Using the "consumer choice" approach to antitrust law

Antitrust Law Journal

Volumn 74, Issue 1, 2007, Pages 175-264

  Averitt, Neil W ^a   Lande, Robert H ^b  

^a FEDERAL TRADE COMMISSION   (United States)

^b UNIVERSITY OF BALTIMORE   (United States)

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EID: 33947723697     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (350)

1. We refer to this as the "consumer choice," or sometimes, for linguistic ease, as simply the "choice" model.
2. This is true by analogy to the price model, which does not condemn a practice likely to result in only a trivial increase in price.
3. The social-political paradigm rested on an underlying suspicion of or even hostility toward big business, and this animus is not present in an approach that merely tries to factor consumers' nonprice desires into the analysis.
4. The Herfindahl-Hirschman Index (HHI) is a measure of market concentration used in the antitrust agencies' merger guidelines, calculated by summing the squares of the individual market shares of all the participants. See U.S. Dep't of Justice & Federal Trade Comm'n, Horizontal Merger Guidelines (1992, revised 1997), 4 Trade Reg. Rep. (CCH) ¶ 13,104 at n.17, available at http://www.ftc.gov/bc/docs/horizmer.htm.
5. Consumers want books that reflect their interests, not just cheap books; and they want pharmaceuticals that will cure their illness, not just cheap pharmaceuticals.
6. Innovation is the key to having future choices. The choice formulation thus brings to antitrust analysis an increased emphasis on two related elements: the short-term importance of nonprice options and the long-term importance of innovation. This can work either for or against an enforcement action. Sometimes the greater emphasis on innovation might make an innovation defense more likely to prevail, so that the new model could result in certain cases not being brought. In any event, we would see a somewhat different menu of cases.
7. This may be a more frequent shortcoming than is commonly realized. The price or efficiency approach typically defines "price" as price that is adjusted, somehow, for quality, variety, and innovation. See infra note 28. It is not clear how often these adjustments are actually made in reality.
8. This would parallel the structure on the consumer protection side of the FTC Act, where the largest single group of cases, involving deception, are conceptually a subset of the broader authority over "unfair practices." See Int'l Harvester Co., 104 F.T.C. 949, 1060 (1984).
9. Cf. Press Release, U.S. Dep't of Justice, Justice Department Requires Raytheon to Sell Key Electronics Businesses in Order to Go Forward with Its Hughes Aircraft Deal (Oct. 2, 1997) [hereinafter Raytheon Press Release], available at http://www.usdoj.gov/opa/pr/1997/October97/415at. html, discussed infra note 172.
10. Cf. Dominican Santa Cruz Hosp., 118 F.T.C. 382 (1994), discussed infra Part IV.C.
11. Cf. J.B.D.L. Corp. v. Wyeth-Ayerst Labs., No. 01-00704, 2005 U.S. Dist. LEXIS 11676 (S. D. Ohio 2005), appeal docketed, No. 05-3988 (6th Cir. Aug. 5, 2005), discussed infra Part IV.E.
12. We have addressed these background issues in a number of earlier theoretical papers. See Neil Averitt & Robert Lande, Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law, 65 ANTITRUST L.J. 713 (1997) [hereinafter Consumer Sovereignty].
13. For a more concise statement see Neil W. Averitt & Robert H. Lande, Consumer Choice: The Practical Reason for Both Antitrust and Consumer Protection Law, 10 LOY. CONSUMER L. REV. 44 (1998).
14. For a discussion of choice theory in an antitrust context, see Robert H. Lande, Consumer Choice as the Ultimate Goal of Antitrust, 62 U. PITT. L. REV. 503 (2001) [hereinafter Choice as Ultimate Goal].
15. See also Robert H. Lande, Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged, 34 HASTINGS L.J. 65, 124 (1982) [hereinafter Wealth Transfers] (antitrust violation requires a market failure external to consumers that "restrict or distort consumers' available options");
16. Neil W. Averitt, The Meaning of "Unfair Acts or Practices" in Section 5 of the Federal Trade Commission Act, 70 GEO. L.J. 225, 281-82 (1981) [hereinafter Unfair Acts or Practices] (effective marketplace requires two elements: "a reasonable number of options" and ability "to make a free and rational choice from among those options");
17. Neil Averitt, The Meaning of "Unfair Methods of Competition" in Section 5 of the Federal Trade Commission Act, 21 B.C. L. REV. 227 (1980) [hereinafter Unfair Methods of Competition] (reviewing various theories by which marketplace options can be protected).
18. For a full elaboration of this thesis, see Averitt & Lande, Consumer Sovereignty, supra note 12. Each of these bodies of law is aimed at, and limited to, correcting the consequences of market failures.
19. In our earlier writings we have sometimes referred to this type of consumer choice as "consumer sovereignty." The two terms have the same meaning. See Int'l Harvester Co., 104 F.T.C. 949, 1061 n.47 (1984) (referring collectively to "consumer choice or consumer sovereignty").
20. This interpretation was not changed by the passage of 15 U.S.C. § 45(n), which requires, among other things, that an unfair consumer practice be one that "is not reasonably avoidable by consumers themselves." Section 45(n) is an additional screen, not a complete definition of unfairness. Consumers normally avoid injury through the exercise of choice in the marketplace. This view underlay the Commission's 1980 Unfairness Policy Statement, 4 Trade Reg. Rep. (CCH) ¶ 13,203 (1980). Section 45(n) was intended to provide a rational, empirical means of determining when the conduct has impaired consumers' ability to make choices. See Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1365 & n.13 (11th Cir. 1988); Timothy Muris, Chairman, Federal Trade Comm'n, The Federal Trade Commission and the Future Development of U.S. Consumer Protection Policy, Remarks Before the Aspen Summit on Cyberspace and the American Dream at n.29 (Aug. 19, 2003), available at http://www.ftc.gov/speeches/muris/030819aspen.htm. It is the effect on choices that is the ultimate test of legality. See infra note 16.
21. Thus the agency ultimately defines its mission in fairly specific economic terms: Some commentators have interpreted our policy statement as involving essentially a general balancing of interests, with all the imprecision of that course, rather than a definable economic rule. In fact, however, the principal focus of our unfairness policy is on the maintenance of consumer choice or consumer sovereignty, an economic concept that permits relatively specific identification of conduct harmful to that objective. International Harvester, 104 F.T.C. at 1061 n.47 (citing Averitt, Unfair Acts or Practices, supra note 12). The FTC has elsewhere described the necessary conditions for consumer choice in slightly more elaborate terms, making a further distinction between deception and unfairness in its consumer protection function: The various components of the statute form an integrated whole, allowing the Commission to promote the diverse benefits of a free and open economy. Thus the ban on unfair competition prevents exclusionary or anti-competitive behavior and helps preserve a full variety of marketplace options for consumers to choose among; the ban on deception helps ensure that consumers will not make that choice on the basis of misleading information; and the ban on unfair practices ensures that the choice is not distorted by coercion, the withholding of important information, or similar practices. Safeguards at all three levels are needed to ensure that substantial consumer injury is adequately addressed. Companion Statement on the Commission's Consumer Unfairness Jurisdiction, 4 Trade Reg. Rep. (CCH) ¶ 13,203 at 20,909-03 (1980).
