Class 3 : Booth 42201: The Legal Infrastructure of Business Market Power: Antitrust Randal C. Picker Leffmann Professor of Commercial Law Senior Fellow, The Computation Institute The Law School The University of Chicago Copyright © Randal C. Picker. All Rights Reserved.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.2 Sherman Act Sec. 1 n Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.3 Sherman Act Sec. 2 n Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony,and, on conviction thereof, shall be punished by fine not exceeding $101,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

4 P = 10 – Q P Q Demand Curve 10 Monopoly Outcome: Marginal Revenue = Marginal Cost Marginal Cost QCQC PCPC MC = 4 MR = 10 – 2Q QMQM PMPM CS Profits DWL TC Marginal Revenue

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.5 Twombly Complaint

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.6 Twombly Complaint ¶ 51 Plaintiffs allege upon information and belief that Defendants have entered into a contract, combination or conspiracy to prevent entry in their respective local telephone and/or high speed internet service markets and have agreed not to compete with one another and otherwise allocated customers and markets to one another.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.7 Increase in Post-Merger Concentration Revised DOJ-FTC Grid Unconcentrated: < 1500 Moderately Concentrated: 1500 to 2500 Highly Concentrated: > 2500 No challenge Scrutiny Presumed to raise mkt power Post- Merger HHI < to 200> 200 Scrutiny

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.8 US Complaint (31 Aug 2011)

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.9 US Complaint (31 Aug 2011)

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.10 Gov’t Ex. 20 A new competitor “born” on the Internet is Netscape. Their browser is dominant, with 70% usage share, allowing them to determine which network extensions will catch on. They are pursuing a multi-platform strategy where they move the key API into the client to commoditize the underlying operating system. They have attracted a number of public network operators to use their platform to offer information and directory services.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.11 Gov’t Ex. 20 One scary possibility being discussed by Internet fans as whether they should get together and create something far less expensive than a PC which is powerful enough for Web browsing. This new platform would optimize for the data types on the Web. Gordon Bell and others approached Intel on this and decided Intel didn’t care about a low cost device so they started suggesting that General Magic or another operating system with a non-Intel chip is the best solution.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.12 Article 101 (81) n 1. The following shall be prohibited as incompatible with the common market: u all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.13 Article 101 u (a) directly or indirectly fix purchase or selling prices or any other trading conditions; u (b) limit or control production, markets, technical development, or investment; u (c) share markets or sources of supply;

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.14 Article 101 u (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; u (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.15 Article 102 (82) n Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.16 Article 102 n Such abuse may, in particular, consist in: u (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; u (b) limiting production, markets or technical development to the prejudice of consumers;

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.17 Article 102 u (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; u (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.18 Microsoft (CFI 2007)

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.19 XP N sales represent percent (1/20,000th of one percent) of overall XP sales in Europe. No PC manufacturers have ordered or preinstalled Windows XP N on PCs. Only 1,787 copies of Windows XP N have been sold to retailers and distributors in Europe. Microsoft Factsheet, Apr 2006

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.20 Screen Capture Slide Link European Commission, 27 Feb 2008

October 9, 2015The Legal Infrastructure of Business. Copyright © Randal C. Picker.21 European Commission, 17 Jan 2009

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October 9, 2015Copyright © 2012 Randal C. Picker25 21 May 2012

October 9, 2015Copyright © 2012 Randal C. Picker26 FTC Search Engine Guidelines, 27 June 2002

October 9, 2015Copyright © 2012 Randal C. Picker27 “The Federal Trade Commission responded to a complaint filed by Commercial Alert requesting that the agency investigate whether certain search engines are violating Section 5 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45(a)(1), by failing to disclose that advertisements are inserted into search engine results lists.” FTC, 27 June 2002

October 9, 2015Copyright © 2012 Randal C. Picker28 “Finally, the staff recommends that you review your Web sites to ensure that: any paid ranking search results are distinguished from non-paid results with clear and conspicuous disclosures; the use of paid inclusion is clearly and conspicuously explained and disclosed; and no affirmative statement is made that might mislead consumers as to the basis on which a search result is generated.” FTC, 27 June 2002

October 9, 2015Copyright © 2012 Randal C. Picker29 Google HP Restaurants Search, 25 June Organic Search Competition (no $) 2. Auctions (all $) 3. No Competition: Hardwired in favor of Google 4. Onebox result: hardwired Google reviews; organic competition? FTC Deceptive practice? Tying? DG Comp Tying ala Microsoft (Media player and IE)

October 9, 2015Copyright © 2012 Randal C. Picker30 Google HP Restaurants Search: IE6 25 June 2012 Visiting as IE6 shows design possibilities: alternate third-party homepage sites presented on first page of search results.