Jonathan B Baker, What about the Supreme Court? The lurking threat to US antitrust reform, Journal of Antitrust Enforcement, Volume 11, Issue 2, July 2023, Pages 154–161, https://doi.org/10.1093/jaenfo/jnad022
Navbar Search Filter Mobile Enter search term Search Navbar Search Filter Enter search term SearchThe current leadership of the US antitrust enforcement agencies, the White House, and many commentators recognize that the US antitrust laws need to be strengthened. 1 While it is too early to grade Biden administration enforcers on the results of their reform efforts, 2 it is evident that those efforts include litigation. 3 Enforcers have used enforcement actions, administrative litigation at the FTC, amicus briefs in private litigation, and guidelines to attack new competitive problems and to encourage the courts to strengthen antitrust rules. But litigation takes time, and an unsympathetic Supreme Court potentially lies in wait at the end of the road of every federal case.
During past periods of dramatic changes in judicial interpretation of the antitrust laws, antitrust reformers in the executive branch—those seeking to strengthen the laws during the 1940s and those seeking to weaken them during the 1980s—had a receptive Supreme Court. 4 In contrast, today’s Supreme Court may stand in the way of the change advocated by more interventionist reformers in the enforcement agencies.
A number of landmarks of judicial non-intervention have created landmines for antitrust reformers today. To illustrate the problem, this article focuses on two 21 st -century Supreme Court decisions, Trinko 5 and Amex, 6 which interpret sections 2 and 1 of the Sherman Act, respectively. 7 The discussion of these decisions is attentive to judicial dicta as well as holdings, on the view that Supreme Court dicta can influence lower courts by suggesting how the justices are likely to rule in future cases. Although lower courts can resist such suggestions, and some have done so (for good reasons), Court dicta at a minimum create hurdles for reformers seeking to strengthen the antitrust laws.
This 2004 decision precludes monopolization claims based on a dominant firm’s unilateral refusal to assist rivals in an industry subject to a non-antitrust regulatory framework governing the firm’s duty to do so. Although its holding is narrow, some read the opinion of the Court, written by Justice Scalia on behalf of six justices, 8 to suggest two broader non-interventionist themes.
Some read Trinko to suggest that liability for a monopolist’s unilateral refusals to deal should not be entertained, including outside the case’s regulated industries context, absent factors that include the termination of a voluntary prior course of dealing with the excluded firm and an unwillingness to deal even if compensated at a retail price. 9 That interpretation derives from Trinko’s description of Aspen, an earlier Court decision, as ‘at or near the outer boundary of § 2 liability’ on the ground that in Aspen, those factors suggested ‘a willingness to forsake short-term profits to achieve an anticompetitive end’ or ‘similarly’ revealed “a distinctly anticompetitive bent’. 10
This crabbed interpretation of monopolization law is neither sensible nor required by Trinko. 11 A fair reading of Trinko’s discussion of Aspen is that liability requires a court to find that the monopolist refused to deal as a means of impairing competition from its horizontal rivals, but that this connection need not necessarily be demonstrated by relying on the specific features of the Aspen decision referenced in Trinko. Consistent with this interpretation, the Seventh Circuit, writing after Trinko, described the factors referenced by the Court in Aspen as providing ‘a window into likely harm to competition’ and as ‘helpful but not dispositive’. 12 Nothing in Trinko, explicitly or implicitly, overrules Lorain Journal, 13 which upheld a section 2 violation based on the unilateral refusal of a newspaper that dominated local advertising to deal with advertisers that chose to advertise on a new rival, a radio station. 14 Treating the Aspen factors as necessary rather than sufficient creates a potential hurdle for meritorious cases based on unilateral refusals to deal.