22. For an elaboration of this thesis, see Lande, Choice as Ultimate Goal, supra note 12.
23. This has traditionally been the focus of the definition. See NCAA v. Bd. of Regents, 468 U.S. 85, 109 n.38 (1984) ("market power" is "the ability to raise prices above those that would be charged in a competitive market"); United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956) (monopoly power is "the power to control prices or exclude competition"). See generally Thomas G. Krattenmaker, Robert Lande & Steven Salop, Monopoly Power and Market Power in Antitrust Law, 76 GEO. L.J. 241 (1987).
24. Although market power in this expanded sense is a thoroughly conventional economic concept, we do not recommend demonstrating it through conventional economic analysis in all circumstances; often the calculations of quality-adjusted price will be too complicated for that. In those cases variety will be better demonstrated through other means. In about 95% of cases, however, the standard approach to market power, focusing upon price, and the choice-based approach, focusing on price/quality/variety options, will produce identical results. For the European Union's treatment of this issue, see infra note 270.
25. Just as antitrust has always sought to prevent even an unexercised power to control prices, it should equally be concerned about acquisition of a power to unreasonably restrict nonprice options, even if the firms intend to compete vigorously. A firm possessing such power might not always realize it. Its employees might be doing their best to satisfy consumer demand, but may be unable to do so optimally because they are limited by the uncertainties of high-tech research paths or by their firms' accustomed ways of doing business. One may need to preserve one or two additional firms in certain markets in order to ensure competition. See infra notes 92-102.
26. The vocabulary of trade regulation is not accustomed to thinking of corporations as "consumers," perhaps because they are not usually subject to the same kinds of decision-making difficulties that can harm individual persons. Still, they are consumers for choice purposes whenever they make a purchase. See infra note 281.
27. These other attributes have become increasingly important as the economy has moved away from producing and providing relatively simple goods at the lowest possible price towards producing more complex and specialized items.
28. Maximum consumer choice is not necessarily good, because it may be accompanied by production inefficiencies and higher prices. In extreme cases it can cause unduly high consumer search costs and confusion. See infra notes 50-54 and accompanying text.
29. A policy aimed at affirmatively increasing choice goes beyond the requirements of the antitrust statutes, which address conduct that results in a substantial reduction of competition. See, e.g., 15 U.S.C. § 18 (forbidding acquisitions whose effect "may be substantially to lessen competition"). Moreover, since nonprice product attributes are limited only by entrepreneurs' imaginations, an infinite variety of options is potentially available, and the law could not and should not require all of them to be created.
30. A test of some kind is important because antitrust has long been worried about the risks of "false positives" - mistaken condemnations that will chill vigorous competition. See, e.g., Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)). We share that concern, although we also note that, with the increasing concentration of many sectors, the risks associated with false positives and false negatives may be converging.
31. This is usually called "consumer surplus." For a discussion, see sources cited infra notes 43-44.
32. See generally Lande, Wealth Transfers, supra note 12.
33. Economists commonly say that when they use the term "price," it is a shorthand for the relevant price/quality and price/variety combinations. See, e.g., GEORGE STIGLER, THE THEORY OF PRICE 22-23 (3d ed. 1966);
34. see also European Union, DG Competition, Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses ¶ 24 (Dec. 2005), available at http://ec.europa.eu/comm/competition/ antitrust/others/discpaper2005.pdf ("In this paper, the expression 'increase prices' is often used as a shorthand for the various ways these parameters of competition [innovation, variety, etc.] can be influenced to the harm of consumers.").
35. Only rarely do economists make serious attempts to compare the value of existing products to hypothetical products that might exist if firms were allowed to make innovations optimally. For example, it is hard to know how much most consumers would pay for a computer operating system that crashes only 20% as often as the best existing otherwise equivalent system.
36. For illustrations from the history of the Horizontal Merger Guidelines, see infra notes 39-42.
37. In other words, rather than use the term "price" and then engage in long and complex discussions to explain that this term really means "price and nonprice variety and quality," we propose that antitrust law choose a label that simply and directly takes account of choice.
38. See Lande, Wealth Transfers, supra note 12, at 71-80.
39. See 1 PHILLIP AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW 106-07 (2000).
40. See Alan A. Fisher & Robert H. Lande, Efficiency Considerations in Merger Enforcement, 71 CAL. L. REV. 1580, 1654-56 (1983);
41. Alan Fisher, Frederick Johnson & Robert Lande, Price Effects of Horizontal Mergers, 77 CAL. L. REV. 777, 809-10 (1989).
42. Supracompetitive prices resulting from activities like price fixing are a problem under the efficiency approach only insofar as they lead to allocative inefficiency, however. Under the choice approach, on the other hand, they are undesirable in themselves. Prices fixed at an artificial level rob consumers of the competing price options to which they are entitled.
43. See Michael Porter, Competition and Antitrust: Toward a Productivity-Based Approach to Evaluating Mergers and Joint Ventures, 46 ANTITRUST BULL. 919, 958 (2001) (the most important issue involving a merger or joint venture is not static efficiency but its "impact on productivity growth and on the health of competition").
44. Even though the choice model values innovation, innovation should not be considered the ultimate goal, but only the means to the goal of providing optimal consumer choice. Some have argued that recent antitrust has been too much focused on "innovation markets." See infra note 137. However, Landman shows that the purported innovation market cases are really about future products and that the innovation market label is just a way of focusing on expected future competition. See Lawrence B. Landman, Innovation and the Structure of Competition: Future Markets in European and American Law (pt. 3), 81 J. PAT. & TRADEMARK OFF. SOC'Y 838, 850-51 (1999).
45. See Porter, supra note 36, at 933 ("The effect of mergers or competitive practices on the overall rate of innovation is usually only paid lip service."); see also Timothy J. Muris, The Efficiency Defense Under Section 7 of the Clayton Act, 30 CASE W. RES. L. REV. 381, 420 (1980) (emphasizing cost savings with scant mention of innovation);
46. Oliver E. Williamson, Economies as an Antitrust Defense: The Welfare Tradeoffs, 58 AM. ECON. REV. 18, 29 (1968) (briefly touching on "technological progress" but stating that "it is at least arguable that the prevailing uncertainties are too great to give any effect to . . . [this factor]. They are, nevertheless, potentially of such significance that to dismiss them may run the risk of serious error"). See also Fisher, Johnson & Lande, supra note 34. Sometimes, of course, the effects on innovation do receive more extended discussion. See, e.g., FTC v. H.J. Heinz Co., 246 F.3d 708, 722-24 (D.C. Cir 2001) (discounting alleged innovation in baby food recipes).
47. The key passage is from Section V(A), note 53: "At a minimum, the Department will require clear and convincing evidence that the merger will produce substantial cost savings resulting from the realization of scale economies, integration of production facilities, or multi-plant operations . . . ." U.S. Dep't of Justice, Horizontal Merger Guidelines (1982), 4 Trade Reg. Rep. (CCH) ¶ 13,102, available at http://www.usdoj.gov/atr/ hmerger/11248.htm.
48. The key passage is from Section 3.5: "Cognizable efficiencies include, but are not limited to, achieving economies of scale, better integration of production facilities, plant specialization, lower transportation costs, and similar efficiencies relating to specific manufacturing, servicing, or distribution operations of the merging firms. The Department may also consider claimed efficiencies resulting from reductions in general selling, administrative, and overhead expenses, or that otherwise do not relate to specific manufacturing, servicing, or distribution operations of the merging firms, although, as a practical matter, these types of efficiencies may be difficult to demonstrate." U.S. Dep't of Justice, Horizontal Merger Guidelines (1984), 4 Trade Reg. Rep. (CCH) ¶ 13,103, available at http://www.usdoj.gov/atr/hmerger/11249.pdf.
