1. Antitrust Law and Policy Week 1: Thursday 9/26 Douglas Ross dcr@uw.edu (206) 757-8135

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8. Class participation: overview  Every Tuesday for 8 weeks I will distribute and explain a problem  Starting 10/1  The next Tuesday, a “key team” will submit a joint paper and present an analysis of the problem in class  So, 10/8 for the first team to present  All other students may submit an individual “observer” memo 8

9. Class participation: key team  You must sign up to present in one of the 8 available weeks  You are on the “key team” that week  Each team is 4-5 people  You can sign up on your own or with others  You pick the week  Sign up on Canvas starting after this class  Your team is on point to answer questions the week the assignment is made 9

10. Class participation: key team  Process for key team:  Team sends me an e-mail with questions seeking more facts no later than Friday  dcr@uw.edu dcr@uw.edu  I respond within 24 hours  The team must do a joint paper (10-20 pages)  The team must do an in class presentation  2 people max; 12 minutes max; send me slide deck  Team gets a grade from 0-21 points  Each person on the team gets the same grade 10

11. Class participation: key team memo  Facts: what you learned  Statement of the key issues  Summary of your conclusions and rationale  Analysis  Short summation and close 11

12. Class participation: observer status  During the weeks you’re not on the Key Team:  May prepare a case memo (“Observer” memo)  3-6 pages  Individually prepared  But may consult with your team members  You will get either 0 or 7 points 12

13. Class participation: observer memo  Identify desired additional facts  Statement of issues  Preliminary analysis of issues, based on facts you have and explain how facts you would like to learn might affect analysis 13

14. Class participation: grading Key team case memo & presentation: 21 pts (10%*) Seven case memos (each 7 Pts): 49 pts (25%*) Take home final 130 pts (65%) Total 200 pts Note: Law School Curve Policy in effect *Rounded 14 Memos & grading:

15. Class participation: guaranteed “B”  Turn in all seven case observation memos  Pass all  No more than one memo late  Participate in Key Team case study  Attend class regularly and participate  Grade: B 15

16. Judge Taft  6 th Circuit judge  1892-1900  President  1908-1912  Chief Justice  1921-1930 16

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18. Addyston Pipe & Steel  Naked restraint: sole object to restrain competition  Ancillary restraint: necessary to achieve pro-competitive end  Sale of business  Employee “One of the law’s most brilliantly suggestive and neglected opinions” Robert Bork, T HE A NTITRUST P ARADOX (1978) 18

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20. The Sherman Act: two views Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4-5 (1958) (Black, J.) “The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.” 20

21. The Sherman Act: two views Brown Shoe Co. v. United States, 370 U.S. 294, 344, 82 S.Ct. 1502, 1534, 8 L.Ed.2d 510, 547 (1962) (Warren, C.J.) “[W]e cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned businesses. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision.” 21

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23. Northern Securities “That every combination or conspiracy which would extinguish competition between otherwise competing railroads engaged in interstate trade or commerce, and which would in that way restrain such trade or commerce, is made illegal by the act” 23

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25. Northern Securities “Disaster to business and wide-spread financial ruin, it has been intimated, will follow the execution of its provisions. Such predictions were made in all the cases heretofore arising under that act. But they have not been verified. It is the history of monopolies in this country and in England that predictions of ruin are habitually made by them when it is attempted, by legislation, to restrain their operations and to protect the public against their exactions.” Remember the DOJ response to the consent decree in Apple 25

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29. D S Supply and demand P Q

30. D Competition: setting industry P & Q S P Q PcPc QcQc

31. D P Q PcPc QcQc

32. D Competition: consumer surplus P Q PcPc QcQc Most consumers are willing to pay more than they have to but, because the seller sells at the same price to all, consumers get value beyond the price they were willing to pay Consumer surplus

33. D Competition vs. monopoly P Q PmPm QmQm PcPc QcQc

34. D P Q PmPm QmQm PcPc QcQc Consumer surplus Consumer surplus shrinks under monopoly

35. D Competition vs. monopoly P Q PmPm QmQm PcPc QcQc Consumer surplus Transferred from consumers to producers

36. D Competition vs. monopoly P Q PmPm QmQm PcPc QcQc Consumer surplus Transferred from consumers to producers Deadweight loss

37. D Competition vs. monopoly P Q PmPm QmQm PcPc QcQc Consumer surplus Transferred from consumers to producers Deadweight loss Are consumers hurt by monopoly? If so, what’s the harm?

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39. D Monopoly v. competition P Q PmPm QmQm PcPc QcQc Suppose the merger results in cost savings AC em = average cost of the “efficient” monopolist AC c AC em

40. D Monopoly v. competition P Q PmPm QmQm PcPc QcQc AC c AC em Cost savings Calculate the cost savings

41. D Monopoly v. competition P Q PmPm QmQm PcPc QcQc AC c AC em Cost savings Weigh cost savings vs. deadweight loss Deadweight loss

42. D Monopoly v. competition P Q PmPm QmQm PcPc QcQc AC c AC em Cost savings An efficient merger’s gains could outweigh the deadweight loss Resources are freed to produce more effectively elsewhere Deadweight loss

43. Antitrust  Framework for analysis:  Enhance consumer welfare  History and global impact  Use in practice “A lawyer who has not studied economics and sociology is very apt to become a public enemy.” Louis Brandeis (1916) 43 “Like all antitrust cases, this one must make economic sense.” United States. v Syufy Enterprises (9th Cir. 1990) (Kozinski, J.) 1889-1890Post WW II1975-20001950-1975Today

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45. Unused slides 45

46. Whole Foods + Wild Oats

47. Whole Foods 47

48. CEO’s FAQ 48 “What about this quote from you that the FTC released in its complaint?” ‘OATS remains a relevant competitor. By buying them we will greatly enhance our comps over the next few years and will avoid nasty price wars…'

49. CEO’s FAQ “Please refer back to my explanations about eliminating Wild Oats as a competitor in the first part of my blog. Part of the reason to do almost any merger is to eliminate a competitor. This is so self-evident to me that I really can’t understand why the FTC wants to make a big deal out of it … ”

50. CEO e-mail to Board “2. Elimination of a competitor – they compete with us for sites, customers and Team Members” “Reasons to do this deal” “Note: these two points add tremendous value that does not show up in any of the pro formas”

51. Why antitrust? 51 The Sherman Act is “a humbug based on economic ignorance and incompetence” Oliver Wendell Holmes, Jr. (1910)

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53. American, USAir Merger 53

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