ANTITRUST LAW AND ECONOMICS ENCYCLOPEDIA OF LAW AND ECONOMICS, SECOND EDITION General Editor: Gerrit De Geest School of Law, Washington University, St Louis, MO, USA Tort Law and Economics Edited by Michael Faure Labor and Employment Law and Economics Edited by Kenneth G Dau-Schmidt, Seth D Harris and Orly Lobel Criminal Law and Economics Edited by Nuno Garoupa Antitrust Law and Economics Edited by Keith N Hylton Future titles will include: Procedural Law and Economics Edited by Chris William Sanchirico Regulation and Economics Edited by Roger Van den Bergh Contract Law and Economics Edited by Gerrit De Geest Methodology of Law and Economics Edited by Thomas S Ulen Property Law and Economics Edited by Boudewijn Bouckaert Corporate Law and Economics Edited by Joseph A McCahery and Erik P.M Vermeulen Production of Legal Rules Edited by Francesco Parisi Intellectual Property Law and Economics Edited by Ben Depoorter For a list of all Edward Elgar published titles visit our site on the World Wide Web at http://www.e-elgar.co.uk Antitrust Law and Economics Edited by Keith N Hylton Honorable Paul J Liacos Professor of Law, Boston University School of Law, USA ENCYCLOPEDIA OF LAW AND ECONOMICS, SECOND EDITION Edward Elgar Cheltenham, UK • Northampton, MA, USA © The Editor and Contributors Severally 2010 All rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc William Pratt House Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009940635 ISBN 978 84720 731 02 Printed and bound by MPG Books Group, UK Contents List of figures and tables List of contributors Preface 10 11 vi vii xi The economics of antitrust enforcement Daniel A Crane Facilitating practices and concerted action under Section of the Sherman Act William H Page The law of group boycotts and related economic considerations Jeffrey L Harrison The economics of monopoly power in antitrust Roger D Blair and Celeste K Carruthers The law and economics of monopolization standards Keith N Hylton The law and economics of predatory pricing Bruce H Kobayashi The essential facilities doctrine Thomas F Cotter Antitrust analysis of tying arrangements and exclusive dealing Alden F Abbott and Joshua D Wright Vertical restraints, competition and the rule of reason Shubha Ghosh Market concentration in the antitrust analysis of horizontal mergers Jonathan B Baker Patent litigation, licensing, nonobviousness, and antitrust Michael J Meurer Index 23 46 64 82 116 157 183 213 234 261 281 v Figures and tables Figures 1.1 DOJ cases filed per five-year period 4.1 Social welfare under perfect competition 4.2 Monopoly price and output 4.3 Monopoly pricing, by elasticity of demand 4.4 Profit maximization for a dominant firm 5.A1 Welfare tradeoffs diagram 11.1 The social planner’s problem 66 68 70 72 114 269 Tables 6.1 Duopoly equilibrium outcomes 6.2 Summary 136 138 vi Contributors Alden F Abbott rejoined the Federal Trade Commission (FTC) in 2001 from the Commerce Department where he had served since 1994, most recently as Acting General Counsel His previous career highlights include serving as an attorney advisor in the FTC’s Office of Policy Planning, senior positions in the Departments of Justice and Commerce, and Associate Dean for Technology Policy at George Mason University Law School He received his JD from Harvard University Law School, his MA from Georgetown University, and his BA from the University of Virginia Jonathan B Baker is Professor of Law at American University’s Washington College of Law, where he teaches courses primarily in the areas of antitrust and economic regulation From 1995 to 1998, Professor Baker served as the Director of the Bureau of Economics at the Federal Trade Commission Previously, he worked as a Senior Economist at the President’s Council of Economic Advisers, Special Assistant to the Deputy Assistant Attorney General for Economics in the Antitrust Division of the Department of Justice, an Assistant Professor at Dartmouth’s Amos Tuck School of Business Administration, an Attorney Advisor to the Acting Chairman of the Federal Trade Commission, and an antitrust lawyer in private practice He is the co-author of an antitrust casebook, a past Editorial Chair of Antitrust Law Journal, and a past member of the Council of the American Bar Association’s Section of Antitrust Law Professor Baker has published widely in the fields of antitrust law and policy and industrial organization economics In 2004 he received American University’s Faculty Award for Outstanding Scholarship, Research, and Other Professional Accomplishments, and in 1998 he received the Federal Trade Commission’s Award for Distinguished Service Roger D Blair is the Walter K Matherly Professor of Economics at the University of Florida He has written many journal articles dealing with antitrust matters and has co-authored Antitrust Economics, Monopsony in Law & Economics, Law and Economics of Vertical Integration and Control, The Economics of Franchising, and Proving Antitrust Damages He received his PhD in Economics from Michigan State University in 1968 and has been on the faculty at the University of Florida since 1970 vii viii Antitrust law and economics Celeste K Carruthers is an assistant professor in the Department of Economics at the University of Tennessee She is an affiliated researcher with the Center for Business and Economic Research at the University of Tennessee and the National Center for Analysis of Longitudinal Data in Education Research at the Urban Institute in Washington, D.C She holds a PhD in Economics from the University of