The opinion of the Court in Trinko describes monopolies as ‘an important element of the free-market system’ on the ground that the ‘opportunity to charge monopoly prices-at least for a short period…induces risk taking that produces innovation and economic growth’. 15 On this view, monopolies are to be welcomed not feared: any exercise of market power would be temporary, hence self-correcting, and not troublesome because monopolies innovate. 16
This dictum gives a nod to the erroneous idea, popularized by commentators with a non-interventionist bent, that monopoly power will commonly self-correct through an entry or rival expansion. 17 It also could be read to endorse the erroneous idea that courts should be hospitable to monopolies because they are innovative. 18 The latter idea fails to recognize that monopolies gained or maintained through exclusionary conduct push other innovators out of the market, and thus are more likely to diminish than to increase industry innovation overall. 19 In addition, it is inconsistent with the modern economic literature that finds that in general competition, not market power, spurs innovation, productivity, and economic growth. 20
The self-correction idea can be understood as suggesting only limited concern about underdeterrence of anticompetitive conduct through false negatives (failures to condemn). At the same time, the opinion of the Court exhibits great concern with chilling procompetitive conduct through false positives (incorrect condemnation): the ‘cost of false positives counsels against an undue expansion of § 2 liability’. 21 Its dicta discourage antitrust enforcement by depicting—incorrectly—an error cost balance strongly skewed against intervention. 22 Alston, a later Supreme Court decision applying Sherman Act section 1, highlights the language from Trinko cautioning against enforcement—thereby suggesting that the Court’s inhospitality to antitrust enforcement continues to this day and is not limited to monopolization cases. 23
When the defendant is a transaction platform in a Sherman Act section 1 case, the Court held in 2018 in Amex, its conduct must be analysed within a two-sided market. 24 This holding has the effect of permitting benefits on one side to offset harm on the other side, contrary to what would be permitted were separate markets defined for each side. 25 In the wake of Amex, some courts have applied this approach to cases brought under Sherman Act section 2 and Clayton Act section 7. 26
Some suggest that ‘transaction platform’ should be defined broadly, to encompass a wide range of platforms. 27 That pro-defendant view overstates the holding: the decision supports a narrow definition of transaction platform, as limited to platforms matching users on both sides in a single, simultaneous transaction, 28 and limited further to settings where network effects are so strong as to make it impossible for firms other than other transaction platforms to compete on either side. 29 The decision also raises an inappropriate hurdle to plaintiffs by suggesting that competitive harm cannot be demonstrated solely through direct evidence in vertical agreement cases. 30
Amex’s most pernicious effects are likely neither of these. Instead, they arise from the troubling guidance the majority opinion provides to lower courts in three areas.
The majority opinion in Amex discourages meritorious cases by suggesting that a defendant should prevail under the rule of reason whenever its conduct benefits competition in any way, or plausibly could do so, without considering the relative magnitudes of the competitive benefit and the competitive harm. This is the implication of its approach to applying the rule of reason: if a defendant successfully shows a ‘procompetitive rationale’ for a restraint, the opinion explains, the defendant prevails—apparently without the need to compare harms with benefits—unless the plaintiff can demonstrate that the claimed efficiencies can reasonably be achieved through less anticompetitive means. 31 Although this explanation of what courts should do after finding an anticompetitive effect was dicta in Amex, 32 and was disputed by the Amex dissent, 33 the description was accepted without challenge by the Court itself in its later discussion of the rule of reason in Alston. 34
In interpreting Sherman Act section 2, 35 then-Judge Gorsuch had previously called for deference to a defendant’s proof of a business justification when identifying conduct that would support a monopolization claim based on a unilateral refusal to deal with a competitor. 36 His opinion in Novell, a Tenth Circuit decision, asserted that ‘the monopolist’s conduct must be irrational but for its anticompetitive effect’. 37
But Viamedia, a Seventh Circuit decision handed down after both Trinko and Amex, explicitly rejected the argument that any valid business purpose ends the inquiry into the unlawfulness of a refusal to deal in a monopolization case. 38 In discussing how to apply the ‘willful acquisition or maintenance’ element of the monopolization offense, 39 the court endorsed the burden-shifting analytical approach applied by the D.C. Circuit in its unanimous en banc decision in Microsoft. 40 Under that approach, if the plaintiff satisfies an initial burden to show anticompetitive effect, 41 the burden shifts to the defendant monopolist to show a procompetitive justification. If the defendant does so, and the plaintiff does not rebut that claim, the defendant is not exculpated. Rather, the plaintiff can still prevail by demonstrating that ‘the anticompetitive harm outweighs the procompetitive benefit’. 42
Some commentators have suggested that courts interpreting Sherman Act section 2 should arrive at a similar defendant-friendly place through a different route: by evaluating whether the challenged conduct constitutes ‘competition on the merits’, and deemed procompetitive as a matter of law, as an initial screen—before considering whether the conduct could support liability for monopolization (as by applying the burden-shifting analytical approach set forth in Microsoft). 43 Doing so would have the effect of allowing a defendant to prevail based solely on an evaluation of its claimed procompetitive justification, without considering the relative magnitudes of the conduct’s competitive benefit and competitive harm.