49. Section 4 of the Horizontal Merger Guidelines observes: [M]ergers have the potential to generate significant efficiencies by permitting a better utilization of existing assets, enabling the combined firm to achieve lower costs in producing a given quantity and quality than either firm could have achieved without the proposed transaction. Indeed, the primary benefit of mergers to the economy is their potential to generate such efficiencies. Horizontal Merger Guidelines, supra note 4, § 4.
50. The commentary certainly recognizes the relevance of efficiencies in both cost and innovation, but the great majority of the discussion and examples deals with cost effects. See Federal Trade Comm'n & U.S. Dep't of Justice, Commentary on the Horizontal Merger Guidelines 49-59 (2006), available at http://www.ftc.gov/os/2006/03/ CommentaryontheHorizontalMergerGuidelinesMarch2006.pdf.
51. See Muris, supra note 38; Fisher, Johnson & Lande, supra note 34.
52. For an analysis of which cost savings are likely to be passed to consumers, see Fisher, Johnson & Lande, supra note 34.
53. See, e.g., NCAA v. Bd. of Regents, 468 U.S. 85, 102 (1984) (horizontal agreements among competitors may be desirable when the actions "widen consumer choice - not only the choices available to sports fans but also those available to athletes"); United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 368 (1963) (merger might harm nonprice characteristics of bank, such as "variety of credit arrangements, convenience of location, attractiveness of physical surroundings, credit information, investment advice . . . ."); Full Draw Prods. v. Easton Sports, Inc., 182 F.3d 745, 755 (10th Cir. 1999) (boycott eliminated a competitor, "thereby limiting consumer choice to the other source of output"); Roy B. Taylor Sales, Inc. v. Hollymatic Corp., 28 F.3d 1379, 1384 (5th Cir. 1994) (tie-in likely to be illegal per se if it involves "a foreclosure of choice to an ultimate consumer"); Gowan Car Care Ctr. v. Murphy Oil USA, Inc., No. 99-5775. 2000 WL 1477789, at *8 (6th Cir. Sept. 26, 2000) (unpublished) (monopolization claim unfounded when plaintiffs "failed to suggest how [defendant's] pricing practices have hindered consumer choices. In fact, it seems quite clear that consumers have benefited . . . ."); see generally Lande, Choice as Ultimate Goal, supra note 12, at 508-11.
54. United States v. Dentsply, 399 F.3d 181, 194 (3d Cir. 2005).
55. This is well illustrated by Arizona v. Maricopa County Medical Society, 457 U.S. 332, 348 (1982). An agreement to limit maximum prices was improper, the Court held, because even high prices provide consumers with valuable points of variety, which can facilitate innovative service packages or provide incentives for practitioners to develop an unusually high level of skill.
56. The goals of the case were described in terms of choice by all parties and at all stages of the litigation. The trial judge found that Microsoft had illegally maintained its monopoly power in the Windows operating systems by stifling competition that "would have conduced to consumer choice and nurtured innovation." United States v. Microsoft Corp., 84 F. Supp. 2d 9, 112 (D.D.C. 1999). The appellate briefs of the parties supported and assailed these findings in light of the standard of consumer choice. See Microsoft Brief at 12 (the firm was an innovator, and consumers "have greatly benefited from Microsoft's efforts to offer improved products at attractive prices"), available at http://cyber.law.harvard.edu/msdoj/ms-appeal. html; Government Brief at 121 (Microsoft's exclusionary conduct "restricted consumer choice and deterred innovation"), available at http://www.usdoj.gov/atr/cases/f7400/7425.htm. The liability decision of the D.C. Circuit also is written in terms of choice, not price or efficiency: "Microsoft . . . violated Section 2 by engaging in a variety of exclusionary acts . . . to maintain its monopoly by preventing the effective distribution and use of products that might threaten that monopoly." United States v. Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir. 2001). On the remedy issue the circuit court held that there should have been an evidentiary hearing, thus prompting a remand, but there, too, one key issue would be choice. See id. at 101-02. Microsoft Chairman Bill Gates had testified that the government's originally proposed remedy would harm choice. "[Dividing Microsoft] along the arbitrary lines proposed by the Government" would limit the availability of products "that users could access from a wide range of devices." Id. at 99. Finally, the government's overall view of its case, set out in the Competitive Impact Statement, discussed how the remedy would improve consumer choice by "requiring Microsoft to provide the ability for computer manufacturers and consumers to customize, without interference or reversal, their personal computers as to the middleware they install, use and feature, and by . . . . [e]nsuring that software and hardware developers are free to develop, distribute, or write to software that competes with Microsoft middleware or operating system software . . . ." Competitive Impact Statement 4, United States v. Microsoft Corp., Nos. 98-1232&98-1233 (D.D.C. Nov. 15, 2001), available at http://www.usdoj.gov/atr/cases/ f9500/9549.pdf. For a further discussion, see Lande, Choice as Ultimate Goal, supra note 12, at 511-14.
57. See DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN INDUSTRIAL ORGANIZATION 201 (4th ed. 2005).
58. F.M. SCHERER & DAVID ROSS, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 601 (3d ed. 1990); CARLTON & PERLOFF, supra note 49, at 201 ("Which would you prefer: a choice of three different-flavored soft drinks at 50 cents per drink or only one flavor at 25 cents? The answers to such questions determine the optimal variety-price combination.").
59. SCHERER & Ross, supra note 50, at 601.
60. See id. at 32-34, 575-76.
61. See BARRY SCHWARTZ, THE PARADOX OF CHOICE (2004); see also Kirstin Downey, Buried in Choices, WASH. POST, June 4, 2005, at F1 (quoting Schwartz's example that home buyers "find it harder to choose when many options are available, and after they do, they are apt to second-guess themselves . . .").
62. See SCHWARTZ, supra note 53, at 86; JON ELSTER, ULYSSES UNBOUND (2000).
63. This may actually be more important than short-term variety. Professor Michael Porter puts the point this way: While protecting short-run consumer welfare measured by price cost margins is undeniably important, the benefits of healthy competition are in fact broader and more essential to consumers and to society. The fundamental benefit of competition is to drive productivity growth through innovation, where innovation is defined broadly to include not only products, but also processes and methods of management. Productivity growth is central because it is the single most important determinant of long-term consumer welfare and a nation's standard of living. Porter, Competition and Antitrust, supra note 36, at 922-23; see also Interview with Professor Porter, ANTITRUST, Spring 1991, at 5 ("I believe that a merger that improves static efficiency but that threatens dynamism is a poor tradeoff."). These principles apply to the global economy as well as in local markets: International competitiveness increasingly depends on innovation. With continued operational improvement in education and infrastructure now a given, and with local companies able to rapidly acquire and deploy technology from around the word, producing standard products using standard methods no longer sustains competitiveness. Among high income countries, differences in prosperity are closely related to differences in the intensity of innovation. For developing nations, low-cost inputs by themselves are no longer sufficient to maintain competitiveness. Companies must increasingly be able to access and ultimately develop global technology.
64. Michael Porter & Scott Stern, Ranking National Innovative Capacity, in UNIQUE VALUE: COMPETITION BASED ON INNOVATION CREATING UNIQUE VALUE 111 (Charles Weller ed., 2004).
