Class 3 : Booth 42201: The Legal Infrastructure of Business Market Power: Antitrust Randal C. Picker...

Class 3: Booth 42201: The Legal Infrastructure of Business

Market Power: Antitrust

Randal C. PickerLeffmann Professor of Commercial Law

Senior Fellow, The Computation Institute

The Law School

The University of Chicago

773.702.0864/[email protected]

Copyright © 2003-12 Randal C. Picker. All Rights Reserved.

April 19, 2023 The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker. 2

Sherman Act Sec. 1

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.


Sherman Act Sec. 2

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony,and, on conviction thereof, shall be punished by fine not exceeding $101,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

4

P = 10 – Q

P

Q

Demand Curve

10

10

Monopoly Outcome: Marginal Revenue =

Marginal Cost

Marginal Cost

QC

PC

MC = 4

MR = 10 – 2Q

QM

PM

CS

ProfitsDWL

TC

Marginal Revenue


Twombly Complaint


Twombly Complaint ¶ 51

Plaintiffs allege upon information and belief that Defendants have entered into a contract, combination or conspiracy to prevent entry in their respective local telephone and/or high speed internet service markets and have agreed not to compete with one another and otherwise allocated customers and markets to one another.


Increase in Post-Merger Concentration

Revised DOJ-FTC Grid

Unconcentrated: < 1500

Moderately Concentrated: 1500 to 2500

Highly Concentrated: > 2500

No challenge

No challenge No challenge No challenge

No challenge Scrutiny Scrutiny

ScrutinyPresumed to raise mkt power

Post-Merger HHI

< 100 100 to 200 > 200

Scrutiny

April 19, 2023 The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker. 8US Complaint (31 Aug 2011)

April 19, 2023 The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker. 9US Complaint (31 Aug 2011)


Gov’t Ex. 20

A new competitor “born” on the Internet is Netscape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. They are pursuing a multi-platform strategy where they move the key API into the client to commoditize the underlying operating system. They have attracted a number of public network operators to use their platform to offer information and directory services.


Gov’t Ex. 20

One scary possibility being discussed by Internet fans as whether they should get together and create something far less expensive than a PC which is powerful enough for Web browsing. This new platform would optimize for the data types on the Web. Gordon Bell and others approached Intel on this and decided Intel didn’t care about a low cost device so they started suggesting that General Magic or another operating system with a non-Intel chip is the best solution.


Article 101 (81)

1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions

by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:


Article 101

(a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment;

(c) share markets or sources of supply;


Article 101

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.


Article 102 (82)

Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.


Article 102

Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair

purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;


Article 102

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

April 19, 2023 The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker. 18Microsoft (CFI 2007)


XP N sales represent 0.005 percent (1/20,000th of one percent) of overall XP sales in Europe.

No PC manufacturers have ordered or preinstalled Windows XP N on PCs.

Only 1,787 copies of Windows XP N have been sold to retailers and distributors in Europe.

Microsoft Factsheet, Apr 2006


Screen Capture Slide

Link

European Commission, 27 Feb 2008

April 19, 2023 The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker. 21European Commission, 17 Jan 2009

April 19, 2023 The Legal Infrastructure of Business. Copyright © 2002-11 Randal C. Picker. 22www.browserchoice.eu



April 19, 2023 Copyright © 2012 Randal C. Picker 2521 May 2012

April 19, 2023 Copyright © 2012 Randal C. Picker 26FTC Search Engine Guidelines, 27 June 2002

April 19, 2023 Copyright © 2012 Randal C. Picker 27

“The Federal Trade Commission responded to a complaint filed by Commercial Alert requesting that the agency investigate whether certain search engines are violating Section 5 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45(a)(1), by failing to disclose that advertisements are inserted into search engine results lists.”

FTC, 27 June 2002

April 19, 2023 Copyright © 2012 Randal C. Picker 28

“Finally, the staff recommends that you review your Web sites to ensure that:

• any paid ranking search results are distinguished from non-paid results with clear and conspicuous disclosures;

• the use of paid inclusion is clearly and conspicuously explained and disclosed; and

• no affirmative statement is made that might mislead consumers as to the basis on which a search result is generated.”

FTC, 27 June 2002

April 19, 2023 Copyright © 2012 Randal C. Picker 29Google HP Restaurants Search, 25 June 2012

1. Organic Search Competition (no $)

2. Auctions (all $)

3. No Competition: Hardwired in favor of Google

4. Onebox result: hardwired Google reviews; organic competition?

FTC• Deceptive practice?• Tying?

DG Comp• Tying ala Microsoft

(Media player and IE)

April 19, 2023 Copyright © 2012 Randal C. Picker 30Google HP Restaurants Search: IE6

25 June 2012

Visiting as IE6 shows design possibilities: alternate third-party homepage sites presented on first page of search results.

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