Chapter 11: Antitrust Law - Monopolies and Mergers

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Monopoly Analysis

(1) define the relevant product market (2) define the relevant geographic market (3) compute the defendant's market power (4) assess the defendant's intent (predatory or coercive conduct) (5) raise any available defenses.

Product Market

Find competitive products and test their interchangeability through cross-elasticity analysis.

Geographic Market

Can test the monopolization of the geographic market through the analysis of elasticity.

Market Power

Is market share above 70 percent? If so, this infers a monopoly.

Intent (Predatory or Coercive)

Did the company deliberately act out of line to establish their market dominance?

Defenses

The defendant may yet prevail if the evidence demonstrates that the monopoly was innocently acquired via "superior skill, foresight, or industry".

Attempted Monopolization Test

(1) the defendant has engaged in predatory or anticompetitive conduct (2) specific intent to monopolize (3) a dangerous probability of achieving monopoly power.

Merger Virtues

(1) permit replacing inefficient management/threat of this will discipline managers into productivity (2) permit stronger competition with previously larger rivals (3) improve credit access (4) produce efficiencies and economies of scale (5) offer a pool of liquid assets for use in expansion and in innovation (6) can offer tax advantages (7) less expensive than internal growth (8) help to satisfy the personal ambitions and needs of management.

Merger Problems

(1) too much power concentration (2) may trigger a merger movement across industry competitors (3) higher market concentration may lead to higher prices (4) innovation may be harmed (5) too large and will shape politics (6) too big too fail.

Horizontal Merger

Direct competitors who occupy the same product and geographic market merge.

Vertical merger

Involves two or more firms at different levels of the same channel distribution

Conglomerate Merger

They want to own everything. Involves firms dealing in unrelated products (all non vertical and non horizontal mergers).

Hart-Scott-Rodino Antitrust Improvements Act (HSR)

Need premerger notification to FTC and deal won't close for 30 days. Government can block or approve, or even settle (one party could sell assets or stop selling in a certain geographic market).

Horizontal Merger Analysis

1. Market definition
2. Measurement of market concentration
3. Identification of likely anticompetitive effects
4. Likelihood of future entrants to the market
5. Appraisal of efficiencies and other possible defenses

Herfindahl-Hirschman Index

an index of market concentration that is calculated by squaring the percentage market share of all firms in an industry, then summing the squared values.

Market Foreclosure

Threat to competition caused by a vertical merger of a supplier and a purchaser.

Sherman Act (Internationally)

Applies to the conduct of American business abroad when that business has a direct effect on American commerce.

Clayton Act (Internationally)

Section 7 is clearly applicable to acquisitions combining domestic and foreign firms and is potentially applicable to acquisitions not involving American firms if the effect would harm competition in the American market.

Federal Trade Commission (Internationally)

FTC shares antitrust enforcement authority with the Justice Department.

Enforcement by Justice Department (Internationally)

Sometimes will prepare a statement of its likely response to a proposed transaction (either foreign or domestic) so that the parties involved will have advanced notice of the government's antitrust stance.

Extraterritoriality

Justice Departments will file suit in US courts against foreign companies operating in the US even when the anticompetitive actions completely take place overseas.

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