65. Here too the optimal level is not the simple maximum. No one suggests that all of society's resources should be devoted to innovation; consumers also should be able to enjoy the fruits of past innovations. Similarly, it is not always desirable to have a huge number of attempts to achieve each specific innovation. It might sometimes be enough to have a small number of attempts; any more would not be significantly more likely to be successful and would be likely to waste resources that could have been employed elsewhere.
66. "Competition can stimulate innovation. Competition among firms can spur the invention of new or better products or more efficient processes." FEDERAL TRADE COMM'N, TO PROMOTE INNOVATION: THE PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY 1 (2003) [hereinafter TO PROMOTE INNOVATION], available at http://www.ftc.gov/os/2003/10/innovationrpt.pdf.
67. Id. at 10. See also Philip Nelson et al., The Economics of Innovation: A Survey, ABA Section of Antitrust Law Task Force Report 25-26 (2002), available at http://www.abanet.org/antitrust/at-comments/ 2002/reports/economicssurvey.pdf [hereinafter ABA Report].
68. TO PROMOTE INNOVATION, supra note 57, at 12 (quoting JOSEPH SCHUMPETER, CAPITALISM, SOCIALISM, AND DEMOCRACY (1942)).
69. Id. at 13 (quoting SCHERER & ROSS, supra note 50, at 660). This last school of thought holds that "innovation increases with concentration up to some point and then declines." ABA Report, supra note 58, at 34.
70. SCHERER & ROSS, supra note 50, at 660. The Department of Defense conducted a study of the nation's defense industrial base and concluded that 35-45% of the critical new technology was being supplied by firms with fewer than 100 employees. See Suzanne Patrick, Deputy Under Secretary of Defense for Industrial Policy, Options for Maintaining a Robust, Adequate and Efficient Industrial Base, Remarks to the Heritage Foundation 8 (Feb. 23, 2005). An FTC study has reached a similar conclusion: "What is needed for rapid technical progress is a subde blend of competition and monopoly, with more emphasis in general on the former than the latter . . . ." TO PROMOTE INNOVATION, supra note 57, at 34 (quoting SCHERER & ROSS, supra note 50, at 660). The ABA Report notes that well-funded corporate research is not necessarily the key to discovery: "Jewkes, Sawyers, and Stillerman (1969) reviews seventy important Twentieth Century innovations and finds that only 24 had their origins in industrial research laboratories." ABA Report, supra note 58, at 31.
71. Id. at 14 (quoting Dennis Carlton & Robert Gertner, Intellectual Property, Antitrust and Strategic Behavior 14 (Nat'l Bureau of Econ. Research, Working Paper No. 8976, 2002)); accord id. at 35.
72. See ABA Report, supra note 58, at 34. The report lists among the relevant variables the characteristics of demand for the products, the institutional framework, and the firms' strategic interaction. See id. at 34-35 (economists "have recognized that both concentration and R&D efforts may be simultaneously determined by other market characteristics").
73. These are all questions of degree, of course, as is the extent of the market failure that is the prerequisite to any real antitrust problem. But antitrust necessarily deals with questions of degree.
74. Even for particular industries the relationship is likely to be complex. See Dror Ben-Asher, In Need of Treatment? Merger Control, Pharmaceutical Innovation and Consumer Welfare, 21 J. LEGAL MED. 271, 305 (2000) ("In summary, the rapid growth of the biomedical R&D sector suggests that scientific creativity in drug development is likely, perhaps even more likely, to be found in proportionally smaller and more informal organizations." (citation omitted)).
75. See Robert Lande & James Langenfeld, From Surrogates to Stories: The Evolution of Federal Merger Policy, ANTITRUST, Spring 1997, at 5.
76. Prior to the Airline Deregulation Act of 1976, codified as amended at 49 U.S.C. § 41713(b)(1) (Supp. 2005), the Civil Aeronautics Board (CAB) specified ticket prices, discouraged competition, and restricted entry into the airline market. Jonathan Ogur, The Deregulated Airline Industry: A Review of the Evidence, ECON. ISSUES, Jan. 1988, at 3-5.
77. See, e.g., United States v. Civil Aeronautics Bd., 511 F.2d 1315, 1317 (D.C. Cir. 1975) (refusing to allow CAB approval of a multilateral capacity reduction agreement on the grounds that it would have anticompetitive effects).
78. See Richard A. Posner, The Effects of Deregulation on Competition: The Experience of the United States, 23 FORDHAM INT'L L.J. 7, 17 (2000).
79. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
80. The Court referred to a jury verdict that the relevant market was "[d]ownhill skiing at destination ski resorts," id. at n.20, and that the "Aspen area" was a relevant geographic market. We express no view on the correctness of these markets.
81. The firms also continued to offer tickets for their own mountains only. See id. at 591.
82. Id. at 610.
83. Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979), involved similar facts. There two joint ventures encompassed the music-licensing industry. Owners of copyrighted music formed the ventures to sell blanket licensing agreements to media outlets. The outlets compiled data on the number of times individual songs were played and paid royalties accordingly. This joint venture, with its price-fixing aspects, was permitted because it was necessary for the very existence of the product. Without it, songwriters could not, as a practical matter, be compensated for their music because individual transactions between composers and users would be unduly expensive. Yet, within this price-fixed venture, the songwriters continued to compete with one another on what was probably the more important aspect of their work - the quality and variety of their songs.
84. For a recent example of such ajoint venture, see Press Release, Federal Trade Comm'n, FTC Intervenes in Formation of ULA [United Launch Alliance] Joint Venture by Boeing and Lockheed Martin (Oct. 3, 2006) [hereinafter ULA Press Release], available at http://www.ftc.gov/opa/2006/10/ula.htm, discussed infra note 165.
85. Price competition may still exist in the form of competition to obtain business from those actually paying the bill. Our focus here, however, is on the competition to make the sale to the ultimate consumer.
86. Still more specialized nonprice considerations may sometimes be controlling. Among business travelers, flyers may select particular airlines in order to maximize their frequent-flyer benefits, rather than to obtain the least-expensive flight.
87. If they did, they could hardly be called insurance plans. The effectiveness of such claim-limiting arrangements is further limited by the fact that they may sometimes be subject to antitrust charges themselves. See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332 (1982) (involving maximum fees that physicians could claim as part of certain health care plans); O'Halloran, 5 Trade Reg. Rep. (CCH) ¶ 22,543 (1988) (consent order against obstetricians alleged to be colluding to obtain additional Medicare revenue).
88. Bates v. State Bar of Ariz., 433 U.S. 350, 384 (1977) (rule forbidding most attorney advertising overturned on First Amendment grounds). For more detailed descriptions of the cases discussed in this subsection, see Robert H. Lande & Howard P. Marvel, The Three Types of Collusion: Fixing Prices, Rivals, and Rules, 2000 WIS. L. REV. 941, 953-84 (2000).
89. California Dental Ass'n v. FTC, 526 U.S. 756, 779 (1999) (ethical rule against misleading ads was applied to prohibit many truthful ads involving discounts and quality; case returned to appellate court to assess whether there was a sufficient basis for this application).
90. Massachusetts Bd. of Registration in Optometry, 110 F.T.C. 549 (1988) (board regulations impeding advertising by corporate providers, and prohibiting advertising of discounts, were unauthorized by statute, and condemned as antitrust violations).
