Antitrust

1. Antitrust Is Monopoly Power Necessarily Harmful to Society? Does Google have monopoly power? Microsoft? On what? Why? Why Not? Is that bad? Why? Can you name monopolies in other industries?

2. Why Do We Have Antitrust Laws? Standard Oil Trust Created the 7 Sisters (Made Rockefeller even richer)

3. Sherman Antitrust Act Aug 2010 Settlement prevents intelfrom using threats, bundled prices or other offers to exclude or hamper competition. 2009 EU Case: $1.45 Billion. For rebates to customers that bought less of a rival’s product allowed Intel to get 70% of EU chip market. • “Unreasonable Restraints.” U.S. Supreme Court added “unreasonable” • Restraint is greater than needed to protect legitimate business interest • Restraint poses an undue hardship on the promisor or likely injury to the general public • Contracts in Restraint of Trade. Contract or combination in restraint of trade is illegal. • Monopoly or Attempt to Monopolize. Monopolies or attempts to monopolize are illegal. • Interstate Commerce. The Sherman Act applies only to activities that have a “significant” impact on interstate commerce. • Interstate Commerce (commerce clause). Section 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 hereby declared to be illegal…”

4. Current Antitrust Example: JACOBI INDUSTRIES PLEADS GUILTY TO BID RIGGING(July 2007) • Bid Rigging. The president and owner of Jacobi Industries Inc., a Medford, N.Y. company, pleaded guilty to conspiring to rig bids on U.S. Department of Defense (DOD) contracts for military tiedown equipment and cargo securing systems. • $20,000 Fine – 6 Months Prison. Jacobi has agreed to pay a criminal fine of $20,000, and to cooperate with the Department's ongoing investigation. Jacobi could also serve up to six months in prison. The terms of the plea agreement are subject to court approval. Maximum 10 years of prison and $1million fine (or twice the gain or twice the loss). • Conspiracy. Jacobi participated in the bid-rigging conspiracy from November 2001 to January 2005, during which time he and co-conspirators discussed and agreed among themselves not to compete by agreeing not to submit prices or bids against each other on certain contracts. • Attending meetings and engaging in discussions regarding the sale of military tiedown equipment and cargo securing systems; • Agreeing during those meetings and discussions not to compete on certain contracts with the DOD by not submitting prices or bids on those contracts; • Submitting bids in accordance with the agreements reached; • Selling military tiedown equipment and cargo securing systems to the DOD under those agreements at collusive and non-competitive prices; and

5. Hurricane Katrina Fund – Bid rigging • Reminders from the government to bidders • 10 years in prison - $1 million fine ($100 million for corporations) plus restitution • Per Se Violations – not rule of reason • Schemes • Bid suppression • Complementary bidding • Bid rotation • Customer or market allocation • Suspicious indicators – what the government looks for • Identical bids on line items • Bids too high (for work being done) • Winner subcontracts to a loser • Clear gap between winner and others • Same increment between bids • Qualified bidders do not bid – why? • Prices mysteriously drop when a new bidder appears • Competitors are seen meeting. • Competitors get equal business over time • Patterns of any sort

6. Price Fixing OPEC School Milk Scam NCAA Cap of assistant coach salaries Any agreement among competitors to fix prices is a per se violation. Horizontal Market Division –Trade Associations Joint Ventures Resale Price Maintenance Agreements (rule of reason) Territorial Restrictions Free Rider Problem Restraints of Trade – Overview Horizontal Vertical

7. Extra Credit – Write Place – 5 Points Wed Oct 17 1:00-1:50 51 Building, Room 118 Creating Effective Introductions and Conclusions Extra Exam Review – Wed Oct 17 @ 3:00 for 1 Hour CH 321 Vertical versus Horizontal Vertical Horizontal

8. Sirius and XM radio merged in 2007 – subject to Justice Department approval as not anti-competitive. Mergers • Horizontal. • Relevant Market. The acquisition by merger or consolidation of a competing firm engaged in the same relevant market. • Less Competition. Will be unlawful only when a merger results in the merging firms holding a disproportionate share of the market, resulting in a substantial lessening of competition, and if the merger does not enhance consumer welfare by increasing efficiency of production or marketing. • Vertical • The acquisition by a seller of one of its buyers or vice versa. • Will be unlawful if the merger prevents competitors of either merging firm from competing in a segment of the market that otherwise would be open to them, resulting in a substantial lessening of competition. • Conglomerate • The acquisition of a noncompeting business

9. Section 2 of the Sherman Act • Section 2 condemns “every person who shall monopolize, or attempt to monopolize.” • There are two distinct types of behavior that are subject to sanction under Section 2: Section 2: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or person, to monopolize any part of trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.” Monopolization Attempts to Monopolize

10. Monopolization and Attempts to Monopolize • Monopoly Power. The possession of monopoly power in the relevant market • Willful Acquisition. And the willful acquisition or maintenance of the power, as distinguished from growth or development as a consequence of • a superior product, • business acumen, • or historic accident. • Both Elements Required. A violation of Section 2 of the Sherman Act requires that both of these elements be established. • Attempt to Monopolize • Definition: Any activity by a firm to eliminate competition and gain monopoly power.

11. Enforcement of Antitrust Laws • Antitrust laws are enforced by: • Department of Justice • Federal Trade Commission • Private Parties, who may be awarded treble damages and attorneys’ fees • Advisory Opinions. The DOJ and FTC have a process to seek an advisory opinion. • Compliance Program (benefits) • Circumstantial Evidence • Signaling behavior (wire spectrum case)