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2014 | Book

Chapter 1 The “Correct” Definition of “the Impact of a Choice on Economic Efficiency” Read chapter Read first chapter

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

Volume I Basic Concepts and Economics-Based Legal Analyses of Oligopolistic and Predatory Conduct

Author: Richard S. Markovits

Publisher: Springer Berlin Heidelberg

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

This volume (1) defines the specific-anticompetitive-intent, lessening-competition, distorting-competition, and exploitative-abuse tests of illegality promulgated by U.S. and/or E.U. antitrust law, (2) compares the efficiency defenses promulgated by U.S. and E.U. antitrust law, (3) compares the conduct-coverage of the various U.S. and E.U. antitrust laws, (4) defines price competition and quality-or-variety-increasing-investment (QV-investment) competition and explains why they should be analyzed separately, (5) defines the components of individualized-pricing and across-the-board-pricing sellers’ price minus marginal cost gaps and analyses each’s determinants, (6) defines the determinants of the intensity of QV-investment competition and explains how they determine that intensity, (7) demonstrates that definitions of both classical and antitrust markets are inevitably arbitrary, not just at their periphery but comprehensively, (8) criticizes the various protocols for market definition recommended/used by scholars, the U.S. antitrust agencies, the European Commission, and U.S. and E.U. courts, (9) explains that a firm’s economic (market) power or dominance depends on its power over both price and QV investment and demonstrates that, even if markets could be defined non-arbitrarily, a firm’s economic power could not be predicted from its market share, (10) articulates a definition of “oligopolistic conduct” that some economists have implicitly used–conduct whose perpetrator-perceived ex ante profitability depended critically on the perpetrator’s belief that its rivals’ responses would be affected by their belief that it could react to their responses, distinguishes two types of such conduct–contrived and natural–by whether it entails anticompetitive threats and/or offers, explains why this distinction is critical under U.S. but not E.U. antitrust law, analyzes the profitability of each kind of oligopolistic conduct, examines these analyses’ implications for each’s antitrust legality, and criticizes related U.S. and E.U. case-law and doctrine and scholarly positions (e.g., on the evidence that establishes the illegal oligopolistic character of pricing), and (11) executes parallel analyses of predatory conduct--e.g., criticizes various arguments for the inevitable unprofitability of predatory pricing, the various tests that economists/U.S. courts advocate using/use to determine whether pricing is predatory, and two analyses by economists of the conditions under which QV investment and systems rivalry are predatory and examines the conditions under which production-process research, plant-modernization, and long-term full-requirements contracts are predatory.