Florida (2009), and her dissertation research on charter school teachers has won awards from the University of Florida Department of Economics and the American Education Finance Association Her research interests include, broadly, the economics of education, public finance, antitrust economics, regulation, and intersections therein She has written for the Antitrust Bulletin and taught antitrust economics and public expenditure analysis at the University of Florida and the University of Tennessee Thomas F Cotter is the Briggs and Morgan Professor of Law at the University of Minnesota Law School He received his BS and MS degrees in economics from the University of Wisconsin-Madison, and graduated magna cum laude from the University of Wisconsin Law School His principal research and teaching interests are in the fields of domestic and international intellectual property law, antitrust, and law and economics He is the co-author, with Roger D Blair, of Intellectual Property: Economic and Legal Dimensions of Rights and Remedies He has authored or coauthored more than 25 other scholarly publications, including articles in the California Law Review, Georgetown Law Journal, and Minnesota Law Review Daniel A Crane, Professor of Law at the University of Michigan, teaches contracts, antitrust, and antitrust and intellectual property His recent scholarship has focused primarily on antitrust and economic regulation, particularly the institutional structure of antitrust enforcement, predatory pricing, bundling, and the antitrust implications of various patent practices His work has appeared in the University of Chicago Law Review, the California Law Review, the Michigan Law Review, and the Cornell Law Review, among other journals He is the co-editor, with Eleanor Fox, of the Antitrust Stories volume of Foundation Press’s Law Stories series, and has a book on the institutional structure of antitrust enforcement forthcoming from Oxford University Press An editor of the Antitrust Law Journal since 2005 and a member of the American Antitrust Institute’s Advisory Board, he also serves as counsel in the litigation department of Paul, Weiss, Rifkind, Wharton & Garrison of New York Shubha Ghosh is a Professor of Law and an Honorary Fellow, and Associate Director, INSITE, at the University of Wisconsin, Madison He Contributors ix writes and teaches in the areas of intellectual property, competition law and policy, international intellectual property, tort law, and law and economics He holds a JD from Stanford, a PhD (economics) from Michigan, and a BA from Amherst College Jeffrey L Harrison holds the Stephen C O’Connell Chair and is Professor of Law at the College of Law, Gainesville, Florida He holds a JD degree from the University of North Carolina and a PhD in Economics from the University of Florida He is the co-author of, with Jules Theeuwes, Law and Economics; with Roger Blair, Monopsony Law and Economics; and with E.T Sullivan, Understanding Antitrust and its Economic Implications His principal teaching interests are contract law, copyright law, antitrust and law and economics Keith N Hylton is the Honorable Paul J Liacos Professor of Law at Boston University, where he teaches courses in antitrust, torts, and employment law He has published numerous articles in American law journals and peer-reviewed law and economics journals His textbook, Antitrust Law: Economic Theory and Common Law Evolution, was published in 2003 He serves as Co-editor of Competition Policy International and Editor of the Social Science Research Network’s Torts, Products Liability and Insurance Law Abstracts He is a former chair of the Section on Antitrust and Economic Regulation of the American Association of Law Schools, a former director of the American Law and Economics Association, and a member of the American Law Institute Bruce H Kobayashi is Professor of Law at George Mason University School of Law He has previously served as a Senior Economist in the Division of Economic Policy Analysis of the Federal Trade Commission, and has served as a Senior Research Associate at the United States Sentencing Commission, and as an Economist for the Antitrust Division of the US Department of Justice He received his PhD and MA in Economics, and his BS in Economics-System Science, all from the University of California, Los Angeles Michael J Meurer is the Michaels Faculty Scholar and Professor of Law at Boston University He researches and teaches patent law, law and economics, antitrust law, copyright law, contract law and regulation Before joining BU Law he was an economics professor at Duke University and later a law professor at the University at Buffalo He also taught short courses in American intellectual property law at the law faculties of the University of Victoria and the National University of Singapore He received his PhD in economics and JD from the University of Minnesota Professor Meurer has received numerous grants and fellowships, including 284 Antitrust law and economics false positives, false negatives and administrative costs, minimizing 171‒2 Fishman v Estate of Wirtz 178 and forced access 171 Gamco, Inc v Providence Fruit & Produce Bldg., Inc 161 Hecht v Pro-Football, Inc 174, 176 IMS Health GmbH v NDC Health GmbH 165‒6, 168, 173‒4 and intellectual property rights (IPRs) 163‒7, 168, 169‒70, 173‒4 Intergraphic Corp v Intel Corp 162 International Audiotext Network, Inc v Am Tel & Tel Co 174 Jamsports & Enter LLC v Paradama Prods., Inc 176 Lorain Journal Co v United States 175 low marginal cost undertaking 