91. The Supreme Court's decision in California Dental Association suggests that it is not merely permissible but mandatory to conduct a rule of reason analysis that considers all the relevant nonprice effects. See California Dental Ass'n v. FTC, 526 U.S. 756 (1999). In that case the FTC had condemned advertising restraints under both the per se and the "quick look" or abbreviated rule of reason approach. The Supreme Court was concerned, however, that in a professional advertising context the restrictions may have had significant benefits in preventing consumer confusion, and it held that the FTC should have used a more extended rule of reason analysis to be sure of considering these potentially important factors. See id. at 781 (Breyer, J., concurring) (situation did not necessarily call for the fullest market analysis, but at least "an enquiry meet for the case"; put differently, "a less quick look was required"). Id. at 758. An extended rule of reason analysis is particularly inclusive in the context of professional advertising. It requires consideration of cost savings, prevention of deception, and other consumer benefits on one side, and price increases and impaired substantive selection of the desired product or service on the other side.
92. 435 U.S. 679, 681 (1978).
93. Detroit Auto Dealers Ass'n, 111 F.T.C. 417, 681 (1989). For additional cases, see Lande & Marvel, supra note 79.
94. Detroit Auto Dealers, 111 F.T.C. 417.
95. Potential purchasers commonly see and test drive a number of cars before choosing one. If consumers must shop at times they find undesirable, the added costs of this inconvenience should be counted as a real loss for them. Other real losses are those due to settling for the suboptimal selection. For example, if a consumer pays $20,000 for a particular car, but would have been willing to pay $22,000 for a mechanically comparable car available for the same price at another dealer, which would have been a better choice in terms of styling and adaptation to small children, and if the consumer would have reached that dealer if not for the agreement to restrict hours of operation, then the losses need to include this unrealized $2,000 in potential consumer surplus, less whatever additional search costs would have been incurred.
96. FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 448-49 (1986).
97. Id. at 462. Of course, if the more familiar price-related antitrust factors are sufficiently clear, a particular case might still be decided without reaching choice factors. For example, if a court finds that the efficiencies are strong while the price increases are trivial or highly speculative, it might resolve the case on that basis alone. See, e.g., Vogel v. Am. Soc'y of Appraisers, 744 F.2d 598, 604 (7th Cir. 1984). Conversely, if the court finds that the proffered efficiency claims are pretextual and that prices increased significantly, it might also not need to reach the practices' effects on choice.
98. See Thomas B. Leary, Freedom as the Core Value of Antitrust in the New Millenium, 68 ANTITRUST L.J. 545, 555 (2000) ("Attention to individual tastes will become more and more important as exploding technology provides the means to satisfy them in ways heretofore unknown.").
99. Price might count in an extreme case, of course, but it is unlikely that many people would attend one movie rather than another just to save a dollar. Illustrating this, a recent edition of the Washington Post entertainment section contained a seven-page listing of the movies currently playing, with capsule reviews of each. Nowhere in this comparative shopping guide was there any mention of price.
100. Movies all tend to have similar prices citywide. Even where they do not, the owner of a multiplex theater complex will typically price all of its own films identically. The multiplex might compete against other theater chains on the basis of price, but, from the consumer's perspective, the different movies in the complex compete with one another only on a nonprice basis. Similarly, all over-the-air television is free and so may be said to have identical prices of zero (or of the viewers' opportunity costs, which are also identical across different programs).
101. For a discussion of the relationship between market failure and organizational independence, see infra notes 95-98. Graham Allison has explored some of the organizational characteristics that may contribute to these problems. See discussion infra note 96.
102. This is, of course, a stylized example. We are not asserting that three firms are always enough for effective price competition. This hypothetical requires the existence of substantial barriers to new entry into a well-defined cookie market and other factors. We are further supposing that three firms could make cookies as efficiently as four and that each firm can make all different kinds of cookies.
103. Here, too, we assume a market with entry barriers, so that we can focus just on the mechanisms of competition among the firms already in the market.
104. The existence of any real competition problem requires a market failure of some sort. See Averitt & Lande, Consumer Sovereignty, supra note 12, at 722-33.
105. This can lead to risk-avoiding consensus views on the kinds of news stories to cover, the kinds of television shows to produce, or the proper height of hemlines. Personal incentives, in other words, can sometimes prevail over corporate purposes. See generally GRAHAM ALLISON, ESSENCE OF DECISION: EXPLAINING THE CUBAN MISSILE CRISIS (1971). Allison postulated that many complex government decisions could be classified as following one of three models. Model I decisions are made by the classical "rational actor" and seek to advance the organization's logical goals rationally achieved. To understand this method of decision making, an outside observer can simply understand the organization's goals and resources and does not need to look inside the entity for its particular decision-making characteristics. By contrast, Model II decisions are determined by the organization's internal process. They are caused by (or influenced by) such factors as standard operating procedures, factored problems, fractionated power within the organization, parochial interests of different divisions, and the pursuit of sequential goals. Model III decisions emerge as a result of the personalities of the individual decision makers, who may have individualized goals, stands, stakes, interests, and attitudes towards risk that can heavily affect outcomes. Although Allison developed his insights to explain governmental decision making, others have applied these or similar ideas to business decisions as well.
106. See, e.g., F.M. SCHERER, INDUSTRIAL MARKET STRUCTURE AND ECONOMIC PERFORMANCE 225-27 (2d ed. 1980). The presence of "irrational" Model II and Model III decision making means that business conduct cannot always be predicted by a "black box" analysis of what a profit-making firm would be likely to do. Of course, if a business does not earn a sufficient profit it will go bankrupt. But within some range of sufficient profitability, organizational and personality-driven issues can affect decision making and outcomes. Economists have developed these insights into a number of proposed qualifications to the theory of the firm.
107. See, e.g., Herbert A. Simon, Theories of Decision Making in Economics and Behavioral Science, 49 AM. ECON. REV. 253, 263 (1959) (firms with target rates of return will try to reach "satisfactory" profits rather than maximum profits).
108. Departures from perfect market conditions are of course ubiquitous. Determining when a particular shortfall results in a cognizable market failure is a matter of degree - but matters of degree are relevant and recur throughout the antitrust field. See Averitt & Lande, Consumer Sovereignty, supra note 12, at 722-33.
109. Enforcement actions, therefore, do not necessarily involve the government agencies in second-guessing good-faith determinations about the best innovation strategy to pursue in the companies' own areas of expertise. In the situation posited in the text, the company is aware of its market power. Even where there is an element of good-faith disagreement, moreover, it occurs in circumstances of market failure that keep either party from perfect knowledge. And as we will discuss below, any enforcement policy will be developed to reflect the consensus from a broad and prolonged experience and not just the views of any single official.
110. In the 1920s, "General Motors . . . decided to provide cars to satisfy the tastes of every consumer and . . . offered variety in styling, as well as comfort, accessories, and power." Mira Wilkins, Multinational Automobile Enterprises and Regulation: An Historical Overview, in GOVERNMENT, TECHNOLOGY, AND THE FUTURE OF THE AUTOMOBILE 227 (Douglas Ginsburg & William Abernathy eds., 1980).
111. See LAWRENCE WHITE, THE AUTOMOBILE INDUSTRY SINCE 1945 (1971).
112. See JEFFREY O'CONNELL & ARTHUR B. MYERS, SAFETY LAST 155 (1966) (reporting on an industry consensus in 1950s and 1960s that "safety doesn't sell").
113. See Michael Pearce, International Competition in the World Automotive Industry, in GOVERNMENT, TECHNOLOGY, AND THE FUTURE OF THE AUTOMOBILE, supra note 99, at 259-60.
