substantial foreclosure (~40%) (and sometimes harm); D shows procomp. benefits or P overstates anticompetitive potential
• Monopoly power: S2 requires, S1/C3 doesn’t

(13) Conditional pricing practices: S1/C3/S2 (predatory pricing or exclusive dealing)

• Price-cost test (price driving force, apply predatory pricing); exclusive dealing if not

(14) Anti-steering/most-favored nation clauses:

• ROR: P’s PF case need indirect evidence of harm, show harm on both sides of two-sided transaction platform market; D show procompetitive rationale; procompetitive efficiencies could be achieved through less anticompetitive means

(15) Minimum resale price: S1 (ROR, legal most of the time)

(16) Maximum resale price: S1 (ROR, legal most of the time)

(17) Non-price exclusions: S2 (ROR, legal most of the time)

(18) Exclusive distributorships: (presumptively lawful, almost always legal)

(19) Petitioning: SA doesn’t apply unless sham exception

• Sham exception: sham conduct + abuse of process (severe standard)

(20) Non-price exclusion

C7 Issue Spotter Structure

General approach

Copy in merger skeleton (see below)

Read hypo and place relevant facts into skeleton

• TEMPLATE

C7 blocks mergers that may substantially lessen competition. In P’s PF case, they must show that the market after the merger will be unduly concentrated and that the merger will cause a significant increase in concentration (PNB). A successful PF case will shift creates a rebuttable presumption that D must respond to by showing that P calculated the wrong shares (General Dynamics) or that the merger is unlikely to harm competition (Baker Hughes).

P’s prima facie case

Product and geographic market

• Du Pont (reasonably interchangeable)/Brown Shoe (submarkets)
• Hypothetical monopolist

Market participants

• Entrants vs. non-entrants

Market shares

• What is the best measure?

Concentration and PNB elements

• Undue concentration: HHI > 1800 OR market share greater than 30% after merger
• Significant increase: change in HHI > 100

P’s theory of harm

Unilateral competitive effects

• 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

Coordinated competitive effects

• Primary and secondary factors
  • Primary: highly concentrated market, prior actual or attempted attempts to coordinate, elimination of a maverick
  • Secondary: market concentration, market observability, competitive responses, aligned incentives, profitability or other advantages from coordination, rebuttal based on structural barriers

Vertical mergers (merger of complements)

• Substantial foreclosure: consider exclusion in each merged market

Eliminate a potential entrant

• Actual potential competition: available feasible means of entering other than by acquisition and independent entry would produce procompetitive effects (de-concentration)
• Perceived potential competition: characteristics of perceived potential entrant and prevented anticompetitive behavior by market participants
• For nonstandard case of entrant buying incumbent, generally try to answer the question of whether entry is “reasonably probable” (if not, no anticompetitive effect of merger)

Entrench or extend a dominant position: usually looks like a tie

• Extend: use power in one market to extend into a complementary market
• Entrench: reinforce power in one market by purchasing competitors from another market

D’s rebuttal

Basics

• P calculated the wrong shares (General Dynamics)
• The merger is unlikely to harm competition (Baker Hughes)

Entry and repositioning

• Timeliness (fast and durable), likelihood (certain), sufficiency (replace one of merging firms)

Procompetitive efficiencies

• Merger specificity, verifiability, prevents reduction in competition, not anticompetitive

Failing firms

• Grave probability of a business failure, prospect of reorganization is dim or nonexistent, acquiring is the only available purchaser
• Doctrinal framework for horizontal mergers (shifting burden of production):

(1) P must make a prima facie case that the merger will lead to (PNB, use HHI):

• (a) Undue concentration (post-merger HHI > 1800) AND
• (b) A substantial increase in concentration in a particular product and geographic market (change in post-merger HHI > 100)
• (c) Theory of harm: explain why the merger is likely to lessen competition
  • Look at 2023 Merger Guidelines 2-6
    • Big three are unilateral competitive effects (2), coordinated competitive effects (3), and mergers between complements (vertical mergers) (5)

(2) D can rebut the presumption that the merger is anticompetitive (hard to do) by showing that the prima facie case inaccurately predicts the transaction’s probable effect on future competition (between Baker Hughes, where the industry was special, and Heinz/HCA, where the industries weren’t special) – either

• (a) P calculated the wrong shares (General Dynamics) OR
• (b) even if the shares are correct, the merger is unlikely to harm competition (Baker Hughes) because the market is (i) easy to enter or (ii) there is some procompetitive justification for the merger (e.g., substantial efficiencies, failing firms)

(3) P must then provide additional evidence of likely anticompetitive effects (Baker Hughes)

• (a) Collusion: coordinated competitive effects
  • 2023 guidelines look to “primary” and “secondary” factors (analogous to Type 2 factors under S1) to how likelihood of competitive harm – identify factors that help P/D, weigh and decide
• (b) Exclusion: unilateral competitive effects
• Note that as a matter of practice, P presents a theory of anticompetitive harm alongside their PF case (even though it isn’t required by the black letter law)

Calculating concentrations (HHI) for (1):

(1) Define a relevant product and geographic market

• (a) Look at reasonably interchangeable by consumers for the same purposes (Du Pont) and submarkets (Brown Shoe), where factors for submarkets include:
  • (a) recognition of the submarket as a separate economic entity, (b) product’s characteristics and uses, (c) unique production facilities, (d) distinct customers, (e) distinct prices, (f) sensitivity to price chances, and (g) specialized vendors
• (b) Alternatively (and preferably for most courts), look at a hypothetical monopolist test: starting narrow and expanding larger, could a hypothetical monopolist profitably raise prices by 5-10% (SSNIP or SSNIPT)?

(2) Identify market participants: (i) currently earn revenue in a market, (ii) have committed to enter a market soon, (iii) “rapid entrants”

(3) Calculate market shares: typically based on sales, but other metrics (e.g., quantity sold, capacity) may be used

(4) Calculate HHIs: sum of squared market shares

• Note that P’s prima facie case requires indirect evidence in the form of market concentrations, which is different from other areas of antitrust