170‒71 lower court decisions 161‒2 and market power 159 MCI Communications Corp v AT&T 161‒2 Microsoft v Commission 167‒8 monopoly and refusal to deal 159‒61, 172 Oskar Bronner GmbH v Mediaprint 165, 166‒7 Otter Tail Power Co v United States 159‒60, 161, 170 overview 158‒68 and price fixing 158‒9 refusal to grant access to indispensible product 166‒7, 172‒3 role of 157‒8 RTE and ITP v Commission (Magill II) 164‒5, 166, 168, 173‒4 scholarly commentary 169‒74 as second-best solution 170‒71 shared access rule 170‒71 and Sherman Act, Section 159‒60, 161, 172, 176 and social welfare increase 169, 170, 171‒2 software and refusal to license ‘interoperability information’ 167‒8 symmetric duopoly with two vertically integrated firms 165 Texaco, Inc v Dagher 174 Trinko (Verizon Communications Inc v Law Offices of Curtis V Trinko) 160‒61, 169 Twin Labs., Inc v Weider Health & Fitness 175‒6 United States v Griffith 175 United States v Terminal Railroad Association 158‒9, 160 upstream monopolist eliminating downstream competition 162, 172‒3 and US Supreme Court decisions 158‒61 Europe AB Volvo v Erik Veng (UK) Ltd 163‒4 Attheraces Ltd v British Horseracing Board Ltd 167, 179 Commercial Solvents 163 competition and free trade agreement 229 competition policy 228‒9 Consten and Grundig v Commission 231 EC Treaty, Article 81 227, 228‒9 EC Treaty, Article 82 82, 162‒3, 166, 167, 168 and essential facilities doctrine 157‒8 IMS Health GmbH v NDC Health GmbH 165‒6, 168, 173‒4 Microsoft v Commission 167‒8 and minimum resale price maintenance 229 Oskar Bronner GmbH v Mediaprint 165, 166‒7 RTE and ITP v Commission (Magill II) 164‒5, 166, 168, 173‒4 vertical agreement exemptions 227‒8 vertical restraints 216, 227‒9 Evans, D 111, 129, 204, 205 Evans, W 253, 255 exclusive dealing and tying arrangements, antitrust analysis of 183‒212 Index 3M Co v LePage’s Inc 203 Barry Wright v ITT Grinnell 199 Brooke Group Ltd v Brown & Williamson Tobacco Corp 199 bundling and loyalty discounts 185‒6 Cascade Health Solutions v Peace Health 203 category management contracts and exclusive dealing 198 CDC Techs., Inc IDEXX Labs, Inc 207 choice provision costs 190 and Clayton Act, Section 192 Coca-Cola Co v Harmar Bottling Co 200 competitive harm theories and exclusive dealing 194‒6 competitive harm theories and tying and bundling 187‒9 Concord Boat Corp v Brunswick Corp 199, 207 and consumer welfare 187‒9, 191, 194, 198, 200 contract duration effects and exclusive dealing 193‒4 coordination problems between buyers and anti-competitive exclusion 195‒6 dealer free-riding and exclusive dealing 197, 198 dealer loyalty and exclusive dealing 197 Dehydrating Process Co v A.O Smith Corp 202 downstream competition and exclusive dealing 195‒6 economic analysis of exclusive dealing 194‒200 economic analysis of tying and bundling 186‒91 economies of scale and exclusive dealing 196 El Aguila Food Products v Gruma 200 empirical evidence and exclusive dealing 198‒200 empirical evidence and tying and bundling 190‒91 exclusive dealing 191‒200 285 Fox Motors, Inc v Mazda Distribs (Gulf), Inc 202 FTC v McCormick 199, 200, 208 Hendricks Music Co v Steinway, Inc 208 Illinois Tool Works v Independent Ink 202 International Salt Co v United States 184, 203 Jefferson Parish Hosp Dist No v Hyde 184, 185, 192 Joyce Beverages v Royal Crown Co 197 Leegin Creative Leather Products, Inc v PSKS, Inc 203 legal analyses of tying and bundling 184‒6 legal analysis of exclusive dealing 191‒4 LePage’s v 3M 185, 195, 203 Lorain Journal Co v United States 192 loyalty discounts and exclusive dealing 198‒200 and market power 184, 187, 193 Menasha Corp v News Am Mktg In-Store, Inc 206 monopolist capturing producer’s profits 188 Mozart Co v Mercedes-Benz of N Am., Inc 202 N Pac Ry Co v United States 201 Nat’l Collegiate Athletic Ass’n v Bd of Regents 202 Omega Envtl Inc v Gilbarco, Inc 207 ‘one monopoly profit argument’ and tying and bundling 187‒8 Ortho Diagnostic Systems v Abbott Labs 203 Paddock Publ’ns., Inc v Chicago Tribune Co 206, 207 and per se rules 184‒5, 186 and preservation of insecure monopoly 188 procompetitive efficiencies and exclusive dealing 196‒8 procompetitive efficiencies and tying and bundling 189‒90 286 Antitrust law and economics production costs and tying in single bundle 189‒90 retail conspiracy, distribution access denied 195 R.J Reynolds Tobacco Co v Philip Morris Inc 193‒4, 199, 200 Roland Mach Co v Dresser Indus 197, 207 rule of reason analysis and exclusive dealing 193 rule of reason analysis and tying and bundling 186 Ryko Manufacturing Co v Eden Services 197 and Sherman Act 185, 192, 194 Standard Fashion Co v MagraneHouston Co 192 Standard Oil Co v United States 184, 192 supplier access to the retailer’s loyal customer base and exclusive dealing 198 Tampa Electric Co v Nashville Coal Co 192 technology exception to per se rule 185 Thompson Everett, Inc v Nat’l Cable Adver 207 tying and bundling arrangements 183‒91 United Shoe Machinery Corp v United States 192 United States Steel Corp v Fortner Enterprises (Fortner II) 184 United States v Dentsply Int’l, Inc 197 United States v Jerrold Elecs Corp 202 United States v Loew’s, Inc 185, 201 United States v Microsoft Corp 185, 202, 204 United States v Paramount Pictures, Inc 203 US Healthcare, Inc v Healthsource, Inc 207 US Philips Corp v Int’l Trade Comm’n 202 and vertical restraints 191 Wells Real Estate, Inc v Greater Lowell Bd of Realtors 202 F Hoffman–La Roche Ltd v Empagram S.A 108 Farrell, J 255, 256, 275 Fashion Originators’ Guild v Federal Trade Commission 56‒7, 58, 61 Faull, J 