114. Public policy has always recognized the value of diverse voices in a democracy. The Supreme Court has repeatedly emphasized the importance of free political communications, noting the "profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open." New York Times Co. v. Sullivan, 376 U.S. 254, 264-65, 270 (1964) (ability to publish a national newspaper without undue concern for local libel actions). See also Buckley v. Valeo, 424 U.S. 1, 14 (1976) ("Discussion of public issues and debate on the qualifications of candidates are integral to the operation of the system of government established by our Constitution . . . ."); Roth v. United States, 354 U.S. 476, 484 (1957) (First Amendment gives broad protection to political expression "to assure [the] unfettered interchange of ideas for the bringing about of political and social changes desired by the people."). The Court has gone on to protect diversity in this respect by protecting the right of outsiders to use various suitable forms of communications. See, e.g., Republican Party of Minn. v. White, 536 U.S. 765, 788 (2002) (statements of substantive views injudicial elections); McIntyre v. Ohio Election Comm'n, 514 U.S. 334, 357 (1995) (anonymous leaflets on issues); NAACP v. Claiborne Hardware Co., 458 U.S. 886 (1982) (boycott of town merchants for civil rights purposes); New York Times Co. v. Sullivan, 376 U.S. 254 (1964). Political scientists have concurred on the benefits of diverse sources of information. See Bureau of Competition, Federal Trade Comm'n, Proceedings of the Symposium on Media Concentration (Dec. 1978). New information technologies may have displaced some of the ones involved above. The underlying principle expressed in these cases, however, that the nation benefits from variety and diversity in its media, surely remains valid. See Maurice E. Stucke & Allen P. Grunes, Antitrust and the Marketplace of Ideas, 69 ANTITRUST L.J. 249, 270 (2001).
115. This kind of family uniformity can occur regardless of whether the parent organization leans left or right, of course. On the one hand, the Washington Post and The New York Times are both basically liberal papers, and their corporate affiliates, Newsweek and the Boston Globe, respectively, do not pursue observably different editorial policies. On the other hand, a former political reporter at the newspaper The Australian recounted how all of the Murdoch-owned papers in that country were ordered to support a particular conservative candidate for prime minister. See Frontline: Who's Afraid of Rupert Murdoch? (PBS television broadcast, Nov. 7, 1995) (remarks of Mungo MacCallum) (Journalists "were given specific instructions on what they could write and what they couldn't write. And where the instructions weren't specific, they learnt pretty bloody quickly because nothing appeared in the paper if it didn't follow the line."), available at http://www.pbs.org/wgbh/pages/frontline/programs/transcripts/1404.html. Another journalist has said that Murdoch "put all his newspapers behind Mrs. Thatcher . . ." Id. (remarks of Michael Grade, Chief Executive, Channel 4, U.K.).
116. For example, the "Public Editor" or ombudsman at The New York Times posed the question, "Is the New York Times a Liberal Newspaper?" and then answered the question with the topic sentence, "Of course it is." Daniel Okrent, The Public Editor: Is the New York Times a Liberal Newspaper?, N.Y. TIMES, July 24, 2004, § 4, at 2, available at http://query.nytimes.com/gst/fullpage.html?res= 9D01E7D8173DF936A15754C0A9629C8B63.
117. See, e.g., William Safire, The Five Sisters, N.Y. TIMES, Feb. 16, 2004, at A19 ("You don't have to be a populist to want to stop this rush by ever-fewer entities to dominate both the content and the conduit of what we see and hear and write and say.").
118. Michael R. Darby & Edi Karni, Free Competition and the Optimal Amount of Fraud, 16 J.L. & ECON. 67, 68-69 (1973) ("Credence qualities are those which, although worthwhile, cannot be evaluated in normal use. Instead the assessment of their value requires additional costly information . . . . The line between experience and credence qualities of a good may not always be sharp, particularly if the quality will be discerned in use, but only after the lapse of a considerable period of time.").
119. See, e.g., Peter O. Steiner, Program Patterns and Preferences, and the Workability of Competition in Radio Broadcasting, 66 Q.J. ECON. 194, 212-17 (1952) (arguing that a monopolist is more likely to offer a broad array of programming than independently owned outlets because it can afford to develop more specialized material for its broader base of outlets). The Benton Foundation has produced empirical studies arguing the contrary, reporting that radio groups at or above the FCC's local ownership cap actually have less variety in programming formats than station groups that are under the cap. The studies are available at http://www.benton.org/index. php?q=node/3800.
120. Cf. United States v. Aluminum Co. of Am., 148 F.2d 416, 432 (2d Cir. 1945) (L. Hand, J.).
121. The ombudsman at The New York Times has noted the paper's consistently left-leaning treatment of social issues like gay marriage and gun control: "I don't think it's intentional when The Times does this. But negligence doesn't have to be intentional." He went on to note, "This has not occurred because of management fiat, but because getting outside one's own value system takes a great deal of self-questioning." Okrent, supra note 105. See Ted Turner, My Beef with Big Media, WASH. MONTHLY, July/Aug 2004, available at http://www.washingtonmonthly.com/features/2004/0407.turner.html (salaried local managers of a media conglomerate are unlikely to be the kinds of people who will take risks and innovate).
122. The causes they pursue can, again, be either of a liberal or a conservative bent. On the one hand, some critics charged that the Sinclair Broadcast Group was pursuing explicitly non-economic goals when it planned to air an anti-Kerry film on the eve of the 2004 Presidential election, even though doing so appeared likely to have a negative effect on advertising revenue and stock prices. See Bill Carter, Broadcaster's Stock Picks up After Change on Kerry Film, N.Y. TIMES, Oct. 21, 2004, at A27. On the other hand, other critics charged that CBS News had similar motives in planning to break the story of missing ammunition stocks in Iraq, embarrassing to the Administration, just on the eve of the same election.
123. See Howard Kurtz, Leaks Hastened Report on Missing Explosives, WASH. POST, Oct. 28, 2004, at A7. Some recent economic analysis has proceded from the premise that media outlet owners may be "willing to sacrifice some profit in order to engage in ideological persuasion." See generally David Balan, Patrick DeGraba & Abraham Wickelgren, Media Mergers and the Ideological Content of Programming (preliminary draft) (Feb. 2004) (copy on file with authors).
124. See, e.g., Evanston Northwestern Healthcare Corp., FTC Docket No. 9315, Initial Decision of Administrative Law Judge 204 (Oct. 21, 2005) (hospital merger), available at http://www.ftc.gov/os/adjpro/d9315/ 051021idtextversion.pdf.
125. Cf. Turner, supra note 110 ("Naturally, corporations say they would never suppress speech. But it's not their intentions that matter; it's their capabilities. Consolidation gives them more power to tilt the news and cut important issues out of the public debate. And it's precisely that power that the rules should prevent.").
126. See Paul Farhi, Three-Headed Baby? Rival Tabloids Joined in Corporate Deal, WASH. POST, Nov. 3, 1999, at C1. Rather than continuing to compete with one another, each publication reportedly will specialize in one niche of the tabloid market. The National Enquirer reportedly will focus on Hollywood news; the Sun will use health and religious stories to appeal to the 55-plus audience; and the Weekly World News will concentrate on paranormal stories involving aliens, UFOs, and Elvis.