Microsoft itself makes clear why this approach is too defendant-friendly. That decision equates a procompetitive justification with a non-pretextual claim that the conduct constitutes ‘competition on the merits’. 44 If the procompetitive benefit outweighs the harm, according to Microsoft’s analytical framework, the conduct does not support finding monopolization under Sherman Act section 2. But if the harm outweighs the benefit, the conduct is deemed predatory (exclusionary) rather than merely a form of vigorous competition. In short, whether the conduct constitutes ‘competition on the merits’ is a legal conclusion derived through application of Microsoft’s burden-shifting approach, not an independent analytical step undertaken prior to the application of that approach. 45 If courts were to evaluate whether the conduct constitutes competition on the merits prior to the application of the Microsoft framework, that would have the effect of allowing a defendant to prevail based solely on an evaluation of its procompetitive justification, not by comparing the magnitude of the competitive benefit with the magnitude of the competitive harm—and thus exonerate some conduct that is harmful on balance.
In either its section 1 or section 2 guise, the suggestion that any plausible benefit to competition should insulate conduct from antitrust challenge—regardless of the magnitude of the competitive harm—would hollow out the Sherman Act. Plaintiffs could prevail only on narrow grounds: when a court cannot identify any procompetitive rationale for the conduct. 46 Such an outcome could only be justified by a view, impossible to defend seriously, that the Sherman Act interpretation today is excessively concerned with preventing anticompetitive conduct and insufficiently attentive to the problem of chilling procompetitive conduct. The problem with US antitrust law today is precisely the reverse—which is why the antitrust laws need strengthening.
The Amex majority opinion implicitly treats vertical conduct as presumptively competitive; at least, that is how the Amex dissent reads it. 47 To the extent that view is credited, it increases the practical burden on plaintiffs challenging vertical conduct. Such a presumption, and any resulting disadvantage to plaintiffs, would be inconsistent with the modern economic literature on the theoretical and empirical effects of vertical agreements and vertical mergers. 48
The Amex majority opinion might also be read to suggest that a plaintiff cannot demonstrate harm to competition without showing a reduction in output (quantity sold) attributable to the challenged conduct. 49 To the extent lower courts treat this suggestion as precluding the inference that output has decreased from evidence of higher prices, lower quality, or other adverse terms of trade to buyers, it is overly restrictive. 50 When it is easier to evaluate the direct effects of firm conduct on price than on output, 51 the direction of downstream output effects can be inferred from the downward slope of demand functions: when prices to buyers increase, the quantity sold by sellers is expected to decrease. 52
Even when competitive effects are analysed by looking to changes in output, 53 moreover, it is important to recognize that the relevant measure of output is for the market as a whole (not the output of just the merging firms or the dominant firm engaged in exclusionary conduct) and that the relevant reduction in output is relative to a but-for world: output can be reduced and competition harmed by firm conduct even in a growing market, if the market would have grown more rapidly absent the conduct. 54
Any effort to strengthen the antitrust laws will likely include an increased emphasis on litigation to persuade the courts—first the lower courts and ultimately, with the help of strong lower court opinions, the Supreme Court. 55 Lower courts can be encouraged to interpret troubling Supreme Court opinions narrowly—thereby limiting their practical effect, discouraging judicial reliance on dicta that stand in the way of reform, and paving the way for the Court itself to narrow those precedents, procedurally or substantively, or overrule them. 56
The best litigation strategy is to support a clearly articulated and economically sensible theory of competitive harm with economic analysis and evidence. That was the basis for the Justice Department’s success in Microsoft, where conservative antitrust experts on the DC Circuit joined a unanimous en banc opinion strongly supporting enforcement in both the decision and its legal analysis. 57 Such strategy should be complemented by careful case selection to present strong facts and, particularly in the merger context, new guidelines to clarify relevant aspects of modern economic analysis.