108 Federal Trade Commission v Cement Institute 33, 36, 40 Federal Trade Commission v H.J Heinz Co 236 Federal Trade Commission v Indiana Federation of Dentists 51‒2, 61 Federal Trade Commission v McCormick 199, 200, 208 Fisher, F 80 Fishman v Estate of Wirtz 178 In re Flat Glass 39 Fortner II (United States Steel Corp v Fortner Enterprises) 184 Fox Motors, Inc v Mazda Distribs (Gulf), Inc 202 Friedman, J 278 Frischmann, B 172 Froeb, L 255 Fudenberg, D 121 Fumagalli, C 196, 207 Gallini, N 262, 275 Gamco, Inc v Providence Fruit & Produce Bldg., Inc 161 Gandhi, A 256 Gavil, A 111 GE/Agfa example, horizontal mergers 248‒9 Genesove, D 40, 127, 255 Ghosh, Shubha 213‒33 Gilbert, R 261 Glazer, K 206 Goldfarb et al v Virginia State Bar 61 Goldman, L 37 Gomez, R 128 Graham v John Deere Co 272 Granitz, E 150, 207 Green, E 252 Green, J 261, 276 Greve, M 18 Griffin, C 91 Grimes, W 202, 230 group boycotts law 46‒63 Index and access denial to suppliers or customers 46‒7 and ancillary restraints doctrine 49 Associated Press v United States 53, 61‒2 Blalock v Ladies Professional Golf Association 50 Broadcast Music, Inc v Columbia Broadcasting System 49 Business Electronics v Sharp 57‒8 clothing design protection 56‒7 and competition regulation among participating firms 46 and consumer welfare 47‒9, 50, 51‒3 Deesen v Professional Golfers’ Association (PGA) 50, 61 Eastern States Retail Lumber Dealers’ Association v United States 55‒6 economic perspectives on 47‒9 Fashion Originators’ Guild v Federal Trade Commission 56‒7, 58, 61 Federal Trade Commission v Indiana Federation of Dentists 51‒2, 61 ‘forbidden category’ and reasonable argument 57‒8 Goldfarb et al v Virginia State Bar 61 horizontal agreement injuring competitor 54, 57‒8, 59 intellectual property and increase in consumer welfare 48‒9 Jefferson Parish Hosp Dist No v Hyde 61 Klor’s Inc v Broadway-Hale Stores, Inc 57‒8 member expulsion due to ownership change 53‒5 Molinas v National Basketball Association 61 Neeld v National Hockey League 47‒8 non-regulatory boycotts 55‒9 Northwest Wholesale Stationers v Pacific Stationery and Printing Co 51, 53‒5, 58, 59, 61, 62 Paramount Famous Lasky Corp v United States 60 Powell v National Football League 61 287 product necessity boycotts 51 and product quality 49 and professional qualifications 52 and profits 49 regulatory boycotts 49‒55 and rule of reason 54 and Sherman Act, Section 46 Silver v New York Stock Exchange 52‒3 Smith v Pro Football, Inc 51 and sports teams 50‒51 Toys ‘R’ Us v Federal Trade Commission 58‒9 United States v Addyston Pipe & Steel Co 37, 49 and vertical agreements 58‒9 Gurrea, S 37 Haddock, D 37 Hahn, R 18 Hanover Shoe Inc v United Shoe Machinery Corp 13‒14 Hanssen, F.A 201 Hanssens, D 231 Harrison, Jeffrey L 46‒63, 128 Hart, D 231 Hawaii v Standard Oil Co 18 Hay, G 37, 40, 130, 139 Hazlett, T 127 Hecht v Pro-Football, Inc 174, 176 Heide, J 198 Heidt, R 61 Hemphill, C 117, 141 Hendricks Music Co v Steinway, Inc 208 Herfort, J 141 In re High Fructose Corn Syrup Antitrust Litig 38 Holiday Wholesale Grocery Co v Philip Morris Inc 40, 41, 42 Holmes v Securities Investor Protection Corporation 19 Holt, C 37 horizontal agreements facilitating practices and concerted action 27, 32‒4 injuring competitor, group boycotts law 54, 57‒8, 59 horizontal mergers, analysis of market concentration in 234‒60 288 Antitrust law and economics Brown Shoe Co v United States 251 cartels and cheating, deterrence of 240‒43, 244 cartels and consensus 239‒40 cartels and market concentration, benefits of 240, 242‒3 cartels and price-fixing 239, 243 and Clayton Act, Section 235, 236 competitive effects 238‒49 coordinated competitive effects 238‒45 differentiated product industry, competitive effects of 245‒9 Federal Trade Commission v H.J Heinz Co 236 GE/Agfa example 248‒9 Herfindahl–Hirschman Index (HHI) as market concentration measure 238 market concentration in legal framework for merger analysis 235‒6 market concentration measurement 238 market definition role and market concentration 237, 249 maverick firms and merger analysis 243‒5 and Sherman Act, Section 239 unilateral competitive effects 245‒9 unilateral competitive effects and consumer choice 248 unilateral competitive effects and price constraint removal 246‒7, 249 United States v Baker Hughes, Inc 235‒6 United States v General Dynamics Corp 235 United States v Pabst Brewing Co 251 United States v Philadelphia National Bank 235, 236 United States v Von’s Grocery Co 251 Whirlpool/Maytag example 248 Hovenkamp, H 17, 18‒19, 139, 141‒51 passim, 162, 169, 171‒9 passim, 193, 202, 206 Hurwicz, J 139 Hylton, Keith 17, 20, 37, 82‒115, 161, 169, 174‒5, 178, 179, 230 Illinois Brick Co v Illinois 13‒14 Illinois Tool Works v Independent Ink 80, 202 IMS Health GmbH v NDC Health GmbH 165‒6, 168, 173‒4 In re Baby Food Antitrust Litig 39 In re Citric Acid Litig 42 In re Flat Glass 39 In re High Fructose Corn Syrup Antitrust Litig 38 In re Petroleum Prods Antitrust Litig 42 Information Resources, Inc v Dun & Bradstreet Corp 152 intellectual property law and essential facilities doctrine 163‒7, 168, 169‒70, 173‒4 and increase in consumer welfare 48‒9 and vertical restraints, parallels between 215, 220, 226 see also patent litigation International Audiotext Network, Inc v Am Tel & Tel Co 174 International Salt Co v United States 184, 203 Ippolito, P 231 Isaac, R 128 Jacobson, J 202, 206 Jacquemin, A 38, 40, 252 Jamsports & Enter LLC v Paradama Prods., Inc 176 Jefferson Parish Hosp Dist No v Hyde 61, 184, 185, 192 Joskow, P 129, 131 Joyce Beverages v Royal Crown Co 197 JTC Petroleum Co v Piasa Motor Fuels, Inc 35‒6, 38 Jung, Y 128‒9 Kahai, S 79 Kahn, A 88‒9, 90, 111 Kalven, H 17 Kaplow, L 206, 229, 253, 276 Kaserman, D 78 Kattan, J 37 Index Katz, M 262 Kauper, T 19 Kay, J 231 Kellogg 80 Kenney, R 201 Kessides, I 255 Kessler, D 205, 214 Kestenbaum, L 37 Kitch, E 276 Kitti, C 276 Klein, B 126, 150, 197, 200, 201, 206, 207, 208, 221 Klemperer, P 261 Klevorick, A 117, 129, 131 Klor’s Inc v Broadway-Hale Stores, Inc 57‒8 Kobayashi, Bruce H 80, 116‒56, 202, 204, 208 Kolasky, W 202 Koller, R 119, 125, 138, 139 Kovacic, W 17, 39, 40, 139 Krattenmaker, T 78, 110, 207 Kreps, D 39, 122, 128‒9 Kuhn, K.