The federal trade commission and the rule of reason: In defense of Massachusetts board

Antitrust Law Journal

Volumn 66, Issue 3, 1998, Pages 773-803

  Muris, Timothy J ^a  

^a GEORGE MASON UNIVERSITY   (United States)

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EID: 0032339393     PISSN: 00036056     EISSN: None     Source Type: Journal    
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References (142)

1. Massachusetts Bd. of Registration of Optometry, 110 F.T.C. 549, 604 (1988) [hereinafter Massachusetts Board or Mass. Board].
2. See California Dental Ass'n, 5 Trade Reg. Rep. (CCH) ¶ 24,700 (Mar. 25, 1996), aff'd, 128 F.3d 720 (9th Cir. 1997); International Ass'n of Conference Interpreters, 5 Trade Reg. Rep. (CCH) ¶ 24,309 (1997). Although some Commissioners and commentators argue that these cases have abandoned the Massachusetts Board approach, the text states "appeared to" because Chairman Pitofsky contends that he is "agnostic" regarding Massachusetts Board. See In the Matter of Hearings on the Joint Venture Project (FTC June 5, 1997), available at 〈http://www.ftc.gov/opp/jointvent/june5.htm〉 at 11. To further complicate matters, the Ninth Circuit, in affirming California Dental in a split decision, brushed aside the Commission's per se analysis to use a "truncated" approach more akin to Massachusetts Board. See infra part III.A.3.
3. Massachusetts Board, 110 F.T.C. at 603 n.11. The memorandum summarized the relevant case law and discussed the superiority of the more recent cases.
4. In addition to the Commissioners who wrote and voted for it, many deserve praise (or blame) for Massachusetts Board. Although Massachusetts Board inquires directly about competitive effects, not indirectly by asking whether the restraint is ancillary to a procompetitive purpose, the analysis has its origin in Judge Taft's opinion in United States v. Addyston Pipe and Steel Co., 85 F. 271 (6th Cir. 1898), aff'd as modified, 175 U.S. 217 (1899), particularly as the importance of focusing on "naked" restraints is articulated in Robert Bork's classic articles on the rule of reason. See Robert H. Bork, The Rule of Reason and the Per Se Concept: Price Fixing and Market Division [I], 74 YALE L.J. 775 (1965); [II], 75 YALE L.J. 373 (1966). Within the Bureau of Competition, David Giscalone and Terry Winslow had particularly important roles in developing the analysis, which was first articulated in a letter the FTC sent to the Justice Department in December 1983. That letter, based on a memorandum that I had authored, formed the basis for much of the Brief for the United States as Amicus Curiae, NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85 (1984). Finally, Wesley J. Liebeler, as a consultant to the Bureau of Competition, provided invaluable assistance in developing this analysis. I discussed some of these issues in Timothy J. Muris, The New Rule of Reason, 57 ANTITRUST L.J. 858 (1989).
5. See, e.g., Muris, supra note 4, at 863 ("this is what per se means today, namely that the practice is inherently suspect without a plausible efficiency justification").
6. 7 PHILLIP E. AREEDA, ANTITRUST LAW § 1502, at 371 (1986).
7. See Richard A. Posner, An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 99 (1973); Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Rule Making, 3 J. LEGAL STUD. 257 (1974). An important and related issue concerns whether society should develop rules, by which law is given content ex ante, or standards, which are determined ex post. Rules are more costly to promulgate than standards because they require prior determination of the law's content. See generally Louis Kaplow, Rules vs. Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992); Colin Diver, The Optimal Precession of Administrative Rules, 93 YALE L.J. 65 (1983). As discussed below, antitrust analysis attempts to adopt both rules and standards.
8. See Richard A. Posner, An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 99 (1973); Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Rule Making, 3 J. LEGAL STUD. 257 (1974). An important and related issue concerns whether society should develop rules, by which law is given content ex ante, or standards, which are determined ex post. Rules are more costly to promulgate than standards because they require prior determination of the law's content. See generally Louis Kaplow, Rules vs. Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992); Colin Diver, The Optimal Precession of Administrative Rules, 93 YALE L.J. 65 (1983). As discussed below, antitrust analysis attempts to adopt both rules and standards.
9. See Richard A. Posner, An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 99 (1973); Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Rule Making, 3 J. LEGAL STUD. 257 (1974). An important and related issue concerns whether society should develop rules, by which law is given content ex ante, or standards, which are determined ex post. Rules are more costly to promulgate than standards because they require prior determination of the law's content. See generally Louis Kaplow, Rules vs. Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992); Colin Diver, The Optimal Precession of Administrative Rules, 93 YALE L.J. 65 (1983). As discussed below, antitrust analysis attempts to adopt both rules and standards.