An alternative litigation approach, perhaps more congenial to the perspective of the neo-Brandeisian (antimonopoly) reformers appointed to senior competition policy positions by the Biden administration, 58 would seek to persuade the Supreme Court that its interpretation of the statutes is not faithful to congressional intent in 1890 (Sherman Act), 1914 (Clayton Act), and 1950 (Celler-Kefauver Act). 59 While this view has a serious academic basis, it is hard to see the current Supreme Court changing course on this legal ground. The Court could, for example, interpret the argument as calling on it to credit social and political goals that, it would say, its 1980s decisions properly rejected in favour of focusing solely on economic goals. 60
Either litigation approach might also be justified as supporting political mobilization in favour of strengthening the antitrust laws. Litigation successes would help draw attention to the value of antitrust enforcement and litigation losses would help draw attention to the inadequacies of the antitrust laws as they are currently being interpreted. Either way, the attention drawn by litigation outcomes could be used by activists to raise the political salience of competition concerns—with the hope that political pressure would make comprehensive reform legislation more likely, 61 would lead to judicial appointments more attuned to the need to strengthen antitrust, and perhaps would help create a political climate that would influence sitting judges.
Successful antitrust reform must surmount a substantial obstacle: the non-interventionist perspective taken by today’s Supreme Court. Given the modern economic literature showing growing market power in the economy, a litigation strategy relying heavily on economic analysis and evidence to persuade the courts to narrow and ultimately overrule precedents that stand in the way of reform, combined with careful case selection and complemented by independent efforts to mobilize public support, offers hope for success. But absent a change in the composition of the Court, reform is more likely to proceed in slow steps than through a rapid transformation.
The author is grateful to Andy Gavil, Michael Kades, Jon Sallet, and Steve Salop. The author is an economic expert in litigation adverse to Google that may raise some of the legal issues discussed in this article.
On the other hand, some commentators and former agency officials argue that current antitrust rules are generally adequate to address competition concerns.
It is not too early, however, to recognize that Biden administration reformers and their neo-Brandeisian allies in think tanks and academia have changed the way competition issues are discussed.
Other approaches to reform include seeking new legislation, competition rulemaking, and working with other government agencies. An unsympathetic Supreme Court could potentially limit the effect of a new statute, as has happened with other antitrust statutes. Daniel A. Crane, ‘Antitrust Antitextualism’ (2021) 96 Notre Dame L Rev 1205. FTC competition rulemaking would likely have been upheld during the last quarter of the twentieth century but faces higher judicial hurdles today. Thomas W Merrill, ‘Antitrust Rulemaking: The FTC’s Delegation Deficit’ (forthcoming) Admin L Rev, working paper available at https://ssrn.com/abstract=4344807.
During the 1940s, reformers in the Democratic executive branch could also count generally on a Democratic Congress. In 1950, Congress strengthened Clayton Act prohibitions on anticompetitive mergers. On the other hand, Congress was less receptive to executive branch initiatives during the 1980s. Between 1981 and 1989, the Republican White House faced a divided legislative branch, with Republican control of the Senate and Democratic control of the House. Antitrust legislation proposed by the Reagan administration went nowhere.