-U 253, 254 Lambert, T 143, 149, 208 Lande, R 40 Landes, W 17, 61, 79 Lao, M 108 Layne-Farrar, A 18 LeBlanc, G 121 Leddy, M 162, 173, 179 Leegin Creative Leather Products, Inc v PSKS, Inc 33‒4, 64, 203, 213, 214‒15, 216‒27 LePage’s v 3M 147‒8, 149, 185, 195, 203 Lerner, A 68‒70, 73, 74, 197, 208 Lerner, J 126 Leslie, C 37, 40 Letwin, W 108 Levenstein, M 254 Levin, R 126‒7 Lipsky, A 109, 173, 174, 206 Longdin, L 167, 177 Lopatka, J 40, 144, 175, 179 Lorain Journal Co v United States 175, 192 Lott, J 126, 127‒8 Lyon, T 37 289 McAfee, P 19 McChesney, F 17 McGahee v Northern Propane Gas Co 151 McGee, J 118, 119, 130, 139, 150, 151 McGowan, D 175, 179 McGowan, J 80 McKenzie-Willamette Hospital v Peace Health 152 Magill II (RTE and ITP v Commission) 164‒5, 166, 168, 173‒4 Maple Flooring Mfg Assn v United States 41 Marquardt, P 162, 173, 179 Marvel, H 40, 208, 221 Marx, L 124 Mason, E 91, 92, 110‒11 Mathewson, F 221 Matsushita Elec Indus Co v Zenith Radio Corp 17, 27, 30, 33, 34, 108, 117, 139‒40, 144, 151 MCI Communications Corp v AT&T 161‒2 Meese, A 224 Melamed, A 90‒91, 97, 109 Menasha Corp v News Am Mktg In-Store, Inc 206 mergers, horizontal see horizontal mergers, analysis of market concentration in Merges, R 276 Meurer, Michael J 261‒77 Microsoft v Commission 167‒8 Milgrom, P 121, 122, 123‒4 Miller, J 127 Miller v Hedlund 41 Mills, D 125, 141 Milne, R 39 MindGames, Inc v Western Publ’g Co 20 Molinas v National Basketball Association 61 monopolization standards, law and economics of 82‒115 ‘abuse standard’ 84 Alcoa (United States v Alum Co of America) 85‒6, 87, 88, 105 American Federation of Tobacco Growers v Neal 106 290 Antitrust law and economics anticompetitive act, defining 98 Aspen Skiing Co v Aspen Highlands Skiing Corp 86‒7, 108, 109 assessment in light of error 100‒107 Associated Press v United States 99 balancing test approach 85‒7 baseline probabilities and ex post error rates 104‒5 Brooke Group Ltd v Brown & Williamson Tobacco Corp 86, 90, 105, 109 common law background 84 consumer harm test 93, 94‒5, 98, 100‒101, 105, 106 Covad Communications Co v Bell Atlantic Corp 109 Darcy v Allen 84 and distribution of error costs 83 dominant firm changing product design to enhance competition 98, 102‒3 Eastman Kodak Co v Image Technical Services 108 efficiency measurement 11, 90, 95‒6, 97‒8, 99‒100, 104, 106 equally-efficient-competitor test 89, 99‒100 error costs and market constraints 102‒3, 105‒6 and error probabilities in antitrust 89 errors and biases, types of 100‒102 ‘essential facilities’ 86‒7, 106 and European Community Treaty, Article 82 82 exclusionary act and efficiency 90 exclusivity contract example 93‒4, 96‒7, 101, 103 and expected cost of errors 102‒3, 105‒7 F Hoffman–La Roche Ltd v Empagram S.A 108 false acquittal versus false conviction costs 102‒5, 106, 107 future of 105‒7 history of 83‒7 incompatible design change example 98, 101 market performance test 91‒2 Matsushita Elec Indus Co v Zenith Radio Corp 108 modeling 92‒100 new entrants, encouragement of 102, 103, 106 ‘no-economic-sense’ test and unlawful monopolization 91, 99 and predatory pricing 86 profit decomposition analysis 98‒9, 102‒3 and profit-sacrifice test 87, 90‒91, 97‒8, 99 proposed monopolization standards 87‒92 and rent seeking 89, 102, 103‒4 sacrifice-plus-recoupment test 91 and Sherman Act, Section 82, 83‒7 and specific intent approach 82, 83, 84‒5, 88‒9, 91, 101, 105, 106 and specific intent approach, modeling 96‒100 Standard Oil Co v United States 84‒5 Trinko (Verizon Communications Inc v Law Offices of V Trinko) 86‒7, 105, 106 United States v Alum Co of America 108 United States v American Tobacco Co 108 United States v Microsoft Corp 87, 108, 111 United States v United Shoe Machinery Corp 109 United States v US Steel Corp 108 welfare balancing approach 82‒3, 86, 87, 88‒9, 90, 91‒2, 100, 101‒2, 104, 105 welfare balancing approach, modeling 93‒6, 114‒15 welfare tradeoff considerations 83, 94, 103 monopoly power in antitrust, economics of 64‒81 Alcoa (United States v Alum Co of America) 74 American Tobacco Co v United States 79 capital costs as entry barrier 76 circumstantial evidence of monopoly power 74 Index consumer preference and entry barriers 76 consumer surplus and perfect competition 65 direct evidence of monopoly power 73‒4 and dominant firms 71‒3 Eastman Kodak Co v Image Technical Services 79 entry barriers, importance of 75‒6 exclusion of rivals as evidence of monopoly power 73‒4 Illinois Tool Works v Independent Ink 80 Kellogg 80 Leegin Creative Leather Products, Inc v PSKS, Inc 33‒4, 64 Lerner Index and measurement of monopoly power 68‒70, 73, 74 market definition, importance of 76‒7 and market equilibrium 65‒6, 74 monopoly power in antitrust law 73‒7 monopoly power in economics 65‒70 and patents 80 and perfect competition 65 product differentiation problems 75 and profit maximizing firm 65, 66‒8, 75 and Sherman Act, Section 64 social welfare