127. See C. Eugene Emery, Sensationalism Six Pack: One Company Owns All the U.S. Supermarket Tabloids, SKEPTICAL ENQUIRER, Jan./Feb. 2001, at 8 (quoting the American Journalism Review), available at http://www.findarticles.com/p/articles/mi_m2843/is_1_25/ ai_68966510. One might be forgiven for asking whether it is possible for headlines to become any more varied in a world with even more tabloid choices, but the market should be given the opportunity to put that to the test. One issue in any such case would be whether supermarket tabloids in fact remain a relevant market or whether more traditional media are now starting to overlap with it.
128. The parties were Univision Communications, Inc. and Hispanic Broadcasting Corporation, which combined reached an estimated 97% of all Spanish-speaking households, with as much as 80% of the television and radio audience in many top Hispanic markets. The principal issue in antitrust review was whether there was a general Spanish media broadcast market, combining both radio and television. See Hispanic Broadcasting Corp., Docket No. MB 02-235, FCC File Nos. BTC-20020723ABL et al., Memorandum Opinion and Order 4 (Sept. 22, 2003), available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03- 218A1.pdf
129. At first glance one might think that the presence of fringe suppliers will solve any problems in media markets. The fringe suppliers in a conventional, price-driven market may not be able to constrain the prices of the primary firms, and so they are largely irrelevant. But the fringe suppliers in a media market might appear capable of supplying whatever demand for diversity exists. The customer who wants more varied sources of information can turn to specialty publications and Internet Web sites and fully satisfy his or her demand, even though these fringe suppliers may account for only a small percentage of the market. On reflection, however, it is clear that in neither the price nor the media cases do the fringe suppliers resolve the competitive concerns because in neither case are they sufficiently effective substitutes for the primary suppliers. In a price-competitive market the fringe suppliers are imperfect substitutes because of inconvenient locations, subtle product distinctions, and similar factors. We know that such differences are important because they keep these products from constraining the prices of the dominant firms in the first place. In the media market the fringe suppliers can be imperfect substitutes for similar reasons. They may provide fully functional alternative sources of information but fall short in collateral respects that are important to consumers: the alternative newspapers may not offer home delivery; the magazines may not offer advertisements for familiar products; the information source of whatever kind may not offer the social reassurance of having a large circulation. See, e.g., C. Edwin Baker, Media Concentration: Giving Up on Democracy, 54 FLA. L. REV. 839, 889 (2002) (arguing that fringe operators, and even nonfringe market actors, do not provide substitutes for consumers seeking a particular type of news source, such as a mainstream paper or a local paper). Hence, a merger that brings too many of the "respectable mainstream" publications under common control will not be cured by the availability of alternative publications on the margins.
130. See, e.g., Lorain Journal Co. v. United States, 342 U.S. 143, 149-50 (1951) (newspaper required exclusive dealing by advertisers in effort to injure competing radio station); United States v. R.C.A., 358 U.S. 334, 336, 351 (1959) (possible antitrust violation where network threatened to cancel affiliation unless a firm agreed to exchange of stations).
131. Cf. Stucke & Grunes, supra note 103, at 271 (antitrust courts have protected editorial competition among newspapers as a form of economic competition, but not necessarily one requiring additional actors).
132. America Online and Time Warner, FTC Docket No. C-3989. See Federal Trade Comm'n, Press Release, FTC Approves AOL/Time Warner Merger with Conditions (Dec. 14, 2000), available at http://www.ftc.gov/opa/2000/12/ aol.htm.
133. One of these ISP alternatives had to be offered before AOL itself began offering service, and the other two within 90 days thereafter. Various other provisions of the order kept Time Warner from interfering with or discriminating against the content of these independent services.
134. The FTC reports only about three enforcement actions per year involving challenges to four-to-three mergers or in less concentrated markets, out of an average total of 16 merger challenges per year. See Federal Trade Comm'n, Staff Report, Horizontal Merger Investigation Data, Fiscal Years 1996-2003 at 1, 25-26, Tables 6.1-6.2 (2004), available at http://www.ftc.gov/opa/2004/02/horizmerger.htm. Interpreting these statistics involves some implicit questions about the definitions of "challenges" and the treatment of market definition over time, but it is clear that four-to-three merger cases are relatively uncommon under any measure.
135. See, e.g., FTC Backs AOL-Time Warner Merger, JOURNAL RECORD, Dec. 15, 2000, available at 2000 WL 14300520 (quoting Chairman Robert Pitofsky) ("Our concern here was with access, that these two powerful companies would create barriers that would injure competitors");
136. Alec Klein, AOL Merger Clears Last Big Hurdle, WASH. POST, Dec. 15, 2000, at A1 (quoting Commissioner Leary saying: "I had and I continue to have concerns about these content issues."); AOL/Time Warner, supra note 119 (concurring statement of Commissioner Thompson) (the consent agreement will "send an important message to the market that high speed internet should continue to provide consumers with choice of service and diversity of content"). While suggestive, however, these quotes are not conclusive. They show that the Commissioners recognized that firms in this industry compete in large part through innovation and variety. They do not necessarily show that the Commissioners believed that this variety required lower concentration levels here than in other industries.
137. See, e.g., Wilfrid C. Rumble, Comment, The FCC's Reliance on Market Incentives to Provide Diverse Viewpoints on Critical Issues of Public Importance Violates the First Amendment Right to Receive Critical Information, 28 U.S.F. L. REV. 793 (1994).
138. For a general review of such arguments, see Federal Trade Comm'n, Proceedings of the Symposium on Media Concentration, Dec. 14-15, 1978, at 22 et seq. (remarks of Professor Monroe Price, UCLA Law School).
139. See also James N. Dertouzos & William B. Trautman, Economic Effects of Media Concentration: Estimates from a Model of the Newspaper Firm, 39 J. INDUS. ECON. 1, 13 (1990) (FCC rules restricting newspaper-broadcast cross-ownership do not have an economic basis, although they may make sense if one is concerned about media diversity).
140. The fashion industries provide an additional, related example of a sector where independent centers of innovation and creativity are crucial. Many of their products compete primarily through the excitement and imagination of new styles, and price can be distinctly secondary. The importance of this nonprice competition makes an unconcentrated structure important in these markets as well. The market failure of imperfect information - the imperfect ability to predict the future - would make it difficult for any small number of firms to anticipate the full range of consumer demand. Nevertheless, these industries have not been a traditional subject for antitrust attention because they are generally unconcentrated and have low barriers to entry. However, choice and variety are important and should be considered if they appear in jeopardy in any particular market.
141. Cf. Hosp. Corp. of Am., 106 F.T.C. 361, 478-79 (1985) (nonprice or quality competition in health care has historically been more important than price), aff'd, 807 F.2d 381 (7th Cir. 1986).
142. Hospitals may sometimes contribute to these market failures by withholding important information from consumers. For example, hospitals frequently offer surgical patients a premedication called Versed, explaining in their background materials that it is a sedative that will help them relax, which it does. Often unmentioned, however, is the fact that this drug also produces amnesia. See AMERICAN HOSPITAL FORMULARY SERVICE, DRUG INFORMATION 2478 (2006) (drug "provides sedation . . . and anterograde amnesia of perioperative events").
143. Hospitals are perhaps the only place in the economy where someone can set out to make a semi-discretionary purchase of several tens of thousands of dollars worth of services and not find a supplier willing, and even eager, to meet a variety of desires. It is true that hospital services must sometimes be purchased on an emergency basis from the nearest facility and that insurance plans also restrict hospital selection. Most often, however, patients and their doctors have some discretion over where and when the services are bought.