Verizon Commc’ns Inc v Law Offs of Curtis V Trinko, LLP, 540 US 398 (2004).
Ohio v American Express Co, 585 US —, 138 S Ct 2274 (2018) (Amex).
Antitrust reformers seeking to strengthen merger enforcement under Clayton Act s 7, the other major antitrust statute, must address influential appellate case law that facilitates deferential merger review. See generally Jonathan B Baker, The Antitrust Paradigm: Restoring a Competitive Economy (Harvard University Press 2019) 77–80.
Justices Stevens, Souter, and Thomas concurred in the judgment on the view that the plaintiff did not have standing to bring an antitrust claim and would not have reached the merits.
Eg, Novell Inc v Microsoft Corp, 731 F.3d 1064, 1074-76 (10th Cir 2013) (Gorsuch, J).
Trinko, 540 US at 399 (citing Aspen Skiing Co v Aspen Highlands Skiing Corp, 472 US 585 (1985)). Justice Scalia’s opinion similarly sought to cabin-in Otter Tail Power Co v United States, 410 US 366 (1973) and related cases by making the dubious assertion that the Court had never recognized an essential facilities doctrine. 540 US at 411.
Trinko itself suggests this. The opinion of the Court describes Otter Tail as condemning a unilateral refusal to deal predicated on a monopolist’s refusal to provide service to some customers when it provided that service to other customers, 540 U.S. at 410, and thus not as predicated on one of the Aspen features: the termination of a voluntary course of dealing with a rival.
Viamedia, Inc v Comcast Corp,951 F.3d 429, 458, 462 (7th Cir 2020).
Lorain Journal Co v United States, 342 US 143 (1951).
Trinko addressed an unconditional unilateral refusal to deal, while the unilateral refusal to deal in Lorain Journal was conditioned on the advertiser not dealing with a rival.
Trinko, 540 US 407.
In contrast, United States v Aluminum Co of America, 148 F.2d 416 (2d Cir 1945) (Alcoa), which is commonly treated as though it were a Supreme Court decision, famously took the opposite tone by noting the common view ‘that the possession of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a narcotic, and rivalry is a stimulant, to industrial progress; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone.’ ibid 427.
See Jonathan B Baker, ‘Taking the Error Out of “Error Cost” Analysis: What’s Wrong with Antitrust’s Right’ (2015) 80 Antitrust LJ 1, 8–12 (referencing works of Judges Frank Easterbrook and Robert Bork, and explaining why the claim is erroneous).
See ibid 13–14 (explaining why the claim is erroneous). Similarly, competition can be harmed by a merger in a dynamic market characterized by rapid change and innovation. See US v Bazaarvoice, Inc, 2014 WL 203966 at *76 (ND Calif, 8 January 2014) (finding harm to competition from a merger in a rapidly changing high-tech market); but see New York v Deutsche Telekom AG, 439 F.Supp.3d 179, 247–48 (SDNY 2020) (suggesting that competitive harm is unlikely from a merger in a dynamic market).
See generally Jonathan B Baker, ‘Evaluating Appropriability Defenses for the Exclusionary Conduct of Dominant Firms in Innovative Industries’, 80 Antitrust LJ 431 (2016).
Trinko, 540 US 414. The opinion ties the likelihood of ‘[m]istaken inferences’ to the difficulties courts face in evaluating allegations of violations, ibid, thereby calling into question judicial competence in applying the antitrust laws. While mistakes can go in either direction, the opinion suggests that the costs of false positives are substantially greater than the costs of false negatives.
Baker (n 16) identifies erroneous assumptions about markets and institutions made by commentators arguing for limiting antitrust intervention that systematically overstate the incidence and significance of false positives, understate the incidence and significance of false negatives, and understate the net benefits of various rules by overstating their costs.
