The offense of monopoly under Section 2 of

“The offense of monopoly under Section 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinct from growth or development as a consequence of a superior product, business acumen or historical accident” United States v. Grinnell Corp. 384 U. S. 563, 570 -571 (1966)

Predatory pricing Ø Simple story: l Large firm cuts prices drives smaller firms from market then raises prices to monopoly levels Ø Mc. Gee (Journal of Law and Economics) - re-examines Standard Oil case. Predatory pricing is not rational. Why engage in predation when merger is cheaper.

More recent literature suggests that: Ø Mc. Gee assumes merger to monopoly is legal Ø predatory pricing may reduce sales price if ultimately merge Ø Ø Predation may be for demonstration effect

Predation requires (necessary conditions): Ø Initial Market power Ø Low Barriers to Exit Ø High barriers to entry

Predation – the demonstration effect or “I’ll Teach that SOB a lesson Price FOB Pricing of Concrete construction Blocks Distance from plant

Predatory pricing: 1. Areeda-Turner (Harvard Law Review, 1975) a. p

Exclusionary practices Ø Willful acquisition or maintenance of that power as distinct from … Ø Acts that are capable of creating, enlarging or prolonging monopoly power by impairing the opportunities of rivals and, l Do not benefit customers at all (Naked Exclusion), or are unnecessary to achieve specific customer benefits, or produce harms disproportionate to resulting benefits • H. Hovenkamp Antitrust Law

Exclusionary practices (cont. ) Ø Conduct , other than competition on its merits (Areeda and Turner) Ø Conduct capable of excluding an equally efficient rival (Posner)

The Boundaries of Exclusion Ø “…to be condemned as exclusionary, a monopolist’s act must have an ‘anticompetitive effect. ’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice…” l Microsoft, 253 F 3 d at 58 -59

Supplier Discrimination and Retail Competition P = $1. 75/can P= aaargh! Conway Drugs Walmart P = $1. 00/can P= $2. 00/can Penn tennis balls

Willful maintenance or acquisition Ø Aspen Skiing (1985) l No general duty to deal, but Duty to Deal exception Ø US v. AT&T (1978) Long Lines Bell MCI 1. Refusal to deal 2. Price discrimination 3. Sabotage customer

Le. Page’s Inc. v. 3 M (2003) Scotch tape A B C D E 3 M: Partnership Growth Fund Discounts if customer buys all product lines Private Label Suppose $5, 000 per line. If buy all, then discount is $3000. Suppose you are private label Discounts: Walmart $1. 5 m Kmart $926 k Sam’s $667 k Target $482 k

Cheap Exclusion Ø Cheap, as in “inexpensive” Ø Cheap, as in “having no redeeming value” (no cognizable efficiency gains) Ø Examples: l l l “helpfully” rearrange product displays Frivolous patent infringement claims Abuse of the standard setting process

Raising Rivals’ Costs GM Ford L Chrysler UAW Ford GM K Chrysler

The importance of corporate and management statements Ø Microsoft l Choke of air supply Ø Whole Foods Ø KCI v. Hill-ROM l Hill-Rom makes standard and specialty beds

Whole Foods DALLAS - The chief executive of Whole Foods Market Inc. told his board that if it bought its leading rival, the company would “eliminate forever” the possibility that anyone else could create a nationwide competitor in the natural and organic grocery business, government lawyers say. Chairman and CEO John Mackey also said that buying Wild Oats Markets Inc. would let Whole Foods “avoid nasty price wars” in several cities where the two compete, the lawyers wrote in a court document unsealed on Tuesday.

Hill-Rom Intends To Destroy Competition Nelson Baughman, HR Vice President: Cut ‘em off at the knees and watch them bleed … Competitively, idle words or a real threat? I promise you I consider these words a threat to all who propose to compete against Hill-Rom. Do you? How sharp is your machete? P-288 17

Hill-Rom Intends To Destroy Competition Hill-Rom executive speech We have to work together to win in our markets and do away with KCI. This is a job we are going to get done, and we’re going to get it done together. If anyone doesn’t want to do it that way, there’s a bus waiting outside, and you can get the hell out now. P-001 18

Hill-Rom’s Gus Hillenbrand 9/19/2002 Hillenbrand Cross Examination Q. Did you use the market power of Hill-Rom to attempt to obtain a hundred percent market share? A. Yes. Q. And you saw documents from your sales staff that talked about eliminating KCI, torturing KCI, killing KCI, doing away with KCI. You saw those things, didn't you? A. I saw those. P-288 19 Q. And you never sent out a directive saying, hey, Trial Transcript: Page 3950: 12 -21