10. See Richard A. Posner, An Economic Approach to Legal Procedure and Judicial Administration, 2 J. LEGAL STUD. 99 (1973); Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Rule Making, 3 J. LEGAL STUD. 257 (1974). An important and related issue concerns whether society should develop rules, by which law is given content ex ante, or standards, which are determined ex post. Rules are more costly to promulgate than standards because they require prior determination of the law's content. See generally Louis Kaplow, Rules vs. Standards: An Economic Analysis, 42 DUKE L.J. 557 (1992); Colin Diver, The Optimal Precession of Administrative Rules, 93 YALE L.J. 65 (1983). As discussed below, antitrust analysis attempts to adopt both rules and standards.
11. See Frank H. Easterbrook, Allocating Antitrust Decision Making Tasks, 76 GEO. L.J. 305, 307 (1987). Statisticians often refer to the two mistakes as Type I and Type II errors.
12. See J. HOWARD BEALES & TIMOTHY J. MURIS, STATE AND FEDERAL REGULATION OF NATIONAL ADVERTISING 53-61 (1993).
13. See Jonathan Baker, Per Se Rules in the Antitrust Analysis of Horizontal Restraints, 36 ANTITRUST BULL. 733, 740 n.29 (1991).
14. 441 U.S. 1 (1979).
15. See Muris, supra note 4, at 863. Massachusetts Board's second and third questions attempt to address this issue.
16. Baker, supra note 10, at 738. As discussed in part V infra, Massachusetts Board's approach does not eliminate categorization, although it does soften its impact by lessening the importance of the category to which a restraint is assigned.
17. Frank H. Easterbrook, The Limits of Antitrust, 63 TEX. L. REV. 1, 15 (1983). The cost of correcting inefficient court rules will vary. If the per se prohibition against resale price maintenance is incorrect, for example, then the cost of that prohibition will be significantly greater in a world that treats nonprice vertical restraints as per se illegal as well, given the ability to substitute nonprice for price restraints. Because the courts in fact currently give broad scope for nonprice vertical restraints, perhaps the cost of a mistaken rule against price restraints is low, although the costs of the rule in cases in which nonprice restraints are second best alternatives are unknown. See also infra note 26.
18. Id. at 5, criticized in Oliver Williamson, Delimiting Antitrust, 76 GEO. L.J. 271, 289 (1987).
19. See Comments of Steven Salop, FTC Hearings on the Joint Venture Project 75-87 (June 30, 1997).
20. See, e.g., FEDERAL TRADE COMMISSION, ANTICIPATING THE 21ST CENTURY: COMPETITION POLICY IN THE NEW HIGH-TECH MARKETPLACE ch. 2 at 16-18 (1996).
21. General Leaseways, Inc. v. National Truck Leasing Ass'n, 744 F. 2d 588, 595 (7th Cir. 1984).
22. Id.
23. Id. at 594.
24. Muris, supra note 4, at 594; see also infra note 128.
25. See, e.g., United States v. Long Island Jewish Med. Ctr., 983 F. Supp 121 (E.D.N.Y. 1997), and cases cited therein.
26. See infra part V.
27. See, e.g., James A. Langenfeld et al., Analysis of Non-Price Horizontal Restraints, in 2 ANTITRUST COUNSELING AND LITIGATION TECHNIQUES 19-11, 11-31 (Julian O. von Kalinowski ed., 1992).
28. Easterbrook, supra note 14, at 22.
29. J. Howard Beales & Timothy J. Muris, The Foundations of Franchise Regulation: Issues and Evidence, 2 J. CORP. FIN. 157, 187-96 (1995). Using an alternative regression specification, volume declined 4.2%. Price data were unavailable. Fixing maximum prices was then illegal per se. Regarding the issue of business's ability to adjust to incorrect Supreme Court decisions, discussed supra note 14, we do not know the extent to which the volume requirements were good substitutes for maximum price fixing. The requirements were set well below the purchases of most stations before the Virginia statute precluded their enforcement. The statutes were declared invalid in Mobil Oil Corp. v. Virginia Gasoline Marketers and Automotive Repair Association, 34 F.3d 220 (4th Cir. 1994).
30. For a recent summary of this issue, see Timothy J. Muris, Economics and Antitrust, 5 GEO. MASON L. REV. 303, 303-06 (1997).
31. Salop, supra note 16, at 83-85.
32. Of course, the inherently suspect test itself could be structured to raise costs. See infra part V.
33. 5 Trade Reg. Rep. (CCH) ¶ 24,007 (FTC Mar. 25, 1996), aff'd, 128 F.3d 720 (9th Cir. 1997).