NCAA v Alston, 141 SCt 2141, 2161 (2021). In this and other ways, the ‘music’ of this pro-plaintiff decision is ‘strongly tilted toward non-intervention’. Andrew I Gavil and others, Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy (4th ed. West 2022) 242.
Amex, 138 SCt at 2286.
See Baker (n 8) 189–93 (explaining why courts do not undertake cross-market welfare tradeoffs). Cf ibid 185–93 (identifying problems with defining multi-sided markets). This requirement implies a procedural shift that may benefit the defendant by making it harder for the plaintiff to satisfy its initial burden. If the plaintiff thinks the primary harm is on one side and that the defendant may proffer a benefit on the other, it will be necessary for plaintiff to anticipate and refute the defendant’s justification for the plaintiff to show its prima facie case in a two-sided market. Before Amex, the plaintiff would have been able to show the harm in a one-sided market without addressing the benefit as part of its prima facie case.
Eg, US Airways, Inc v Sabre Holdings Corp, 938 F3d 43 (2d Cir 2019) (applying Amex to claims brought under ss 1 and 2 of the Sherman Act); United States v Sabre Corp, 452 F. Supp. 3d 97 (D De 2020) (applying Amex to claims brought under s 7 of the Clayton Act).
Eg, Gunnar Niels, ‘Transaction Versus Non-Transaction Platforms: A False Dichotomy in Two-Sided Market Definition’ (2019) 15 J Comp L & Econ 327.
Amex, 138 S Ct 2286.
ibid 2287. For a similar interpretation, see Nancy L Rose and Jonathan Sallet, ‘Ohio v. American Express: The Exception Should Not Become a Rule’ (2022) 36 Antitrust 76, 78. A platform allows end users to interact directly, so a retailer that purchases goods at wholesale and resells them to the public is not a platform; it simply has upstream suppliers and downstream customers. Baker (n 8) 122. See Amex, 138 S Ct 2276–77 (describing platforms as allowing intermediation between the end users to which it provides services).
See Amex, 138 SCt 2285 n 7 (suggesting that competitive harm requires market power and indicating that market power in a vertical agreement case cannot be evaluated without defining a relevant market). For criticism, see Steven C Salop and others, ‘Rebuilding Platform Antitrust: Moving on from Ohio v. American Express’ (2022) 84 Antitrust L. J. 883, 895-98.
Amex, 138 S. Ct. at 2284. This approach may permit limited balancing: one commentator, writing just before the Supreme Court decided Amex, argued that less restrictive alternative analysis sometimes operates as unsatisfactory “balancing in disguise.” C. Scott Hemphill, ‘Less Restrictive Alternatives in Antitrust Law’ (2016) 116 Colum L Rev 927, 959.
See Amex, 138 SCt 2290–91 (indicating that plaintiff’s case failed because plaintiffs did not satisfy ‘the first step in the rule of reason’: proving an anticompetitive effect). The first step may involve some balancing: the formal structure of the rule of reason analysis is the same regardless of whether the conduct is analysed in a single-sided market or a two-sided market, but when a two-sided market is defined, the plaintiff may need to balance harms on one side against benefits on the other to show a prima facie case of anticompetitive effect. Salop and others (n 29) 910.
Amex, 138 SCt at 2291 (Breyer, J, dissenting).
NCAA v Alston, 141 SCt 2141 (2021). See Gavil and others (n 22) 239–40.
Although Amex was brought under s 1, the rule of reason governed both sections of the Sherman Act when established in Standard Oil Co v United States, 221 US 1 (1911). In recent years, the analytical frameworks applied to evaluate conduct under the two sections have been converging. In its influential opinion in United States v Microsoft Corp, 253 F.3d 34 (DC Cir 2001) (en banc), the DC Circuit employed a burden-shifting framework similar to that used in reasonableness analysis under Sherman Act s 1 to evaluate whether conduct would support a monopolization claim under Sherman Act s 2.
