Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law

• Author: Richard S. Markovits
• Published date: 01 March 2016
• DOI: 10.1177/0003603X15625126
• Date: 01 March 2016

Article

Economics and the Interpretation

and Application of U.S. and E.U.

Antitrust Law: A Summary

Richard S. Markovits*

Abstract

Part 1 (1) articulates and explains (A) the specific-anticompetitive-intent test of illegality that the study

claims is promulgated by the Sherman Act, the object-branch of the test of illegality promulgated by

Article 101(1) of the Treaty of Lisbon, and the exclusionary-abuse branch of the test of illegality

promulgated by Article 102 of the Treaty of Lisbon; and (B) the lessening-competition test of

illegality that the study claims is promulgated by the Clayton Act, the effect-branch of the test of

illegality promulgated by Article 101(1) of the Treaty of Lisbon, and the European Merger Control

Regulation; and (2) attempts to justify the study’s claims that its operationalizations of those tests of

illegality are correct as a matter of law. Part 2 (1) articulates the study’s definition of the concept

of ‘‘the impact of a choice on economic efficiency,’’ (2) defines three categories of organizational

allocative (economic) efficiencies the study distinguishes and explains why the fact that conduct

generates any of these categories of organizational economic efficiency favors its legality under U.S. or

E.U. antitrust law, and (3) defines the other categories of economic inefficiency the study identifies and

explains why the impact of business conduct on the magnitudes of these categories of economic

inefficiency in the society in question is irrelevant to its legality under U.S. or E.U. antitrust law. Part 3

then (1) summarizes the study’s argument for its conclusion that definitions of both classical economic

markets and antitrust markets are inevitably arbitrary not just at their periphery but at their core,

(2) summarizes the study’s discussion of the concept of a firm’s dominance or economic (market)

power and its explanation of why a firm’s economic power could not be inferred from its market share

even if markets could be defined nonarbitrarily, (3) outlines the conceptual systems the study develops

and uses to analyze the competitiveness of prices and the impact of conduct on the intensity of price

competition respectively in individualized-pricing and across-the-board-pricing contexts, and (4)

articulates the study’s definitions of (A) the concept of quality-or-variety-increasing-investment

competition and (B) the concepts it uses to analyze the impact of conduct on such competition.

Part 4 outlines the most salient points the study makes about (1) coordinated conduct and oligopolistic

pricing, (2) predatory pricing and predatory investments, (3) horizontal mergers and acquisitions,

(4) conglomerate mergers, and (5) various pricing-techniques, contract-clause and sales-policy sur-

rogates for vertical integration, and vertical mergers and acquisitions. The Conclusion describes

an important part of the policy-sequel to this antitrust-law study that I have contracted to publish.

*The University of Texas at Austin, Austin, TX, USA

Corresponding Author:

Richard S. Markovits, The University of Texas at Austin, Austin, TX 78705, USA.

Email: rmarkovits@law.utexas.edu

The Antitrust Bulletin

2016, Vol. 61(1) 3-83

ªThe Author(s) 2016

Reprints and permission:

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DOI: 10.1177/0003603X15625126

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In particular, the Conclusion outlines the protocol that that sequel will use to analyze the economic

efficiency of any exemplar of any category of antitrust-law-covered conduct or of any policy-responses

to such conduct.

Keywords

allocative (economic) efficiency, conglomerate mergers, efficiency defense, essential-facilities doctrine,

foreclosure, General Theory of Second Best, horizontal mergers, interbrand competition, intrabrand

competition, joint ventures, long-term full-requirements contracts, long-term total-output-supply

contracts, market definition, market dominance, market power, market share, oligopolistic conduct,

oligopolistic pricing, predatory conduct, predatory investments, predatory price-squeezes, predatory

pricing, qualitative-substantiality test, quantitative-substantiality test, reciprocity agreements, resale

price maintenance, single-brand exclusive dealerships, toe-hold mergers (and toe-hold-merger

doctrine), vertical customer-allocation clauses, vertical mergers, vertical territorial restraints

This special issue of The Antitrust Bulletin is devoted to my two-volume study Economics and the

Interpretation and Application of U.S. and E.U. Antitrust Law.

