The Sherman Act Outline

o 15 U.S.C. 1 - "Every contract, combination or conspiracy in restraint of (interstate) trade is declared to be illegal" 1. Is there an agreement? 1. Is there direct evidence?  Usually DOJ tries to get direct evidence by sending target letter, negotiating immunity, inducing a rat. 2. Is there circumstantial evidence? Inferring an agreement… 1. Is it a buyer driven market? Many competitors? Weighs against finding an agreement. o If consumers want it, it must improve consumer welfare. Unless market has both big and small buyers - what's good for big may not be good for small. 2. Evidence that firms all offer the same prices? o Conscious parallelism (in the absence of communication) not illegal - In an oligopoly market, prices may converge bc of individual rational choices.  If all the actors in the market are at the same price, it may mean that's the efficient/competitive price. o Parallel conduct sufficient for agreement, tacit collusion, if there is:  Awareness - that competitors are agreeing to the same action  Don't worry, competing manufacturers not going to do this either  Communication between competitors. Need evidence!  Post Bell v. Twombly, need some evidence of agreement.  No valid business justification - No rational producers acting independently would agree to the terms common to the producers.  Post Bell v. Twombly, need evidence that would tend to exclude independent selfinterested conduct as an explanation.  where it's so unlikely that firms would have independently acted so closely in parallel, ct will likely find TACIT COLLUSION. 3. Doesn't need to be an effective agreement to be illegal 2. Is it horizontal restraint? 1. Horizontal vs. vertical? (where manufacturer is also a dealer) o Look at "the source of the restraint" - whether initiated by competitors on the same level or primarily by the manufacturer to achieve efficient distribution system. 2. Is it an agreement not to compete? If "naked" restraint, going directly to 1,2,3, w/o any pro-competitive justification, per se illegal 1. Price fixing Doesn't matter that prices were not "fixed" in the uniform sense. Socony Min price That prices are themselves reasonable is irrelevant. Trenton Potteries  Max price Violated by scheme that provides same economic reward regardless of skill, experience, willingness to employ innovation. o Rationale: 1) Sticky prices? Go to the ceiling and stay there. Or just a cover for straight price fixing. 2) discourage entry into the market by setting cap too low to entice, 3) discourages investing in higher quality products that necessarily cost more.  Agreements to fix just one element of a price for a product comprised of multiple elements  Agreements not to compete on price? Assoc. of Engin. 2. Agreements to restrict output, bid rigging. 3. Territorial agreements/Market divisions  Ex. Topco.  Rule of reason if its manufacturer limitations on own dealers - diminished intrabrand comp for increased interbrand comp.  Doesn't depend on any showing of market power in these divided markets.  Exceptions No categorical broad exemptions  Common carriers with price regulations  Learned professions (maybe a stronger look) o Consider whether product could exist at all w/o the agr't If strong pro-competitive justification QUICK LOOK  Is restraint necessary to advance competition? If yes, R of R. 3. Is it not a quite an agreement not to compete? If not a familiar scenario like above, apply R of R. o Quick-look for non-trivial pro-competitive justification for restraints.  Quick look really only where def. would otherwise have standard per se liability bc one of categories above, but argues that the restriction has pro-competitive benefit.  In most cases, court doesn't buy it. Ex. Catalano, competitors don't offer credit terms, procompetitive bc simplify things for consumers.  However, necessary to create a new product, or necessary to make mkt work better? In close cases, push to full R of R inquiry. Ex. Cal Dental Assn - Pro-competitive justification   found where restriction on discount ads was to avoid deceptive/false ads in market w info disparities. o Is it an information exchange?  Rationale - BENEFIT - can be good for consumers, facilitate price transparency, and good for competitors, facilitate competition, facilitate good business decisions, but, HARM if competitors all know what their competitors may charge tomorrow, may allow a cartel to enforce prices among their members.  Balancing -  Up to the minute exchanges of info HARM o Allows for enforcement of a cartel Knowledge of prices competitors are quoting leads to quoting same price or just slightly less. Stabilization of prices (even if trend is generally downward) is illegal. Container Corp.  Where mkt structure is highly concentrated and tends towards collusion Less than 20% market share is safe harbor.  If info isn't available to general public, not likely to benefit by facilitating transparency.  Shared cost data, info on standard freight rates, statistics on quality, past data, meeting and discussions on industry, BENEFIT to industry and consumers.  EVIDENCE - where it's been implemented, can look at price statistics to look for price Is it an agreement as to "joint conduct"/collaboration among competitors?  Certain products can only exist w/ cooperation. Ex. League sports.  Would competition on the sale of the product of the joint venture defeat the joint venture?  Is the particular form of restraint necessary for the joint product?  Other joint ventures, such as those centered around research, aren't so anticompetitive 1. Is there market share 20% or more? 2. Does restraint have anticompetitive effect? 3. Is restraint reasonably necessary to achieve precompetitive benefits that outweigh those anticompetitive effects? i. Consider whether there are specific anti-competitive parts of the agreement that are either not ancillary or are too large in scope/duration? 4. Is there exclusion of competitors from the joint product? a. There is some recognized need for association membership requirements - Is the exclusion objective, reasonably related to the purpose, and not apparently designed to suppress competition? i. Is it the least restrictive method? b. Is there a significant economic detriment for those excluded?  Benefits - creates new product Is it a concerted refusal to deal?  If clear effects and market power?  Per se approach where firms with control over indispensable supply component restrict sales, or there is a horizontal agreement to exclude one of their competitors, where anticompetitive effects would be immediately apparent.  Horizontal boycott - Klor's - contact manufacturers and have them agree to not sell to competitors.  If unclear effects, joint venture, questionable market power, or obvious beneficial effect:  Rule of reason Is there strong countervailing pro-competitive justification. o Is the refusal to deal necessary to create the joint process? o If harms outweigh benefits, don't need to get to market power analysis.  Boycott with principal political purpose is exempt.  NOTE: An individual co. can refuse to do business with anyone. o Who is liable?  A company that is vertical in the market which induces a horizontal restraint just as liable as the horizontal companies which agreed. 4. If analyzed under rule of reason…. o Are their possible harms to competition? (Govt has burden of proof)  Always true under one of the 3 per se rule categories  What's the relevant market, market shares, concentration factors.  Greater harm when co.'s have market power.  Changes in the market as a result of restraint indicates market power.  Prospective - consumers don't have an alternative, def. is a price setter not price taker.  Does agreement limit ability for sellers to compete with each other?

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