Novell Inc v Microsoft Corp, 731 F.3d 1064 (10th Cir 2013) (Gorsuch, J).
Novell, 731 F.3d at 1075. Moreover, in discussing monopolization more generally, not limited to unilateral refusals to deal, the opinion stated as an empirical generalization that the conduct element of the monopolization offense can ‘often’ be identified by focusing on the defendant’s business justification: by asking ‘whether, based on the evidence and experience derived from past cases, the conduct at issue before us has little or no value beyond the capacity to protect the monopolist’s market power.’ Ibid 1072.
Viamedia, Inc v Comcast Corp, 951 F.3d 429, 461 (7th Cir 2020). The court described its conclusion as consistent with both Trinko and Novell.
US v Grinnell Corp, 384 US 563, 570–71 (1966).
Viamedia, 951 F.3d 429 463–64. Other circuits have also endorsed the analytical framework established in Microsoft, including the balancing step. FTC v Qualcomm Inc, 969 F.3d 974, 991 (9th Cir 2020); McWane, Inc v FTC, 783 F.3d 814,833 (11th Cir 2015).
Writing after Amex, the Seventh Circuit, in deciding a s 2 case predicated on a vertical agreement, allowed for the possibility that monopoly power could be demonstrated through ‘direct evidence of anticompetitive effects’. Paramount Media Group, Inc v Village of Bellwood, 929 F.3d 914, 922 (7th Cir. 2019). Cf Re/Max Int’l, Inc v Realty One, Inc, 173 F.3d 995 1016 (6th Cir 1999) (explaining that monopoly power can established through direct evidence of ‘actual control of prices or the actual exclusion of competitors’) (decision predating Amex).
Microsoft, 253 F.3d at 58–59.
See, eg, Daniel Francis, ‘Making Sense of Monopolization’ (2022) 84 Antitrust LJ 779, 811–14 (suggesting that monopolization law treats a narrow set of practices as privileged (ie, per se legal)).
Microsoft, 253 F.3d at 59.
See ibid 63 (concluding that one form of conduct that had an anticompetitive effect in protecting the defendant’s market power was not an exclusionary practice after evaluating and balancing its procompetitive justification). Thus, when evaluating anticompetitive conduct alleged to arise from changing product design, a court should follow Microsoft by looking first at the conduct’s competitive effect, before considering the existence and relative magnitude of any procompetitive justification. ibid 62–63 (evaluating the design of the boot sequence this way); ibid 65 (evaluating the design of the add/remove utility this way). It should not interpret the Ninth Circuit’s observation that ‘a design change that improves a product by providing a new benefit to consumers does not violate Section 2 absent some associated anticompetitive conduct’, Allied Orthopedic Appliances Inc v Tyco Healthcare Group LP, 592 F 3d 991, 998–99 (9th Cir. 2010), as screening out product design changes without first evaluating the anticompetitive effect of the challenged conduct on the view that the conduct constitutes “competition on the merits.” The skepticism expressed by Allied Orthopedic and Microsoft about monopolization cases predicated on changes in the dominant firm’s product design is an empirical generalization not a way of carving out a category of conduct insulated from the antitrust laws: both decisions also recognize that product design changes can be the basis for finding a violation of s 2. To similar effect, when courts observe that price-cutting is commonly pro-competitive, they are not claiming that predatory pricing cannot be actionable under s 2 of the Sherman Act.
Horizontal restraints in traditional per se categories, such as price-fixing and market division, are generally treated as illegal per se today only when they lack a plausible and cognizable efficiency justification. Gavil and others (n 33) 277, 281–82.
Amex, 138 SCt 2297 (Breyer, J, dissenting).