34. Id. at pp. 23,791-95 (citations omitted).
35. If a restraint should be analyzed under the rule of reason, the Commission must apparently then determine whether it can be condemned under a "quick look" or whether a "more detailed analysis of market power" is necessary. Id. at pp. 23,790-91. This determination involves assessing the anticompetitive harms that result from a particular restraint, the potential market power of the participants, and the efficiency justifications that might be raised in support of the restraint. Id. at pp. 23,791-95 (citations omitted).
36. Id. at p. 23,787.
37. Id.
38. Id. at p. 23,790.
39. Id. (quoting Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 335 (1982)).
40. As Kattan notes, the record "had been developed under a Massachusetts Board approach." Joseph Kattan, The Role of Efficiency Considerations in the Federal Trade Commission's Antitrust Analysis, 64 ANTITRUST L.J. 613, 630 (1996). Presumably, because the respondents had not anticipated having to argue the case under a different paradigm, it did not make BMI- and NCAA-type arguments.
41. 468 U.S. 85 (1984). The Commission's opinion refers to those two cases at this point.
42. California Dental, 5 Trade Reg. Rep. (CCH) at p. 23,790. To protect its holding on appeal, the Commission also examined the restraint on price advertising under the rule of reason. Id.
43. Id. (quoting Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 19-20 (1979)).
44. Id. at p. 23,791.
45. Id. at p. 23,792.
46. Both Commissioner Azcuenaga's dissent and Kattan question this conclusion. Commissioner Azcuenaga argued that the State of California is not a relevant market, but that even if it were, the Commission did not assess barriers to entry. Id. at p. 23,810. Kattan points to Commissioner Azcuenaga's dissent as raising "provocative questions about these conclusions," and notes that the record, generated under the Massachusetts Board approach, was therefore devoid of any significant evidence of market power. Kattan, supra note 37, at 630.
47. California Dental, 5 Trade Reg. Rep. (CCH) at p. 23,794.
48. 5 Trade Reg. Rep. (CCH) ¶ 24,309 (FTC Feb. 19, 1997).
49. The Commission listed these restraints as: setting minimum daily rates, setting indivisible daily rates, setting fees for non-working days, setting uniform fees for everyone on a team of interpreters, setting the method and fees for making travel arrangements, setting a per diem rate, setting cancellation fees, setting fees for recordings of the interpretation, defining pro-bono work, and setting fees for commissions. Id. at pp. 24,051-54.
50. The Commission described this restraint as a rule that fully employed interpreters turn down part-time work unless no freelance interpreter was available. Id. at p. 24,057.
51. The Commission listed these restraints as: governing the length of the day, setting the team size, establishing a professional address, defining appropriate portable equipment, governing advertising claims, preventing package deals (i.e., deals in which remuneration for interpreters' services would be packaged with other products), governing claims of exclusivity in providing interpreters, and governing the use of trade names. Id. at pp. 24,061-65.
52. Id. at pp. 24,055-58. Apparently, the respondents did not demonstrate that the restraints were in the per se category only in the "literal" sense discussed in the paragraph accompanying note 36, supra.
53. Id. at p. 24,058.
54. Id. at p. 24,060.
55. Id. at p. 24,601.
56. Id. at p. 24,062. See infra note 65 (comparing the hours limitation in Interpreters with that of Detroit Auto).
57. 128 F.3d 720 (9th Cir. 1997).
58. Id. at 727.
59. In effect, the Commission's per se approach and the Ninth Circuit's inquiry into justification do not differ. See infra notes 134 & 135.
60. 128 F.3d at 730.
61. William Cohen argues that some courts may use "naked" to apply to agreements limiting competition in price or output. William E. Cohen, Per Se Illegality and Truncated Rule of Reason: The Search for a Foreshortened Antitrust Analysis, 40-41 (FTC Staff Discussion Document Nov. 1997). Perhaps they do. If price or output are defined economically to be quality adjusted, however, then most restraints among competitors can be said to have this effect. See infra part III.B. The issue then returns to the central one of the debate - which restraints should be regarded as suspicious. See infra part V.
62. Chicago Bd. of Trade v. United States, 246 U.S. 231 (1918).
63. California Dental, 5 Trade Reg. Rep. (CCH) at p. 23,786 (quoting Chicago Board of Trade, 246 U.S. at 238).
64. Easterbrook, supra note 14, at 12-13.
65. For an excellent critique of the price/nonprice distinction for horizontal restraints, see Langenfeld et al., supra note 24, at 19-4 to 19-11; see also Wesley J. Liebeler, 1983 Economic Review of Antitrust Developments: The Distinction Between Price and Non-Price Agreements, 32 U.C.L.A. L. REV. 384 (1983) (analyzing vertical restraints).