1

This law-study has a not-yet-published

policy-study sequel entitled The Welfare Economics of Antitrust Policy and U.S. and E.U. Antitrust

Law: A Second-Best-Theory-Based Economic-Efficiency Analysis.

2

Each of the contributions to this special issue focuses on one of the topics the law-study addresses.

Although several refer to some elements of one or more of the conceptual schemes the law-study

develops and uses to address various antitrust-law issues, none gives a comprehensive account of any

of these schemes. The eight contributions in this issue also do not cover the law-study’s analyses of the

antitrust legality of many categories of business conduct; many of its critiques of conventional eco-

nomic concepts, theories, and conclusions; and many of its critiques of the antitrust-law-related

‘‘theories’’ advanced by, analytic protocols used by, and legal doctrines promulgated by U.S. and

European Union (E.U.) courts and U.S. and E.U. antitrust-enforcement authorities. This fact is not

surprising: the two volumes of the law-study total more than 1,400 pages. The four parts of this article

attempt both to fill in these gaps and to state the law-study’s positions on the various questions that the

other contributions to this special issue examine by providing, respectively, (1) statements of the law-

study’s conclusions about the tests of illegality and prima facie illegality that U.S. antitrust law and

E.U. competition law respectively promulgate and about the ‘‘efficiency-defenses’’ these two bodies of

law respectively recognize; (2) a definition of the concept of ‘‘the impact of a choice on economic

efficiency,’’ a list of the various categories of economic inefficiency an economy can contain, and an

account of the kinds of efficiencies and reductions in economic inefficiency that do and do not favor

the legality of conduct under U.S. and E.U. antitrust law; (3) accounts of (A) the law-study’s positions

on the concepts of classical-economic markets, antitrust markets, a firm’s economic (market) power,

and a firm’s (market) dominance and (B) the two novel conceptual schemes the law-study develops to

analyze, respectively, price-comp etition-related issues and quality- and-variety-competition-related

issues; and (4) summaries of the most original and/or salient points the law-study makes about various

categories of business conduct covered by U.S. and/or E.U. antitrust law. The article’s conclusion

1. The two volumes of ECONOMICS AND THE INTERPRETATION AND APPLICATION OF U.S. AND E.U. ANTITRUST LAW were published by

Springer in 2014. The subtitle of Vol. I is BASIC CONCEPTS AND ECONOMICS-BASED LEGAL ANALYSES OF OLIGOPOLISTIC AND

PREDATORY CONDUCT. Vol. I will be cited hereinafter as MARKOVITS,ECONOMICS OF ANTITRUST LAW I. The subtitle of Vol. II is

ECONOMICS-BASED LEGAL ANALYSES OF MERGERS,VERTICAL PRACTICES,AND JOINT VENTURES. It will be cited hereinafter as

MARKOVITS,ECONOMICS OF ANTITRUST LAW II.

2. This policy-study will also be published by Springer, hopefully in 2017.

4The Antitrust Bulletin 61(1)

provides a brief summary of the policy-sequel to the law-study on which this special issue of The

Antitrust Bulletin focuses.

1. The Conduct-Coverage of, Tests of Illegality or Prima Facie Illegality

Promulgated by, and Efficiency-Defenses Recognized by the U.S.