maximization and perfect competition 65‒6, 75 Spectrum Sports v McQuillian 77 United States v Aluminum Company of America 79 United States v E.I du Pont de Nemours & Co (Cellophane) 73, 74, 79 United States v Grinnell Corp 64, 74, 77 Walker Process Equip v Food Mach & Chem Corp 77 Monsanto Co v Spray-Rite Serv Corp 39, 217 Motta, M 196, 207, 253 Mozart Co v Mercedes-Benz of N Am., Inc 202 Mullin, W 40, 127, 255 291 Mumford, M 125, 141 Murphy, K 200, 208, 221 N Pac Ry Co v United States 201 Nagata, E 38 Nalebuff, B 204‒5 Nat’l Collegiate Athletic Ass’n v Bd of Regents 202 Neeld v National Hockey League 47‒8 Nikpay, A 108 Nordhaus, W 261 Norfolk Monument Co v Woodlawn Mem’l Gardens, Inc 39 Normann, H 128 Northwest Wholesale Stationers v Pacific Stationery and Printing Co 51, 53‒5, 58, 59, 61, 62 Ocean Shipping Cartel study 125 O’Connell, S 60 Opler, T 127‒8 Oppenheim, S.C 91 Ordover, J 19, 119, 121, 130, 132, 133, 135, 146 Ornstein, S 231 O’Rourke, M 180 Ortho Diagnostic Systems v Abbott Labs 152, 203 Oskar Bronner GmbH v Mediaprint 165, 166‒7 Otter Tail Power Co v United States 159‒60, 161, 170 Overstreet, T 231 Owen, B 37 Pace, J 39 Paddock Publ’ns., Inc v Chicago Tribune Co 206, 207 Padilla, A 111, 129 Page, William H 19, 23‒45, 175, 179 Paramount Famous Lasky Corp v United States 60 Parkin, M 78, 79 patent litigation 261‒76 and antitrust 270‒72, 278‒9 Duplan Corp v Deering Miliken, Inc 275 Graham v John Deere Co 272 investment in research model 267, 268‒70, 278‒9 292 Antitrust law and economics licensing and litigation model 262, 263‒7, 268‒70 and monopoly power 80 nonobviousness standard and optimal validity probability 263, 272‒4 optimal patent policy 267‒70, 278‒9 and patent validity probability 261‒3, 270‒72 profits and licensing 262 settlement of patent litigation model 264‒6 and social welfare 268‒70, 279 US patent law, Section 103 272 see also intellectual property law Pautler, P 127 Pearlstein, D 41 Perloff, J 79, 201, 205 In re Petroleum Prods Antitrust Litig 42 Piraino, T 38 Pitofsky, R 17, 162, 172 Plott, C 128 Podolny, J 126 Poitevin, M 121 Porter, R 252 Posner, R 6, 17, 18, 25, 30, 37, 38, 61, 78, 79, 89, 99, 129, 204 Powell v National Football League 61 predatory pricing, law and economics of 116‒56 above-cost safe harbor rule 117, 125, 130, 132, 140‒41, 143, 144‒9 airline cases and opportunity cost 145‒6 antitrust law 129‒38 antitrust law and predation 138‒49 Areeda‒Turner test and cost-based rules 130‒32, 139, 141 Barry Wright v ITT Grinnell 151 below-cost dumping and state-run firms 127 Brooke Group Ltd v Brown & Williamson Tobacco Corp 38, 117, 125, 130, 132, 140‒42, 143, 144‒9 Brooke Group rule, challenges to 142, 145‒9 cartel, inducing rival to join 125 Cascade Health Solutions v Peace Health 148‒9 ‘chain store paradox’ 119, 122 complete information model in intermediate goods markets 124 Concord Boat Corp v Brunswick Corp 144 and cost thresholds 140 courts and predation 138‒41 and direct calculation of marginal cost 127 ‘dynamic’ predation rules, harmful effects of 132‒3, 145 economic analysis of legal rules 129‒30 economics of 117‒29 and error costs 129‒30 and exclusionary pricing behavior 140‒42, 143‒4 experimental evidence 128‒9 false positives, high costs of 140 financial constraints based on asymmetric information 121 financial predation and the long purse 120‒21, 126 financially constrained entrant 120‒21 and firms’ attempts to control agency costs 121 and horizontal price fixing 130 Information Resources, Inc v Dun & Bradstreet Corp 152 learning curve model of equilibrium predation 124, 135, 136 LePage’s v 3M 147‒8, 149 litigated cases, empirical studies of 124‒9 litigated cases, measurement of success of 125 lowered prices to deter competitor 123‒4, 125 lowered prices to deter entry 123, 128‒9 loyalty discounts, market share discounts 144‒5 McGahee v Northern Propane Gas Co 151 McKenzie-Willamette Hospital v Peace Health 152 and managers’ compensation 127‒8 Index and market power 118, 131, 134‒5, 139 Matsushita Elec Indus Co v Zenith Radio Corp 117, 139‒40, 144, 151 models supporting credible commitment 119 and monopolization standards 86 as monopolizing method 118, 142‒4 multi-product firms and bundling 146‒9 and multi-product price discounts 148‒9 multiple markets and reputation 121‒2, 127‒9, 132 and optimal antitrust rules 130‒38 Ortho Diagnostic Systems v Abbott Labs 152 and price fixing 118 price theory and predation 118‒19 price-cost comparisons as presumptive test 139‒40 as profit sacrifice 133‒8 profitable predation, lack of evidence for 119 and recouping investment in belowcost prices 140‒41 regression analysis to test models 126‒7 regulation and public ownership effects 127 and Robinson-Patman Act, Section 13 138, 139, 140 and Sherman Act, Section 138, 140‒41, 147‒8 ‘signal jamming’ model 121 signaling models 122‒4 SmithKline Corp v Eli Lilly & Co 147, 148 and social characteristics of entrants 126 Spirit Airlines v Northwest Airlines, Inc 145‒6 Standard Oil Co v United States 118, 119 and strategic theory 119‒24, 132‒3 sub-markets and joint and common costs 146 uncertainty of 119, 122‒4, 129‒30 US v AMR Corp 145‒6 293 Utah Pie Co v Continental Baking Co 139 Virgin Atlantic Airways, Ltd v British Airways plc 152 welfare effects 117, 124, 129, 130, 134, 135‒8, 143‒4 Weyerhaeuser v Ross-Simmons Hardwood Lumber Co and predatory buying 142‒4 William Inglis & Sons Baking Co v ITT Continental Baking Co 151 Priest, G 126, 275, 276 Qureshi, A 202 Rasmussen, E 195‒6 Reinganum, J 276 Rey, P 204 Riordan, M 124 Ritter, C 180 R.J Reynolds