66. 111 F.T.C. 417 (1989), aff'd in part and remanded in part, 995 F. 2d 457 (6th Cir. 1992).
67. Id. at 498.
68. See ROBERT BORK, THE ANTITRUST PARADOX 85-86 (1978). In Detroit Auto Dealers the respondent "offered as efficiency justifications: (1) lower dealer overhead costs; (2) the ability to attract higher-quality sales personnel; and (3) the prevention of unionization." 111 F.T.C. at 498 n.22. The Commission properly rejected each of these claims. In response to the first, a cost reduction is only relevant if it either increases output or decreases price, which did not happen here; as for the second, the dealers had not shown why it was necessary to reach an agreement among competitors to reduce employees' hours; and, regarding the third, the Commission concluded that preventing unionization could not justify an otherwise unlawful restraint. Id. By contrast, in Interpreters the hours limitation was apparently designed to prevent interpreters from being too tired to perform properly. Because consumers will value efforts to maintain the quality of interpretation, the efficiency justification is plausible.
69. For a discussion of full-pricing with empirical evidence in the shopping center context, see Kenneth W. Clarkson et al., Exclusionary Practices: Shopping Center Restrictive Covenants, in FEDERAL TRADE COMMISSION SINCE 1970: ECONOMIC REGULATION AND BUREAUCRATIC BEHAVIOR 141-60, 337-40 (Kenneth Clarkson & Timothy Muris eds., 1981).
70. The history of the FTC and comparative advertising is discussed in Beales & Muris, supra note 9, at 11-12.
71. FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459 (1986).
72. 441 U.S. 1 (1979).
73. Id. at 20 (quoting White Motor Co. v. United States, 372 U.S. 253, 263 (1963)).
74. Like price fixing, market division is another practice that the categorization approach calls per se illegal. Discussion of one of the most infamous antitrust cases ever, United States v. Topco Associates, Inc., 405 U.S. 596 (1972), reveals the problems with that approach. See infra part IV.C.
75. Muris, supra note 4.
76. 468 U.S. 85 (1984).
77. Joel I. Klein, A Stepwise Approach to Antitrust Review of Horizontal Agreements 14 (Nov. 7, 1996), reprinted in 7 Trade Reg. Rep. (CCH) ¶ 50,157.
78. AREEDA, supra note 6.
79. California Dental, 5 Trade Reg. Rep. (CCH) at p. 23,787 n.7.
80. Id. at p. 23,787 (footnote & citations omitted).
81. AREEDA, supra note 6, § 1509.
82. Superior Ct. Trial Lawyers' Ass'n, 107 F.T.C. 510 (1986), aff'd, 493 U.S. 411 (1990).
83. Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990).
84. United States v. Topco Assocs., 405 U.S. 596 (1972).
85. Palmer v. BRG of Ga., 874 F.2d 147 (11th Cir. 1989), as amended, 893 F.2d 293 (11th Cir. 1990).
86. 405 U.S. 596 (1972).
87. Id. at 604-06.
88. For a lengthy discussion of similar problems in the development of carbonated soft drinks and for citations to the economic literature, particularly the works of Oliver Williamson and Benjamin Klein, see TIMOTHY J. MURIS ET AL., STRATEGY, STRUCTURE, AND ANTITRUST IN THE CARBONATED SOFTDRINK INDUSTRY (1993). See infra note 115, discussing Chairman Pitofsky's view of these efficiencies.
89. 319 F. Supp. 1031, 1041 (N.D. Ill. 1970).
90. 405 U.S. at 606, 608.
91. 319 F. Supp. at 1043.
92. Id. at 1038.
93. 405 U.S. at 606-07. Although previous Court decisions had found horizontal restraints to be illegal per se, the restraints had been naked.
94. Bork, supra note 4.
95. Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958).
96. Topco, 405 U.S. at 608.
97. See id. at 615-19 (Burger, J., dissenting).
98. 175 U.S. 211 (1898), aff'g 85 F. 271; see supra note 4.
99. 405 U.S. at 609 n.10.