Antitrust Statutes, the E.U. Treaty’s Competition-Law Provisions, and

the European Commission’s (EC’s) Antitrust Regulations

A. The Conduct-Coverage of and Tests of Illegality or Prima Facie Illegality Promulgated by

U.S. and E.U. Antitrust Law

(1) The conduct-coverage of and formal statements of the tests of illegality promulgated by U.S. and E.U.

antitrust law. The U.S. Sherman Act

3

(which covers all types of business conduct other than natural

oligopolistic conduct and any unsuccessful att empt to enter into a contract in restraint of trade

4

)

prohibits agreements in restraint of trade (Section 1) and monopolization and attempts to monopolize

(Section 2). The U.S. Clayton Act

5

(whose Section 2 covers ‘‘price discrimination’’ as defined by the

statute;

6

whose Section 3 covers single-brand exclusive dealerships, full-requirements contracts, and

total-output-supply contracts; and whose Section 7 covers mergers and acquisitions) prohibits the

behavior it covers if that conduct is requisitely likely to or did lessen competition. The Federal Trade

3. 26 Stat. 209 (1890) (codified as amended at 15 U.S.C. Sections 1-11) (hereinafter Sherman Act).

4. Natural oligopolistic conduct is conduct whose ex ante perpetrator-perceived profitability was critically affected by the

perpetrator’s belief that its rivals’ responses would or might be influenced by their belief that it would have the opportunity to

react to their responses and would find it inherently profitable to react to any undercutting or undermining response that they

would otherwise find profitable in one or more ways that would render those responses unprofitable for them. The law-study

uses the expression ‘‘undercuttingresponse’’ to refer to a response to an individualized oligopolistic price that would render it

unprofitable and the expression ‘‘underminingresponse’’ to refer to a response to an across-the-board oligopolistic price that

would render it unprofitable. For the referents of ‘‘individualizedprice’’ and ‘‘across-the-board price,’’see Part 3C infra. The

Sherman Act does not cover natural oligopolistic conduct because such conduct involves neither the making of an

anticompetitive agreement nor the making and carrying out of an anticompetitive threat or promise. My contestable

conclusion that the Sherman Act also does not cover any unsuccessful attempt to enter into an anticompetitive agreement

(an agreement in restraint of tr ade) reflects three facts: (1) t he section of the Sherman Act (Sec tion 1) that prohibits

agreements in restraint of trade does not explicitly prohibit unsuccessful attempts to form agreements in restraint of trade;

(2) the laws of the U.S. central government do not contain a general attempt statute (i.e., a statute that declares illegal any

unsuccessful attempt to commit an act that would be illegal if successfully completed); and (3) the U.S. courts have

consistently refused to read attempt provisions into statutes that do not contain them. I think that these facts imply that it

would be incorrect as a matter of law for U.S. courts either to read an attempt provision into Section 1 or to classify an

unsuccessful attempt to enter into an anticompetitive agreement to be an ‘‘attempt to monopolize’’ (which is prohibited by

Section 2). I should add that, for constitutional reasons, the Sherman Act should be given a so-called ‘‘saving construction’’

under which it would also be deemed not to cover any attempt (whether successful or not) by an individual actor to secure a

legislative, administrative, or judicial decision that would reduce the absolute attractiveness of the best offer(s) against which

it would have to compete in some way that would reduce economic efficiency in an otherwise-Pareto-perfect economy (see

n.10 infra) or any agreement by two or more actors to cooperate in securing such a government decision so long as the

conduct in question did not violate an appropriate criterion of fair play.

5. 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. Sections 12-27) (hereinafter Clayton Act).

6. The Clayton Act defines ‘‘price discrimination’’to be the requisitely-contemporaneous charging of different prices for the

same commodity to different buyers. In the Clayton Act’s terminology, a seller’s charging different prices to different buyers

is still called ‘‘price discrimination’’when the differences in prices reflect differences in the marginal(or incremental) costs

the relevant seller must incur to supply the buyers in question. According to the (superior) standard economics definition,

pricing that the Clayton Act would denominate ‘‘cost-justified price discrimination’’is not price discrimination at all. On the

standard economics definition, a seller would also be said to have practiced price discrimination if it charged different buyers

the same price despite the fact that it had to incur different marginal (or incremental) costs to supply them. On the Clayton

Act’s definition, the latter seller’s pricing would not involve ‘‘price discrimination.’’

Markovits 5