1. “The offense of monopoly under Section 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinct from growth or development as a consequence of a superior product, business acumen or historical accident” United States v. Grinnell Corp. 384 U.S. 563, 570-571 (1966)

2. Predatory pricing  Simple story: Large firm cuts prices drives smaller firms from market then raises prices to monopoly levels Large firm cuts prices drives smaller firms from market then raises prices to monopoly levels  McGee (Journal of Law and Economics) - re-examines Standard Oil case. Predatory pricing is not rational. Why engage in predation when merger is cheaper.

3. More recent literature suggests that:  McGee assumes merger to monopoly is legal  predatory pricing may reduce sales price if ultimately merge  Predation may be for demonstration effect 

4. Predation requires (necessary conditions):  Initial Market power  Low Barriers to Exit  High barriers to entry

5. Predation – the demonstration effect or “I’ll Teach that SOB a lesson FOB Price Pricing of Concrete construction Blocks Distance from plant

6. Predatory pricing: 1. Areeda-Turner (Harvard Law Review, 1975) a. p<mc b. p<mc up to minAC then p<ATC c. p<avc ATCMC D AVC Price Quantity

7. Exclusionary practices  Willful acquisition or maintenance of that power as distinct from …  Acts that are capable of creating, enlarging or prolonging monopoly power by impairing the opportunities of rivals and, Do not benefit customers at all (Naked Exclusion), or are unnecessary to achieve specific customer benefits, or produce harms disproportionate to resulting benefits Do not benefit customers at all (Naked Exclusion), or are unnecessary to achieve specific customer benefits, or produce harms disproportionate to resulting benefits H. Hovenkamp Antitrust LawH. Hovenkamp Antitrust Law

8. Exclusionary practices (cont.)  Conduct, other than competition on its merits (Areeda and Turner)  Conduct capable of excluding an equally efficient rival (Posner)

9. The Boundaries of Exclusion  “…to be condemned as exclusionary, a monopolist’s act must have an ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice…” Microsoft, 253 F3d at 58-59 Microsoft, 253 F3d at 58-59

10. Supplier Discrimination and Retail Competition Penn tennis balls Conway Drugs Walmart P = $1.00/can P = $1.75/can P= $2.00/can P= aaargh!

11. Willful maintenance or acquisition  Aspen Skiing (1985) No general duty to deal, but Duty to Deal exception No general duty to deal, but Duty to Deal exception  US v. AT&T (1978) Bell Long LinesMCI 1.Refusal to deal 2.Price discrimination 3.Sabotage customer

12. LePage’s Inc. v. 3M (2003) Scotch tape ABCDE Private Label 3M: Partnership Growth Fund Discounts if customer buys all product lines Suppose $5,000 per line. If buy all, then discount is $3000. Suppose you are private label Discounts: Walmart $1.5m Kmart $926k Sam’s $667k Target $482k

13. Cheap Exclusion  Cheap, as in “inexpensive”  Cheap, as in “having no redeeming value” (no cognizable efficiency gains)  Examples: “helpfully” rearrange product displays “helpfully” rearrange product displays Frivolous patent infringement claims Frivolous patent infringement claims Abuse of the standard setting process Abuse of the standard setting process

14. Raising Rivals’ Costs GMFord Chrysler UAW K L GM Ford Chrysler

15. The importance of corporate and management statements  Microsoft Choke of air supply Choke of air supply  Whole Foods  KCI v. Hill-ROM Hill-Rom makes standard and specialty beds Hill-Rom makes standard and specialty beds

16. DALLAS - The chief executive of Whole Foods Market Inc. told his board that if it bought its leading rival, the company would “eliminate forever” the possibility that anyone else could create a nationwide competitor in the natural and organic grocery business, government lawyers say. Chairman and CEO John Mackey also said that buying Wild Oats Markets Inc. would let Whole Foods “avoid nasty price wars” in several cities where the two compete, the lawyers wrote in a court document unsealed on Tuesday. Whole Foods

17. P-28817 Cut ‘em off at the knees and watch them bleed … Competitively, idle words or a real threat? I promise you I consider these words a threat to all who propose to compete against Hill-Rom. Do you? How sharp is your machete? Nelson Baughman, HR Vice President: Hill-Rom Intends To Destroy Competition

18. P-00118 We have to work together to win in our markets and do away with KCI. This is a job we are going to get done, and we’re going to get it done together. If anyone doesn’t want to do it that way, there’s a bus waiting outside, and you can get the hell out now. Hill-Rom Intends To Destroy Competition Hill-Rom executive speech

19. P-28819 Hill-Rom’s Gus Hillenbrand 9/19/2002 Hillenbrand Cross Examination Q. Did you use the market power of Hill-Rom to attempt to obtain a hundred percent market share? A. Yes. Q. And you saw documents from your sales staff that talked about eliminating KCI, torturing KCI, killing KCI, doing away with KCI. You saw those things, didn't you? A. I saw those. Q. And you never sent out a directive saying, hey, we want to treat them fair, we want to play fair, did you? A. Never did. Trial Transcript: Page 3950:12-21