100. Id. at 609.
101. Id. at 609 n.10.
102. Id. at 611. The Topco grocers defended their exclusive territories by claiming that the restriction was needed to compete more effectively against large chains. The Court misconceived the judicial task created by this defense, saying that it would require the Court to weigh "destruction of competition in one sector of the economy against the promotion of competition in another sector." Id. at 610. No such balancing is required. The issue is traditional: it requires the court to determine whether a restriction is reasonably related to the legitimate competitive goal of the joint enterprise - that is, whether it helps the collaborators compete more effectively, without being more restrictive of rivalry than reasonably necessary. While not always a simple task, it is surely one within the grasp of federal judges. The Court apparently failed to realize that cessation of rivalry between collaborators is sometimes essential to achieve the economic integration and efficiency needed to compete in the marketplace. This same analytical flaw caused the Topco majority to misconceive the relationship between intrabrand competition and interbrand competition. The Court rejected Topco's defense because it could not decide "to sacrifice competition in one portion of the economy for greater competition in another portion." Id. at 611. The issue before the Court was not whether to give up competition in one sector to achieve more in some unconnected market. As with any restraint, the issue before the Court was likely overall effect of the practice on market competition - on interbrand competition and overall output. If interbrand competition is not lessened, then competition is not lessened. See, e.g., Beltone Elecs. Corp., 100 F.T.C. 68 (1982). Gauging competitive impact may not always be simple, but it is manageable. More important, the task is not so difficult or unmanageable that we should refuse to investigate the validity of a proffered justification, and forfeit the potential benefits of collaboration, solely to avoid the bother.
103. United States v. Container Corp. of Am., 393 U.S. 333, 341 (1969) (Marshall, J., dissenting).
104. Thus, in his concurring opinion, Justice Blackmun admitted that the decision "seems at odds with the public interest." 405 U.S. at 613. His excuse for joining the majority was that "The per se rule, however, now appears to be so firmly established by the Court that, at this late date, I could not oppose it." Id. As Professor Louis has argued, "It was hardly too late, however, to oppose the extension of the rule to ancillary restraints." Martin B. Louis, Restraints Ancillary to Joint Ventures and Licensing Agreements: Do Sealy and Topco Logically Survive Sylvania and Broadcast Music?, 66 VA. L. REV. 879, 891 n.81 (1980).
105. 405 U.S. at 600.
106. Id. at 610.
107. Id. at 609-10.
108. Id. at 608.
109. United States v. General Dynamics Corp., 415 U.S. 486 (1974).
110. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).
111. State Oil Co. v. Khan, 118 S. Ct. 275 (1997).
112. Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752; (1984); Business Elecs. Corp. v. Sharp Elecs. Corp. 485 U.S. 717 (1988).
113. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984).
114. Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Corp., 472 U.S. 284 (1985).
115. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).
116. See, e.g., BMI, 441 U.S. 1 (1991); FTC v. Indiana Fed'n of Dentists, 476 U.S. 477 (1986); NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85 (1984).
117. Thus, three times in recent years, the Commission obtained Supreme Court reversal of circuit court opinions, two of which involved the appropriate standard of antitrust analysis that is the subject of this article. See FTC v. Indiana Fed'n of Dentists, 476 U.S. 477 (1986); FTC v. Superior Ct. Trial Lawyers' Ass'n, 107 F.T.C. 510 (1986), aff'd, 493 U.S. 411 (1990). The third opinion, FTC v. Ticor Title Insurance Co., 504 U.S. 621 (1992), involved the appropriate test under the "state action" doctrine.
118. Robert Pitofsky, The Framework for Antitrust Analysis of Joint Ventures, 74 GEO. L.J. 1605, 1620-21 (1986). Chairman Pitofsky recognizes the efficiency rationale described supra note 84 and accompanying text, but believes that the exclusive territories were overbroad. Primary responsibility or profit pass-over clauses were preferable, he argues, and were in fact approved when the Supreme Court eventually affirmed the entry of a final decree against Topco. See United States v. Topco Assocs., 1973-2 Trade Cas. (CCH) ¶ 74,728 (N.D. Ill.), aff'd, 414 U.S. 801 (1973) (per curiam). These restraints may be less restrictive, but there is no reason to believe that they will always be as efficient. Exclusive territories avoid the necessity of determining the appropriate compensation for contributing to the joint success of the new brand. Determining such compensation in the face of potential disputes can be a difficult problem. See, e.g., Muris et al., supra note 84, ch. 5. Moreover, the close connection between the restraint and the benefit leads one to question whether comparing alternatives is worth the effort. As the Court noted in Sylvania, "We are unable to perceive significant and social gains from channeling transactions to one form or another." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 58 n.29 (1977). At a minimum, I would not impose the close judgments that comparing these various types of restraints would require in the absence of fuller demonstration of anticompetitive consequences and procompetitive benefits from the alternatives.
