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

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General Dynamics Corp. (1974)  Turning the Tide

  • 1974 – Supreme Court changed membership and the new majority was deferential to business interests, non-judgmental about bigness and industrial concentration and demanding of πs in their proof that a merger would harm competition

  • In merger cases  more concerned about competition and less about concentration
      1. Conglomerate Mergers – Removal of Potential Competition

  • FTC v. Proctor & Gamble (1967)  no good!

  • Does elimination of potential competition lessen competition in general in the marketplace?

  • No – if vibrant competition and easy entry

  • Yes – if industry is oligopolistic, and withdrawal of competitor would ease price raising

  • Merger will lessen competition

  • Lost Potential Entrant Effect: potential entrant has a moderating effect on oligopolistic behavior; if it enters the market, there would be no replacement to moderate such effect

  • Entrenchment: fear that Clorox would benefit from P&Gs economies of scale and become a better competitor and lower prices and deter new entrants  efficiencies blocked the merger!

  • Are efficiencies a complete defense or partial defense to an anticompetitive merger?

  • W/n make same assumptions about merger causing price increases

  • Marine Bancorp (1974)

  • Decided same day as General Dynamics and completely reevaluates P&G analysis

  • Actual Entry Effect: but for the merger, Δ would have entered the market as a new competitor and stirred up competition; this d/n make the market worse off by declining to enter de novo; Requires proof of:

  • High concentration and oligopoly behavior in pre-existing market

  • Feasibility of alternate independent entry, including: financial capability, incentive, means

  • Substantial likelihood that independent entry would result in pro-competitive effects

  • Potential Competition Edge Effect: by being perceived as a potential market entrant, Δ has the effect of moderating incumbents’ pricing (“wings effect”); Requires:

  • Must currently exert a pro-competitive force on oligopoly behavior

  • Must be the most likely entrant or one of very few

  • Barriers to entry must be high

  • Declined to decide in favor of the government on either theory b/c of insufficient pleading; reserves the question of whether either of these theories could justify enjoining a merger

  • D/n separate Actual Entry from Edge Effect: rare to have one without the other

  • Hard to prove proof of alternate entry plans

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