1. Russell Pittman “Economics at Community Colleges” October 5, 2012 The views expressed are not purported to reflect the views of the U.S. Department of Justice.

2. The Economics of Antitrust: An IntroductionOctober 5, 20122

3.  What is the idea? ◦ Protection of the process of competition, for the benefit of consumers and the economy  What is included in antitrust law? ◦ Agreements among firms ◦ “Monopolization”: Unilateral single-firm conduct ◦ Mergers and acquisitions  What is not included? ◦ Price regulation (including “price gouging”) ◦ Profit regulation ◦ Consumer protection October 5, 2012 The Economics of Antitrust: An Introduction3

4.  Horizontal agreements ◦ Cartel agreements: the most serious violations  “Per se” illegal  No requirement to prove economic effect – Why?  Criminal punishment in U.S., increasingly elsewhere  So how detect and prove?  “Leniency” ◦ Joint venture agreements  “Rule of reason” analysis  Vertical agreements ◦ Examples: Exclusive contracts, Most Favored Nation clauses, tying, resale price maintenance ◦ Generally a competition problem only when market power present The Economics of Antitrust: An IntroductionOctober 5, 20124

5.  Single-firm conduct. In most of the world, “abuse of a dominant position”  Both “parts” of the offense must be present ◦ It’s not illegal to have a dominant position, or even a monopoly ◦ You can’t abuse a dominant position unless you HAVE a dominant position  Two types of abuse ◦ Exclusionary abuses  Most serious abuses: prevent the development of competition  Most abuse cases are of this type  Examples: Microsoft, Dentsply ◦ Exploitative abuses  Monopolistic prices and profits, some types of discrimination  Not many cases in most jurisdictions  Generally not a part of U.S. enforcement The Economics of Antitrust: An IntroductionOctober 5, 20125

6.  The “latecomer” of the 3 principal provisions in US, EU law  Most attention paid to horizontal mergers, though vertical mergers may be harmful as well – especially “foreclosure” issues  Increasingly, agencies require “prenotification” ◦ An annoying and costly “tax” on multinational firms ◦ Increasing calls for international standardization The Economics of Antitrust: An IntroductionOctober 5, 20126

7.  Market definition ◦ What competes with what? What may be monopolized? ◦ Product and geographic dimensions  Market description and analysis ◦ CR4 and HHI – but misleading appearance of precision, predictability  Barriers to entry ◦ Government regulations, scarce inputs, large minimum efficient scale, strong product differentiation, reputation ◦ “Timely, likely, and sufficient”  Competitive effects ◦ Coordinated effects ◦ Unilateral effects  Efficiencies: The Williamsonian tradeoff ◦ Welfare standard: Total surplus or consumer surplus? ◦ Failing firm defense The Economics of Antitrust: An IntroductionOctober 5, 20127

8.  Price controls? ◦ In principle, no. ◦ But sometimes political pressures are strong. ◦ Regulation of “natural monopolies”? Usually, no. ◦ But if no regulatory agencies, may handle by default, under “abuse of dominance” provisions.  Consumer protection law? ◦ Misleading advertising, consumer fraud ◦ Some competition agencies enforce consumer protection law as well, including US FTC  Overarching rationale is to protect the process of competition, allow the market to do its work The Economics of Antitrust: An IntroductionOctober 5, 20128