119. See id.
120. See Kattan, supra note 37. Former Commissioner Azcuenaga has also raised questions regarding the appropriateness of Massachusetts Board. Mary L. Azcuenaga, Market Power as a Screen in Evaluating Horizontal Restraints, 60 ANTITRUST L.J. 935 (1991); see also infra note 132.
121. Because most of the FTC's work is nonpublic, including most of the analysis involving consent agreements, the public record does not allow a full testing of his assertions. Although he discusses few cases, at least one appears dubious. In Community Association Institute, No. C-3478 (June 6, 1994), the Commission ended a rule preventing members from interfering "with contractual relationships between other professional managers and their clients." Because the common law permits the very conduct the consent agreement bars, the rule hardly seems suspicious. If nonpublic evidence revealed a problem with the rule in application, this fact is not apparent.
122. For a description of the Commission's "profession's program" and some early cases, see Walter T. Winslow, Organization and Operation of the Federal Trade Commission, 54 ANTITRUST L.J. 85, 87 (1985).
123. Kattan criticizes application of Massachusetts Board for untethering the "competitive inquiry . . . from vigorous market analysis . . . ." Kattan, supra note 37, at 624. Yet this is an excellent criticism of the old per se approach to the extent, as in Topco, it refused to consider whether a restraint was naked. Surely, Kattan's support for the two-rule approach does not include avoiding this competitive inquiry.
124. As I have argued elsewhere, the non-Chairman Commissioners are poorly positioned to supervise the staff. See Kenneth W. Clarkson & Timothy J. Muris, Commission Performance, Incentives, and Behavior, in CLARKSON & MURIS, supra note 64, at 280-306, 361-66.
125. See Toys "R" Us, Initial Decision (FTC Sept. 25, 1997). The author was an expert witness for the respondent.
126. See Interstate Cir. v. United States, 306 U.S. 208 (1939).
127. Kattan, supra note 37, at 627.
128. BORK, supra note 65, at 267. Because of cases like United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), which condemned as price fixing conduct that "tampers with price structures," id. at 221, price fixing itself could be an elastic concept under the old categorization approach. Many restraints not directly fixing prices can be said to "tamper with" them.
129. See supra part III.B.2.
130. See, e.g., FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 458-59 (1986).
131. Of course, a purported joint venture could be a "sham" or could entail restraints not reasonably necessary to the joint venture's function. A related question involves the degree of integration necessary to avoid suspicion. Integration is capable of multiple meanings. Most conservatively, it means combination of productive assets, the integration in mergers and many joint ventures. Integration can also mean coordination through contract or a focus on shared financial risk. For an excellent discussion of integration, see Cohen, supra note 58, at 27-30. In at least some cases, we need not determine at the categorization stage how much integration is enough. In the health care area, for example, following Maricopa some wanted to require professional collaborators to share the risk of loss to be considered sufficiently integrated. As explained in the next two paragraphs of the text, judicial unfamiliarity with the rapidly developing health care area should counsel caution. Moreover, experience with the economics of restraints will assist, over time, in evaluating whether suspicion is warranted. In the face of any substantial uncertainty, we should opt for fuller evaluation under the rule of reason.
132. See Massachusetts Board, 110 F.T.C. at 584-85; Beales & Muris, supra note 9, at 7-19. First Amendment cases have also produced considerable judicial experience with restraints on advertising. Id. at 12-13.
133. See generally H.E. FRECH III, COMPETITION AND MONOPOLY IN MEDICAL CARE (1996). Again, antitrust courts and agencies should scrutinize these arrangements to see if they are merely shams to restrain competition.
134. James A. Langenfeld & John R. Morris, Analyzing Agreements Among Competitors: What Does the Future Hold?, 36 ANTITRUST BULL. 651 (1991); see also James L. Langenfeld & Louis Silvia, Federal Trade Commission Horizontal Restraint Cases: An Economic Perspective, 61 ANTITRUST L.J. 653 (1993). As the authors note, the first description of the raising own cost theory was Richard R. Nelson, Increased Rents From Increased Costs: A Paradox of Value Theory, 6 J. POL. ECON. 387 (1957). As Langenfeld and Silvia detail, of the 81 FTC horizontal restraint cases between 1980 and 1992, 47% involved this theory in part or all of the case. Traditional collusion theories were prominent as well, appearing in all or part of 35% of the cases.