Tobacco Co v Philip Morris Inc 193‒4, 199, 200 Roberts, J 121, 122, 123‒4 Robinson, G 109 Roland Mach Co v Dresser Indus 197, 207 Romaine, R 92, 109 Rosch, J 232 RTE and ITP v Commission (Magill II) 164‒5, 166, 168, 173‒4 rule of reason and exclusive dealing 193 and group boycotts law 54 and tying and bundling 186 and vertical restraints see vertical restraints, competition and the rule of reason Ryko Manufacturing Co v Eden Services 197 Sá, N 252 Salinger, M 111, 204, 205 Saloner, G 119, 121, 122, 123, 130, 133, 135 Salop, S 37, 92, 93, 98, 101, 108, 109, 110, 122, 124, 144, 179, 207, 258 Sappington, D 128 Sass, T 198 Saving, T 79 Scharfstein, D 121, 124 294 Antitrust law and economics Scheffman, D 37, 110, 116, 134, 207 Scherer, F 130, 180 Schmalensee, R 253 Schoen, D 17 Schwartz, M 134, 205 Scotchmer, S 261, 276 Scott Morton, F 126 Segal, I 195‒6 Selten, R 119 Shaffer, G 42, 124 Shapiro, C 37, 122, 124, 206, 229, 244, 247, 253, 255, 256, 257, 261, 262 Shepard, A 275 Sherman Act, Section 1, facilitating practices and concerted action under 23‒45 324 Liquor Corp v Duffy 41 agreement, definition and proof of 26‒9 Am Column & Lumber Co v United States 41 Am Tobacco Co v United States 39 Anheuser-Busch, Inc v Goodman 41 background 23‒6 basing-point pricing 36 Battipaglia v N.Y State Liquor Auth 41 Beer & Pop Warehouse v Jones 41 Bell Atlantic Corp v Twombly 26, 28, 38 Blomkest Fertilizer, Inc v Potash Corp of Sask 39 Brooke Group Ltd v Brown & Williamson Tobacco Corp 38 California Retail Liquor Dealers Ass’n v Midcal Aluminum, Inc 41 Canterbury Liquors & Pantry v Sullivan 41 and cartels 24, 29, 31, 34 Catalano, Inc v Target Sales, Inc 30‒31, 32, 34 category restraints of trade, limitation of 24 Cement Mfrs Protective Assn v United States 41 City of Tuscaloosa v Harcros Chems., Inc 39, 40 Clamp-All Corp v Cast Iron Soil Pipe Inst 38, 40 Continental Ore Co v Union Carbide & Carbon Corp 39 Copperweld Corp v Independence Tube Corp 37 Costco Wholesale Corp v Maleng 41 Eastern States Retail Lumber Dealers’ Association v United States 32‒3 E.I du Pont de Nemours & Co v FTC (Ethyl) 33 and exclusive dealing and tying arrangements 185, 192, 194 facilitating practices 29‒36 FTC v Cement Institute 33, 36, 40 Holiday Wholesale Grocery Co v Philip Morris Inc 40, 41, 42 and horizontal agreements 27, 32‒4 In re Baby Food Antitrust Litig 39 In re Citric Acid Litig 42 In re Flat Glass 39 In re High Fructose Corn Syrup Antitrust Litig 38 In re Petroleum Prods Antitrust Litig 42 and independent action 27‒8 and individual self-interest 28 information exchange agreements 32‒3 JTC Petroleum Co v Piasa Motor Fuels, Inc 35‒6, 38 Leegin Creative Leather Products, Inc v PSKS, Inc 33‒4 Maple Flooring Mfg Assn v United States 41 Matsushita Elec Indus Co v Zenith Radio Corp 27, 30, 33, 34 Miller v Hedlund 41 Monsanto Co v Spray-Rite Serv Corp 39 Norfolk Monument Co v Woodlawn Mem’l Gardens, Inc 39 oligopoly and collusion 24‒5, 30, 34 and parallel conduct 27‒9, 30, 33‒6 ‘plus factor’ evidence and exclusion of independent evidence 27, 28 and price fixing 24‒5, 26, 28, 29, 30, 32‒3, 35‒6 price lists, liquor ‘post and hold’ 32 pricing transparency, dealing agreements to increase 30‒32 Index and private communication 29 and public price posting 35 and resale price maintenance 31, 33‒5 search or transaction costs, reducing 26 Sugar Inst., Inc v United States 31, 32 TFWS, Inc v Schaefer 41 Theater Enterprises, Inc v Paramount Film Distributing Corp 27‒8, 35, 40 Todd v Exxon Corp 39, 41 trade restrictions and unenforceability of Act 27 United States v Addyston Pipe & Steel Co 37 United States v Am Linseed Oil Co 41 United States v Citizen & S Nat’l Bank 41 United States v Container Corp of Am 32, 35 United States v Gen Motors Corp 38 United States v Paramount Pictures, Inc 38 United States v Trans-Missouri Freight Ass’n 37, 38 and vertical agreements 31, 34 Virginia Vermiculite, Ltd v Historic Green Springs, Inc 39 and wholesale price publishing 35‒6 Williamson Oil Co v Philip Morris USA 40, 42 Sherman Act, Section early development, and monopolization standards 84‒5 and essential facilities doctrine 159‒60, 161, 172, 176 and exclusive dealing and tying arrangements, antitrust analysis of 192, 194 and group boycotts law 46 modern, and monopolization standards 85‒7 and monopolization standards 82, 83‒7 and monopoly power in antitrust 64 295 and predatory pricing 138, 140‒41, 147‒8 Shughart, W 17 Sidak, J 109, 128, 173, 174 Silver v New York Stock Exchange 52‒3 Simpson, J 196, 207 Six West Retail Acquisition, Inc v Sony Theatre Management Corp 19 Slade, M 38, 40 Small, J 172, 180 Smith, V 128 Smith, A 65 Smith v Pro Football, Inc 51 SmithKline Corp v Eli Lilly & Co 147, 148 Snyder, C 121 Snyder, E 19 Southern Bell Company case 127 Spectrum Sports v McQuillian 77 Spence, A 111 Spirit Airlines v Northwest Airlines, Inc 145‒6 Spratling, G 18 Standard Fashion Co v MagraneHouston Co 192 Standard Oil Co v United States 84‒5, 118, 119, 184, 192 State Oil v Khan 217, 220 Stein, A 17 Stempel, S 37 Stigler, G 17, 36‒7, 38, 39, 79, 92, 201, 252 Sugar Inst., Inc v United States 31, 32 Sullivan, E 19 Sullivan, L 230 Suslow, V 253, 254 Sutton, J 252 Swift & Co v United States 19 Tampa Electric Co v Nashville Coal Co 192 Telser, L 120, 121 Temple Lang, J 173, 177, 180 Tesler, L 231 Texaco, Inc v Dagher 174 TFWS, Inc v Schaefer 41 Theater Enterprises, Inc v Paramount Film Distributing Corp 27‒8, 35, 40 296 Antitrust law and economics Thompson Everett, Inc v Nat’l Cable Adver 207 Thorelli, H 232 Tirole, J 121 Todd v Exxon Corp 39, 