Table of Contents

Frontmatter

Introduction to Part I: Basic Concepts and Approaches

Frontmatter
Chapter 1 The “Correct” Definition of “the Impact of a Choice on Economic Efficiency”
Abstract
Defined in the way that conforms with professional and popular understanding and creates a concept that is most useful, the impact of a choice on economic efficiency equals the difference between the equivalent-dollar gains the choice confers on its beneficiaries (the winners) and the equivalent-dollar losses it imposes on its victims (the losers). More controversially, in this formulation, a winner’s equivalent-dollar gain equals the number of dollars that would have to be transferred to him to leave him as well-off as the choice would leave him if
Richard S. Markovits
Chapter 2 The Components of the Difference Between a Firm’s Price and Conventional Marginal Costs and the Intermediate Determinants of the Intensity of Quality-and-Variety-Increasing-Investment Competition
Abstract
Industrial Organization economists devote considerable attention to analyzing the competitive impact of various types of business conduct, and the antitrust laws of the United States and the E.U. make the legality of various types of business conduct depend (sometimes inter alia) on their competitive impact. Surprisingly, neither Industrial Organization economists, nor the antitrust laws in question, nor the lawyers and judges that interpret and apply these laws have satisfactorily defined the concepts of the intensity of competition they use. The definitions that have been proposed for (1) the impact of conduct on price competition have been incomplete, inconsistent, and/or inappropriate and (2) the concepts of the impact of conduct on QV-investment competition and the impact of conduct on price and QV-investment competition combined have been totally ignored. Chapter 4 will offer a definition of “the impact of a choice on competition” that I think correctly operationalizes this concept in both the U.S. antitrust-law context and the E.C./E.U. competition-law context.
Richard S. Markovits
Chapter 3 How “Monopolizing Conduct,” “Attempts to Monopolize,” and “Exclusionary or Foreclosing Conduct” Should Be Defined by Economists
Abstract
Both U.S. antitrust law and E.C./E.U. competition law prohibit “monopolizing” or “attempting to monopolize” either explicitly in those terms or by using other words to proscribe such conduct. Thus, Section 2 of the U.S. Sherman Act explicitly prohibits firms from monopolizing or attempting to monopolize; in essence, Section 1 of the Sherman Act prohibits firms from monopolizing by entering into contracts, agreements, or conspiracies in restraint of trade; and Article 102 of the 2009 Lisbon Treaty prohibits firms that are individually dominant or members of a set of rivals that are collectively dominant from committing exclusionary abuses of their dominant position. Unfortunately, none of these statutes or treaties and none of the economic and legal scholars and judges that have analyzed the character of particular business behavior has ever explicitly defined “monopolizing conduct” or “exclusionary abuse,” and the implicit definitions of these concepts that can be derived from the operational decision-rules that scholars recommend be used to decide and that judges have used to decide whether to hold defendants guilty of monopolizing contain both errors of commission and errors of omission. Chapter 3 defines the concepts “monopolizing conduct” and “attempts to monopolize” and comments on what I take to be the coincident concept of an exclusionary abuse (of a dominant position). Inter alia, Chap. 4 explains the errors that relevant judges and antitrust-enforcement agencies have made when operationalizing these concepts.
Richard S. Markovits
Chapter 4 The Actor-Coverage of, Conduct-Coverage of, Tests of Illegality Promulgated by, and Defenses Recognized by U.S. Antitrust Law and E.C./E.U. Competition Law
Abstract
This chapter has three sections. The first summarizes the conduct coverage of, the tests of legality promulgated by, and the defenses recognized by U.S. antitrust law and points out certain mistakes that U.S. courts and various scholars have made when addressing these issues. The second presents a parallel analysis of the E.C./E.U. competition law. And the third compares the above aspects of U.S. antitrust law and E.C./E.U. competition law. This chapter will not discuss (1) the approaches that U.S. and E.C./E.U. officials and scholars take to market definition, (2) the assumptions they make about the connection between a firm’s market share and its monopoly, oligopoly, and overall market power, or (3) the conclusions they have reached about the monopolizing character and/or likely competitive impact of various types of conduct or particular exemplars of specific types of conduct. These issues will be addressed respectively in Chaps.​ 8–15. This chapter will also not discuss the institutional framework of U.S. and E.C./E.U. antitrust law (i.e., the nature of their enforcement “agencies” and courts and the roles each such authority plays in the creation and enforcement of competition law), the procedures those various State actors are bound to follow (inter alia, the various notification requirements imposed on the law’s addressees and the time-constraints imposed on the “agencies” review of notified mergers), and the “remedial” options available to U.S. and E.C./E.U. antitrust decision-makers. Chapter 12 discusses the U.S. and E.C./E.U. notification and “agency”-review protocols for horizontal mergers.
Richard S. Markovits
Chapter 5 Categories of Economic-Efficiency Gains That Are and Are Not Relevant to Conduct’s Antitrust Legality
Abstract
The Welfare Economics of Antitrust Policy and U.S. and E.U. Antitrust Law will list the various narrowly-defined categories of economic inefficiency whose magnitudes both business conduct and antitrust policies can affect that I find useful to distinguish and will explain how such conduct and policies can and when they will increase and decrease each of these narrowly-defined categories of economic inefficiency. This chapter is much less ambitious. Section 1 delineates four broad categories and a few subcategories of economic inefficiency (resource misallocation) whose magnitudes business conduct and antitrust policies can affect. Section 2 lists the various categories of economic-efficiency gains and losses that business conduct can yield whose generation by any exemplar of business conduct is irrelevant to the conduct’s antitrust legality and explains why these economic-efficiency effects are irrelevant to the legality of the conduct that generates them under U.S. antitrust law and E.C. competition law. And Sect. 3 lists the various categories of economic-efficiency gains that business conduct can yield whose generation is either directly or indirectly relevant to its antitrust legality and explains briefly why the fact that conduct yields these categories of economic-efficiency gains does favor its legality under the U.S. Sherman Act, the U.S. Clayton Act, Article 101 of the 2009 Lisbon Treaty, Article 102 of the 2009 Lisbon Treaty, and the EMCR.
Richard S. Markovits
Chapter 6 The Inevitable Arbitrariness of Market Definitions and the Unjustifiability of Market-Oriented Antitrust Analyses
Abstract
The concrete antitrust-law analyses of every country are virtually always market-oriented—i.e., virtually always derive their legal conclusions from data on parameters such as a firm’s market share or the concentration of the market(s) in which it is operating whose definitions assume that markets can be defined non-arbitrarily. Thus, courts, prosecutors, and administrative agencies that are applying treaties that prohibit the abuse of a dominant position or doctrines that assert that the possession of monopoly (or market) power is an element of an actual or alleged antitrust offense (such as engaging in monopolizing conduct) have all assumed that the dominance of any firm or its monopoly or market power should be determined primarily or exclusively by its market share, and courts, prosecutors, and administrative agencies that are seeking to prevent or break up horizontal mergers and acquisitions that manifest their participants’ specific anticompetitive intent or lessen competition have primarily or exclusively based their predictions of the competitive impact of such mergers or acquisitions (1) traditionally on the merger partners’ individual and combined shares of the relevant markets’ sales and the total of the shares of the sales of those markets made by the four or eight firms that had most sales in them and (2) more recently on the post-merger sum of the squares of the market shares of all firms placed within the relevant markets (the post-merger HHIs—Hirschman–Herfindahl Indices—of those markets) and the impact of the merger in question on these HHIs. I hasten to add that the implicit assumption of all such analytic protocols that markets can be defined non-arbitrarily is shared by virtually all industrial-organization economists.
Richard S. Markovits
Chapter 7 Economic (Classical) and Antitrust Markets: Official and Scholarly Proposals
Abstract
In 1950, the United States Congress passed the Celler-Kefauver Act to amend the “merger and acquisition” section of the Clayton Act (Section 7) by adding the language “in any line of commerce in any section of the country” to its prohibition of acquisitions of stock or assets whose effect “may be substantially to lessen competition.” The addition of this language to the Clayton Act in 1950 by the Celler-Kefauver Act led U.S. antitrust courts and antitrust-enforcement agencies to analyze the legality of all business conduct covered by the Clayton Act by defining relevant product and geographic markets (“lines of commerce” and “sections of the country”) and deriving competitive-impact predictions from relevant-market-aggregated data—inter alia, data on firm market shares, traditional seller-side concentration ratios, and (more recently) HHI figures. Indeed, since that time, U.S. courts have virtually always insisted that a relevant market or set of relevant markets be defined not only in Clayton Act cases but also in Sherman Act Section 2 (monopolization and attempt-to-monopolize) cases. European antitrust institutions—the European Court of Justice (ECJ), the Court of First Instance of the European Communities (CFI), the European Commission (E.C.), and the courts and antitrust-enforcement agencies of most, if not all, of the member states of the E.C. have also all adopted market-oriented approaches to antitrust-law analysis.
Richard S. Markovits
Chapter 8 The Operational Definition of a Firm’s Monopoly, Oligopoly, and Total Economic (Market) Power in a Given ARDEPPS
Abstract
Economists, legislators, antitrust lawyers, judges, and legal scholars often refer to a firm’s monopoly power, oligopoly power, and total economic (sometimes called “market”) power. However, there is no consensus about the way in which these terms should be operationalized, and discussions of these concepts tend to be rudimentary if not simplistic. This chapter executes tediously-detailed analyses of the concepts of a firm’s monopoly, oligopoly, and total economic (market) power.
Richard S. Markovits
Chapter 9 The Need to Analyze Separately the Monopolizing Character, “Abusiveness,” Competitive Impact, and Economic Efficiency of Business Choices
Abstract
Preceding chapters have discussed the concepts of “monopolization,” “abusiveness,” “competitive impact,” and “economic efficiency.” This chapter explains why the monopolizing character, abusiveness, competitive impact, and economic efficiency of business conduct must be analyzed separately. Section 9.1 explains why the three concepts that play an important role in U.S. antitrust law and policy discussions—monopolization, competitive impact, and economic efficiency—must be analyzed separately. Section 2 explains why the issue of abusiveness that is salient in EC/EU competition law must be analyzed separately from the monopolization, competitive-impact, and economic-efficiency issues.
Richard S. Markovits
Backmatter

