Horizontal market allocation Boycotts/refusal to deal Justifications resulting in quick look or rule of reason where “an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have en anticompetitive effect on customers and markets” (California Dental Assn. RoR) New Product Defense (BMI RoR) Agreements that are otherwise per se, but under the circumstances, the court lacks confidence that it is invariably harmful (NCAA – “restraints on competition are essential if the product is to be made available at all” Quick look) Agreements to limit advertising, particularly prices (California Dental) Agreements not to negotiate price/limit price negotiation (Professional Engineers) Agreement to refrain from doing something rational competitors would do under free competition (Indiana Federation of Dentists – x-ray to insurance) Some likelihood of anticompetitive effects, but no need to show market power Rule of Reason Π must show the conduct would cause price to go up/output to go down assuming Δ has market power and Either Δ has market power or direct proof of anticompetitive effects See also Board of Trade of Chicago Factors Rationales Policy – Must be administrable Justifications like “fair price,” “competition is bad” are invalid because changed circumstances easily change the outcome Indiana Federation of Dentists – “Proof of actual detrimental effects, such as a reduction in output, can obviate the need for an inquiry into market power” Maricopa County Medical – Still consider justification despite per se price-fixing Appalachian Coal – Industry distress sufficient justification for otherwise per se output restraint Sacony Vacuum – Per se unlawful output restraint Superior Court Lawyers – Social utility of the restraint is irrelevant Cases Addison Pipe Illegal cartel of pipe manufacturers that set prices and bids Allowable restraints Seller of business to not compete (increases value of sale price) Retiring partner non-compete Partner pending partnership agreement to not interfere with firm Buyer non-compete with business retained by seller Assistant/servant/agent non-compete after service Court must find they are necessary to
Definition – Any agreement not to compete in one another’s territories is unlawful on its face Topco Assoc’s Inc. Co-op making private label goods enabling member supermarkets to compete against major chains Agreement prevented members from selling Topco brand products within each other’s territories Reasoning: Antitrust laws are the “Magna Carta” of free enterprise, per se = clear notice, antitrust laws preserve economic freedom to compete CANNOT trade competition amongst members with competition between members and national chains Boycotts – Concerted Refusal to Deal Definition – Agreement among competitors or market participants that they will refuse to do business with a third party who is also involved in the market Spot the Issue: Set standards that exclude a product Superior Ct. Lawyers – Illegal boycott to get higher fees – illegal because sole purpose was to coerce an increase in price for the conspirators’ services Court will not consider the social utility of the boycott Sherman act cannot inquire into whether competition is good or bad JUSTIFICATIONS Generally “[T]ere is often no bright line separating per se from Rule of Reason analysis, since considerable inquiry into market conditions may be required before the application of any so-called ‘per se’ condemnation is justified” (NCAA) “The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one” (California Dental Assn.) “Reasonableness” of a fixed price is irrelevant (Socony Vacuum) “The reasonableness of prices has no constancy due to the dynamic quality of the business underlying price structures. Those who fixed reasonable prices today would perpetuate unreasonable prices tomorrow, since those prices would not be subject to continuous administrative supervision and readjustment in light of changed conditions.” Administrative – Definition of “reasonable” changes over time Economic – Markets should determine price, signals to others how to make decisions – would threaten the “nervous system of the economy” Social value is never a justification Lawyers), can’t argue competition is bad (Professional Engineers) BMI v. CBS – Agreement that creates a new product
Concern that cutting would hurt reputation Sued distributor that was cutting prices Reasoning – Dr. Miles can’t do any better than if the retailers had agreed amongst themselves Colgate Doctrine Refusal to deal with retailers that would not sell at MSRP In the absence of any purpose to create or maintain a monopoly, the act doesn’t restrict the long recognized right of trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And of course, he may announce in advance the terms United States v. Arnold, Schwinn & Co., rev’d, Continental Television (See Schwinn plan – Wholesalers assigned territories, can only sell within territory No selling to unauthorized retailers Per se illegal non-price vertical restraint Reasoning – Once manufacturer has parted with title, no right to impose territorial restraints Lack of economic rationale for the refusal after exhaustion of rights Rule of reason would be applied for goods on consignment MODERN VERTICAL RESTRAINTS STANDARDS Continental Television v. GTE Sylvania (Non-Price Vertical Restraints) Sylvania is 1-2% of market, engages in plan and rises to 5% Plan was geographic distribution restraint – franchisee only allowed to sell products from location that they got franchise at Sylvania cuts off Continental when they violate the franchise agreement Step 0 Distinguish Topco as horizontal territorial restraint – This is vertical Distinguish Dr. as price restraint – This is non-price territory restriction Analysis Vertical restraints Reduced intra-brand competition by limiting # of sellers of a product competing for business of a group of customers Increased competition by allowing manufacturer to achieve efficient product distribution Free Rider Problem Some outlets might invest in advertising/customer education Discount vendors disincentivize this by stealing customers with prices Trade-Off Educates some customers that would otherwise not buy the product Raises prices for customers that didn’t need the information/prefer lower price