Marissa Beck and Fiona Scott Morton, ‘Evaluating the Evidence on Vertical Mergers’ (2021) 59 R Indus Org 273; Baker (n 16) 17–23. While the economics literature generally suggests a neutral (presumption-free) analysis of vertical conduct, it supports presuming that vertical conduct harms competition under some circumstances. Jonathan B Baker and others, ‘Five Principles for Vertical Merger Enforcement Policy’ (2019) 33 Antitrust 12.
Amex, 138 S Ct 2288. See Rose and Sallet (n 28) 79 (referencing commentators taking this position). Amex mistakenly measured output in terms of transaction revenue (the product of price and quantity), not transaction unit volume (quantity). Amex, 138 SCt 2288 (citing a revenue-based measure of credit-card transactions relied upon by the appellate court).
Similarly, under some circumstances a reduction in output can be inferred from the nature of the conduct, alone or accompanied by defendant market power. See Gavil and others (n 23) 277–79 (discussing ways that a plaintiff can establish anticompetitive effect under Sherman Act s 1; ibid 561–72 (discussing inferring anticompetitive effect from direct evidence of market power).
When products are differentiated, for example, it may be hard to evaluate market-wide output.
That is even true in a bargaining setting where the trading partners do not alter their quantity purchased (when market power is exercised downstream) or supplied (when market power is exercised upstream) in the short run. Trading partners can be expected to invest less in ways that reduce output eventually.
This discussion puts aside the possibility that buyer welfare could be reduced even when output increases. That can happen, for example, if firms exploit the behavioral biases of consumers. Herbert Hovenkamp and Fiona Scott Morton, ‘The Life of Antitrust’s Consumer Welfare Model’ (April 10, 2023) Pro Market (explaining that this occurred in Amex). It can also happen if a practice that raises prices like resale price maintenance induces more purchases by marginal buyers, while simultaneously harming inframarginal customers without markedly reducing purchases by the latter. FM Scherer and David Ross, Industrial Market Structure and Economic Performance (3rd ed Houghton Mifflin 1990) 546–48.
See Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209, 233 (1993) (indicating that when output is growing, an output restriction means a slower rate of expansion than would have occurred absent the challenged conduct); Amex, 138 SCt 2302 (Breyer, J, dissenting) (explaining that in that case, ‘the relevant restriction of output is as compared with a hypothetical world in which the restraint was not present and prices were lower’).
Even if the agencies lose cases, active enforcement agencies may deter risk averse firms from engaging in conduct similar to what has been challenged in the short run, but any such effect will dissipate as court losses grow. Hence it is reasonable to assume that the agencies care about outcomes and the deterrent effect of the precedents set.
For examples, see Baker (n 16) 24–25.
See generally Baker (n 8) 197–202.
Jonathan B Baker, ‘Finding Common Ground Among Antitrust Reformers’ (2022) 84 Antitrust LJ 705, 705. Neo-Brandeisian commentators often view economic analysis of the competitive effects of firm conduct as at best unnecessary once market concentration has been established, and at worst counterproductive. ibid 744. Neo-Brandeisian-oriented enforcers could nonetheless embrace a litigation approach that emphasizes relying on economic analysis and evidence for pragmatic reasons, though they might be conflicted about whether they want to succeed in reforming the antitrust laws this way if the price of doing so is to reaffirm the value of economics in antitrust.
To similar effect, the agencies could seek to persuade the Court to adhere to its pre-1980s precedents in merger law, which the lower courts have reinterpreted but the Supreme Court has not revisited.
See, eg, Hospital Corp of Am v FTC, 807 F.2d 1381, 1386 (7th Cir 1986) (Posner, J) (explaining that the most important developments that ‘cast doubt on the continued vitality’ of 1960s Supreme Court precedents interpreting Clayton Act s 7 are Supreme Court decisions indicating that ‘the economic concept of competition, rather than any desire to preserve rivals as such, is the lodestar that shall guide the contemporary application of the antitrust laws’).
Eg, Competition and Antitrust Law Enforcement Reform Act of 2021 (CALERA), S.225, 117th Cong (2021).