41 Tom, W 206, 208 Toys ‘R’ Us v Federal Trade Commission 58‒9, 214 Trinko (Verizon Communications Inc v Law Offices of Curtis V Trinko) 86‒7, 105, 106, 160‒61, 169 Tullock, G 89, 94‒5, 103 Turner, D 25, 30, 34, 38, 42, 86, 108, 130‒32, 139, 141 Turney, J 177 Twin Labs., Inc v Weider Health & Fitness 175‒6 Twombly (Bell Atlantic Corp v Twombly) 16, 17, 26, 27, 28, 38 tying arrangements see exclusive dealing and tying arrangements, antitrust analysis of United Shoe Machinery Corp v United States 192 United States antitrust enforcement, economics of see antitrust enforcement, economics of Antitrust Modernization Commission 14, 185‒6 Clayton Act 6, 7, 18, 23, 64, 192, 235, 236 decentralization of antitrust enforcement 1, 5‒11 essential facilities doctrine see essential facilities doctrine exclusive dealing and tying arrangements see exclusive dealing and tying arrangements, antitrust analysis of FTC Act 18 Georgetown Study of Private Antitrust Litigation 11 group boycotts law see group boycotts law Hart-Scott-Rodino Antitrust Improvements Act 3, 10‒11 monopolization standards, law and economics of see monopolization standards, law and economics of monopoly power in antitrust, economics of see monopoly power in antitrust, economics of National Association of Attorneys General (NAAG) 6‒7 patent litigation see patent litigation predatory pricing law see predatory pricing, law and economics of Racketeering Influenced Corrupt Organizations Act (RICO) 19 Robinson-Patman Act 7, 18, 138, 139, 140 Sherman Act see Sherman Act, Section 1; Sherman Act, Section vertical restraints see vertical restraints, competition and the rule of reason United States Steel Corp v Fortner Enterprises (Fortner II) 184 United States v Addyston Pipe & Steel Co 37, 49 United States v Alum Co of America (Alcoa) 74, 79, 85‒6, 87, 88, 105, 108 United States v Am Linseed Oil Co 41 United States v American Tobacco Co 108 United States v AMR Corp 145‒6 United States v Arnold, Schwinn, & Co 217 United States v Baker Hughes, Inc 235‒6 United States v Broadcast Music, Inc 19 United States v Citizen & S Nat’l Bank 41 United States v Colgate 217 United States v Container Corp of Am 32, 35 United States v Dentsply Int’l, Inc 197 United States v E.I du Pont de Nemours & Co (Cellophane) 73, 74, 79 United States v Gen Motors Corp 38 United States v General Dynamics Corp 235 United States v Griffith 175 Index United States v Grinnell Corp 64, 74, 77 United States v Jerrold Elecs Corp 202 United States v Loew’s, Inc 185, 201 United States v Microsoft Corp 87, 108, 111, 185, 202, 204 United States v Pabst Brewing Co 251 United States v Paramount Pictures, Inc 38, 203 United States v Philadephia National Bank 235, 236 United States v Terminal Railroad Association 158‒9, 160 United States v Trans-Missouri Freight Ass’n 37, 38 United States v United Shoe Machinery Corp 109 United States v US Steel Corp 108 United States v Von’s Grocery Co 251 US Healthcare, Inc v Healthsource, Inc 207 US Philips Corp v Int’l Trade Comm’n 202 Utah Pie Co v Continental Baking Co 139 Vakkur, N 19 Verizon Communications Inc v Law Offices of Curtis V Trinko 86‒7, 105, 106, 160‒61, 169 vertical restraints, competition and the rule of reason 213‒33 Albrecht v Herald Tribune 217 Business Electronics v Sharp 217 competitive norms 224‒7 Consten and Grundig v Commission 231 and consumer welfare 219, 224 Continental T.V., Inc v GTE Sylvania Inc 217 contracts and territorial restrictions 222, 224‒5 and distribution channel control 226 Dr Miles Medical Co v John D Park & Sons, Co 216‒17, 218, 220, 222, 225 E Bement & Sons v National Harrow Co 230 economic theory 221‒4 297 EU comparison 227‒9 and exclusive dealing and tying arrangements 191 and free-riding 222, 223, 226 future after the rule of reason 229‒30 horizontal and vertical arrangements, distinction between 214 and intellectual property law, parallels between 215, 220, 226 Leegin Creative Leather Prods v PSKS, Inc 213, 214‒15, 216‒27 and market forces 224‒5 minimum resale price maintenance 214‒27 minimum resale price maintenance, anti-competitive uses 218, 219, 220, 222‒3 minimum resale price maintenance, pro-competitive benefits 218, 219, 220‒21, 222‒3 minimum resale price maintenance, quality and service, effects on 224‒5 Monsanto Co v Spray-Rite Serv Corp 217 and per se rule 217, 218‒21, 222, 225, 226 and rivalry in production and distribution chain 215 rule of reason versus per se rules 219‒21 and Sherman Act, Section 217 State Oil v Khan 217, 220 Toys ‘R’ Us v Federal Trade Commission 214 United States v Arnold, Schwinn, & Co 217 United States v Colgate 217 vertical restraints as a possible misnomer 213‒16 Vickers, J 90, 109 Virgin Atlantic Airways, Ltd v British Airways plc 152 Virginia Vermiculite, Ltd v Historic Green Springs, Inc 39 Vistnes, G 204 Vita, M 37, 205 Vives, X 40 298 Antitrust law and economics Waldman, M 149, 204, 205, 207 Walker Process Equip v Food Mach & Chem Corp 77 Waller, S 172 Waterson, M 252 Weiman, D 126‒7 Weiss, L 253 Wells Real Estate, Inc v Greater Lowell Bd of Realtors 202 Werden, G 39, 40, 91, 97, 144, 146, 175, 205, 251, 255 Weyerhaeuser v Ross-Simmons Hardwood Lumber Co 142‒4 Whinston, M 39, 40, 195, 204, 207, 255 White, L 19 Wickelgren, A 196, 207 William Inglis & Sons Baking Co v ITT Continental Baking Co 151 Williamson, O 92, 93‒4, 103, 111, 132‒3, 145 Williamson, E 17 Williamson Oil Co v Philip Morris USA 40, 42 Willig, R 132, 133, 146, 252, 256 Wilson, R 122, 128‒9 Winter, R 221, 262 Wright, Joshua D 183‒212 Yamey, B 125 Yde, P 205 Zerbe, R 125, 130, 131, 141