Introduction to Part II: Applications

Frontmatter
Chapter 10 Oligopolistic Conduct
Abstract
This chapter focuses on natural and contrived oligopolistic conduct in the senses in which I have defined these concepts. To my knowledge, no economist has ever offered an explicit definition of “oligopolistic conduct” or recognized my distinction between “natural” and “contrived” oligopolistic conduct. For this reason, I want to begin by setting out the way in which I define “oligopolistic conduct or interdependence,” by explaining the relationship between my definitions of these concepts and the way in which economists have implicitly defined them in use (e.g., when labeling certain pricing models oligopolistic pricing models), and by specifying my distinction between “natural” and “contrived” oligopolistic conduct.
Richard S. Markovits
Chapter 11 Predatory Conduct
Abstract
To my knowledge, no economist or lawyer has ever explicitly defined the concept “predatory conduct.” However, both economists and lawyers have consistently defined “predatory conduct” in use to be a subspecies of the conduct prohibited by the Sherman Act. More specifically, the characterization of conduct as “predatory” has always implied that its perpetrator’s (perpetrators’) ex ante perception that was ex ante profitable was ceteris paribus critically inflated by its (their) belief that it would or might reduce the absolute attractiveness of the offers against which it (they) would have to compete by driving an established rival’s QV investment out, by inducing an established rival to sell out to the predator(s) at a distressed price, by deterring a potential competitor or established firm from making an additional QV investment in the predator’s (predators’) ARDEPPS, or (by extension) by inducing the owner of an extant QV investment or the prospective maker of a planned QV investment to change its QV investment’s location to a position further away in product-space from the QV investment(s) of the predator(s) where the phrase “ceteris paribus critically inflated” indicates that the effect in question would have rendered the relevant behavior ex ante profitable though ex ante economically inefficient in an otherwise-Pareto-perfect economy.
Richard S. Markovits
Backmatter
Metadata
Title
Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law
Author
Richard S. Markovits
Copyright Year
2014
Publisher
Springer Berlin Heidelberg
Electronic ISBN
978-3-642-24307-3
Print ISBN
978-3-642-24306-6
DOI
https://doi.org/10.1007/978-3-642-24307-3

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