135. James A. Langenfeld & John R. Morris, Analyzing Agreements Among Competitors: What Does the Future Hold?, 36 ANTITRUST BULL. 651 (1991); see also James L. Langenfeld & Louis Silvia, Federal Trade Commission Horizontal Restraint Cases: An Economic Perspective, 61 ANTITRUST L.J. 653 (1993). As the authors note, the first description of the raising own cost theory was Richard R. Nelson, Increased Rents From Increased Costs: A Paradox of Value Theory, 6 J. POL. ECON. 387 (1957). As Langenfeld and Silvia detail, of the 81 FTC horizontal restraint cases between 1980 and 1992, 47% involved this theory in part or all of the case. Traditional collusion theories were prominent as well, appearing in all or part of 35% of the cases.
136. James A. Langenfeld & John R. Morris, Analyzing Agreements Among Competitors: What Does the Future Hold?, 36 ANTITRUST BULL. 651 (1991); see also James L. Langenfeld & Louis Silvia, Federal Trade Commission Horizontal Restraint Cases: An Economic Perspective, 61 ANTITRUST L.J. 653 (1993). As the authors note, the first description of the raising own cost theory was Richard R. Nelson, Increased Rents From Increased Costs: A Paradox of Value Theory, 6 J. POL. ECON. 387 (1957). As Langenfeld and Silvia detail, of the 81 FTC horizontal restraint cases between 1980 and 1992, 47% involved this theory in part or all of the case. Traditional collusion theories were prominent as well, appearing in all or part of 35% of the cases.
137. As Langenfeld and Silvia note, supra note 131, these rules will have anticompetitive effects only in the absence of close competitors for the services association members provide. In other words, the association's members must sell services that constitute an antitrust market, or at least are clearly the closest competitors in a broader antitrust market. They further note the obvious - that association rules can have pro- as well as anticompetitive effects. In evaluating professional restraints, John Lopatka rejects both per se categorization and Massachusetts Board in favor of a more flexible rule of reason. John Lopatka, Antitrust and Professional Rules: A Framework for Analysis, 28 SAN DIEGO L. REV. 301 (1991). He would apply such flexibility even toward price fixing and bans on advertising, at least without government enforcement of the restraints. Because his position is a fundamental assault on virtually all antitrust analysis of these restraints, full rebuttal is beyond the scope of this article, which accepts antitrust's tradition of hostility toward naked horizontal restraints. Thus, while most antitrust courts and scholars agree with Adam Smith's warning about meetings between members of the same trade, Lopatka dismisses it as "paranoia." Id. at 303. Regarding the economic issues, three brief comments are appropriate here. First, Part II above discusses the superiority of Massachusetts Board to a market power screen, such as Lopatka would use. Second, his assertion that those who refuse to advertise may have significantly higher quality is inconsistent with the modern analysis of advertising, beginning at least with Phillip Nelson. See, e.g., Paul Rubin, The Economics of Regulating Deception, 10 CATO J. 667 (1991); Phillip Nelson, Advertising as Information, 82 J. POL. ECON. 729 (1974). Finally, advertising, by increasing the volume of the advertising firm, can allow for changes in the production of services that lower costs without a drop in quality or, in some cases, with even higher quality. See, e.g., Timothy J. Muris & Fred S. McChesney, Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, AM. BAR FOUND. RES. J. 179 (1979).
138. As Langenfeld and Silvia note, supra note 131, these rules will have anticompetitive effects only in the absence of close competitors for the services association members provide. In other words, the association's members must sell services that constitute an antitrust market, or at least are clearly the closest competitors in a broader antitrust market. They further note the obvious - that association rules can have pro- as well as anticompetitive effects. In evaluating professional restraints, John Lopatka rejects both per se categorization and Massachusetts Board in favor of a more flexible rule of reason. John Lopatka, Antitrust and Professional Rules: A Framework for Analysis, 28 SAN DIEGO L. REV. 301 (1991). He would apply such flexibility even toward price fixing and bans on advertising, at least without government enforcement of the restraints. Because his position is a fundamental assault on virtually all antitrust analysis of these restraints, full rebuttal is beyond the scope of this article, which accepts antitrust's tradition of hostility toward naked horizontal restraints. Thus, while most antitrust courts and scholars agree with Adam Smith's warning about meetings between members of the same trade, Lopatka dismisses it as "paranoia." Id. at 303. Regarding the economic issues, three brief comments are appropriate here. First, Part II above discusses the superiority of Massachusetts Board to a market power screen, such as Lopatka would use. Second, his assertion that those who refuse to advertise may have significantly higher quality is inconsistent with the modern analysis of advertising, beginning at least with Phillip Nelson. See, e.g., Paul Rubin, The Economics of Regulating Deception, 10 CATO J. 667 (1991); Phillip Nelson, Advertising as Information, 82 J. POL. ECON. 729 (1974). Finally, advertising, by increasing the volume of the advertising firm, can allow for changes in the production of services that lower costs without a drop in quality or, in some cases, with even higher quality. See, e.g., Timothy J. Muris & Fred S. McChesney, Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, AM. BAR FOUND. RES. J. 179 (1979).
