Antitrust 1 Prof. E. Fox Fall 2004 1 I. Introduction to Antitrust Law 4 a. General Background 4

Monopoly and Monopolization under Sherman Act §2

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Monopoly and Monopolization under Sherman Act §2

  1. Elements of §2 Violation

  1. Act of Monopolization

  1. Market Definition

  • Instrumental concept w/o an econometric basis; start w/the smallest credible hypothesis (even if it falls into the Cellophane Fallacy); test it out w/ reasonably interchangeable alternatives

  • Demand: where will buyer turn if seller raises price above cost

  • Elasticity of demand = % shift in quantity demanded caused by a 1% change in price

  • If a 1% price rise will cause more than a 1% shift of demand, then demand is elastic

  • Demand substitutability = consumers can substitute one product for another

  • Supply: current and potential competitors to take advantage of prices raised above cost

  • Supply substitutability = companies can increase supplies

  • Additional considerations:

  • Geographic diversion = companies can shift where they send their products

  • New entry = barriers to entry, level of initial costs, availability of slots for newcomers, entry d/n happen immediately, existing firms may try to block entry

  • Submarkets = where you have heterogeneous, highly differentiated products, each brand-name can constitute a separate submarket (i.e., intra-brand market)

  • Merger GuidelinesSSNIP – if all firms were to raise their prices by 5-10%, what would buyers do? – if a sufficient number of buyers would shift demand, merged firm w/n be able to hold the price increase; other products w/b substitutes, and s/b included in the relevant market.

  • Additional evidence to be considered:

  • a) buyers shift or are considering shifting from one product to another

  • b) sellers base business decisions on prospect of buyer substitution

  • c) influence of downstream competition faced by buyers in output market

  • d) timing and cost of switching products

  • NOTE: uncommitted entrants are considered if responses are likely to occur w/o significant sunk costs of entry and exit and a significant impact is achieved in a timely period

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