139. As Langenfeld and Silvia note, supra note 131, these rules will have anticompetitive effects only in the absence of close competitors for the services association members provide. In other words, the association's members must sell services that constitute an antitrust market, or at least are clearly the closest competitors in a broader antitrust market. They further note the obvious - that association rules can have pro- as well as anticompetitive effects. In evaluating professional restraints, John Lopatka rejects both per se categorization and Massachusetts Board in favor of a more flexible rule of reason. John Lopatka, Antitrust and Professional Rules: A Framework for Analysis, 28 SAN DIEGO L. REV. 301 (1991). He would apply such flexibility even toward price fixing and bans on advertising, at least without government enforcement of the restraints. Because his position is a fundamental assault on virtually all antitrust analysis of these restraints, full rebuttal is beyond the scope of this article, which accepts antitrust's tradition of hostility toward naked horizontal restraints. Thus, while most antitrust courts and scholars agree with Adam Smith's warning about meetings between members of the same trade, Lopatka dismisses it as "paranoia." Id. at 303. Regarding the economic issues, three brief comments are appropriate here. First, Part II above discusses the superiority of Massachusetts Board to a market power screen, such as Lopatka would use. Second, his assertion that those who refuse to advertise may have significantly higher quality is inconsistent with the modern analysis of advertising, beginning at least with Phillip Nelson. See, e.g., Paul Rubin, The Economics of Regulating Deception, 10 CATO J. 667 (1991); Phillip Nelson, Advertising as Information, 82 J. POL. ECON. 729 (1974). Finally, advertising, by increasing the volume of the advertising firm, can allow for changes in the production of services that lower costs without a drop in quality or, in some cases, with even higher quality. See, e.g., Timothy J. Muris & Fred S. McChesney, Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, AM. BAR FOUND. RES. J. 179 (1979).
140. As Langenfeld and Silvia note, supra note 131, these rules will have anticompetitive effects only in the absence of close competitors for the services association members provide. In other words, the association's members must sell services that constitute an antitrust market, or at least are clearly the closest competitors in a broader antitrust market. They further note the obvious - that association rules can have pro- as well as anticompetitive effects. In evaluating professional restraints, John Lopatka rejects both per se categorization and Massachusetts Board in favor of a more flexible rule of reason. John Lopatka, Antitrust and Professional Rules: A Framework for Analysis, 28 SAN DIEGO L. REV. 301 (1991). He would apply such flexibility even toward price fixing and bans on advertising, at least without government enforcement of the restraints. Because his position is a fundamental assault on virtually all antitrust analysis of these restraints, full rebuttal is beyond the scope of this article, which accepts antitrust's tradition of hostility toward naked horizontal restraints. Thus, while most antitrust courts and scholars agree with Adam Smith's warning about meetings between members of the same trade, Lopatka dismisses it as "paranoia." Id. at 303. Regarding the economic issues, three brief comments are appropriate here. First, Part II above discusses the superiority of Massachusetts Board to a market power screen, such as Lopatka would use. Second, his assertion that those who refuse to advertise may have significantly higher quality is inconsistent with the modern analysis of advertising, beginning at least with Phillip Nelson. See, e.g., Paul Rubin, The Economics of Regulating Deception, 10 CATO J. 667 (1991); Phillip Nelson, Advertising as Information, 82 J. POL. ECON. 729 (1974). Finally, advertising, by increasing the volume of the advertising firm, can allow for changes in the production of services that lower costs without a drop in quality or, in some cases, with even higher quality. See, e.g., Timothy J. Muris & Fred S. McChesney, Advertising and the Price and Quality of Legal Services: The Case for Legal Clinics, AM. BAR FOUND. RES. J. 179 (1979).
141. See Langenfeld & Morris, supra note 131, at 670-74.
142. As Former Commissioner Starek has stated, it would hardly seem appropriate to categorize a restraint as inherently suspect if we cannot even explain its anticompetitive consequences, including the basis on which the agreement is to be enforced. See generally Roscoe B. Starek III & J. Stephen Stockum, What Makes Mergers Anticompetitive?: "Unilateral Effects" Analysis Under the 1992 Merger Guidelines, 62 ANTITRUST L.J. 801 (1995). Of course, if the "story" is that we are evaluating a naked price fix or other basic restraint on rivalry, Professor Areeda's "twinkling of an eye" is all that is needed to find that the practice is inherently suspect.