144. The swift changeover to admitting husbands suggests that a latent consumer demand for their presence was there to some degree in earlier years and was simply not known because the marketplace provided no ready avenue for expressing it.
145. That practical alternative gowns exist is suggested by the fact that at least a few institutions make a point of offering them. See Lindy Washburn, Hospital Adds Stylish Touch to Help Its Patients Recover, THE RECORD (NORTHERN NEW JERSEY), June 30, 1999, at A1. The obvious question is why all institutions do not offer them.
146. See Mary Fennell, Parents in the OR? You Bet!, RN MAGAZINE, Dec. 1999, at 38;
147. Jitka Zobal-Ratner et al., Parents in the Operating Room and Post Anesthesia Care Unit, Conference Poster, American Association for Pediatric Ophthalmology and Strabismus (1996). For a statement by a hospital using the procedure, see, e.g., the Web site of Children's Hospital Boston, available at http://www.childrenshospital.org/clinicalservices/Site1864/ mainpageS1864P17.html.
148. Michael W. Gauderer et al., Is There a Place for Parents in the Operating Room?, 24 J. PEDIATRIC SURG. 705, 705-06 (1989).
149. See also Ellen Kavee, Parents in the Operating Room, MONITOR: NEWSL. OF THE N.Y. STATE SOC'Y OF ANESTHESIOLOGISTS, Fall 2000, available at http://www.nyssa-pga. org/fall-2000.html ("98% of parents questioned said they would like to be present if their child ever needed surgery in the future");
150. Josephine McGann, Parental Presence During Induction: The Role Parents Play: Is It Valid?, CANADIAN NURSING J., Mar./Apr. 1999 (parental presence "can help decrease the stress and anxiety of both the patient and parents");
151. Patricia A. LaRosa-Nash & Jane M. Murphy, A Clinical Case Study: Parent-Present Induction of Anesthesia in Children, PEDIATRIC NURSING, Mar. 1996, at 109 (in one survey of parents, "99% who chose to be present at induction believed that their presence helped their child").
152. See Jerrold Lerman, Anxiolysis - By the Parent or for the Parent?, 92 ANESTHESIOLOGY, Apr. 2000, at 925.
153. See Theresa Meyers et al., Family Presence During Invasive Procedures and Resuscitation, AM. J. NURSING, Feb. 2000, at 32. Within the universe of family members that were offered and accepted the visitation option, 97.5% thought they had a right to be present, and 100% thought that it was important and helpful to them to be with their loved one at a time of crisis. Id. at 36.
154. See Ben Harder, Opening the Curtain, U.S. NEWS & WORLD REP., Sept. 10, 2001, at 64.
155. See Meyers, supra note 133, at 39 (29% of ER providers worried that family members might initiate litigation); Fennell, supra note 130, at 40 ("Liability is . . . probably the strongest and most widely heard argument against having a parent present . . . . Administrators and providers alike may worry about being sued if a parent observes an adverse event involving the patient or is injured while observing his or her child in the OR.").
156. Doctors advocating the conventional practices acknowledge that the majority of parents prefer to accompany their children, "[w]hen asked their opinion," but suggest using pre-operative sedative drugs to keep young patients calm. Lerman, supra note 132, at 925. This piece went on to make the decidedly non-market suggestion that doctors are under no obligation to respect the preferences of the people who hire them. Parental presence "is not an inalienable right but a therapeutic option to be used at the discretion of the anesthesiologist, not the parent, to facilitate induction of anesthesia." Id. at 926. There is a marked occupational and sociological split on this issue, with nurses supporting more open access to procedures and doctors opposing it.
157. Antitrust already considers some aspects of future competition under the heading of "innovation markets." All commentators agree on the general importance of innovation, see the discussion in Porter, supra note 36, but have reached no consensus on whether the concept of innovation markets will help frame useful antitrust rules for dealing with it in the high-tech context. Some may also argue that the concept of the innovation market does not really address the issues of variety and choice at all. It provides a legal basis for considering, as a presently existing area of competition (the innovation market) the state of future competition in the industry. It does not necessarily provide a substantive analytical tool for assessing whether greater than normal numbers of firms should be required for satisfactory competitive results. That task can be pursued, however, through the more focused, market-specific methodology we discuss in this article.
158. In appropriate cases courts have recognized the use of high-technology manufacturing techniques as a factor defining a distinctive market. See, e.g., FTC v. PPG Industries, 798 F.2d 1500, 1502 (D.C. Cir. 1986) (Bork, J.) (approving district court's definition of the relevant product market as "one of aircraft transparencies requiring, for want of a better term, 'high technology' to produce, without regard to the materials of which they are fabricated").
159. Corporate culture may unduly inhibit the range of different research avenues that are tried within a single firm - certain avenues are thought to be uneconomical, to have been sufficiently explored before, or to be "obviously" wrong.
160. The pharmaceutical product is actually a package consisting of the pharmaceutical itself plus information about how to dispense and use it most effectively. This provides an additional nonprice dimension in which suppliers can exercise innovation - in the techniques of dosage and use that are independently valuable to patients and their doctors.
161. See David Hamilton, Genentech Wins FDA Approval for Cancer Drug, WALL ST. J., Feb. 27, 2004, at B1. Similar uncertainty exists for many other ailments, of course. For example, some researchers believe that brain plaques cause Alzheimer's Disease and others believe that they are a symptom of the disease.
162. In theory, one company could pursue a variety of different approaches. However, for the same behavioral reasons discussed earlier in connection with media conglomerates and GM cars, a firm may tend to concentrate on certain favored avenues and downplay other ones.
163. See Press Release, Federal Trade Comm'n, Resolving Competitive Concerns, FTC Agreement Clears $182 Billion Merger of SmithKline Beecham and Glaxo Wellcome (Dec. 18, 2000), available at http://www.ftc.gov/opa/ 2000/12/skb.htm.
164. See Complaint ¶ 22, Glaxo Wellcome, FTC File No. 001-0088, FTC Docket No. C-3990 (Dec. 18, 2000) (prophylactic herpes vaccine market). At the time of the complaint there was no vaccine available to prevent or treat herpes vaccines, but the merging parties were two of the few firms developing such vaccines, and the other research programs were not as far advanced.
165. Glaxo already was marketing two drugs of the triptan class for treating migraines; SmithKline had an interest in a competing triptan drug that was in its late development stages; and Merck and Astra Zeneca were selling the other approved drugs in the class. See Glaxo Wellcome, Analysis to Aid Public Comment.
166. Press Release, supra note 143.
167. See Horizontal Merger Investigation Data, Fiscal Years 1996-2003, supra note 121, at tbl. 4.1.
168. See Ben-Asher, supra note 65, at 348-49 (arguing that federal antitrust officials should investigate mergers in the pharmaceutical sector falling outside the premerger notification threshold in order to preserve competition in R&D).
169. See Amgen, Inc., FTC Docket No. C-4053 (consent order) (Sept. 3, 2002) (R&D into cytokines that promote tissue inflammation and involving a 4-to-3 merger in one market, in which one of the merging parties was present only through a research program), available at http://www.ftc.gov/os/ 2002/09/amgendo.pdf; Cytyc Corp., FTC File No. 021-0098 (June 24, 2002) (staff authorized to seek preliminary injunction) (merger involving tests used to screen women for cervical cancer) (involving 5-to-4 merger in one market, with most firms present only through research programs or in FDA approval process). For a contrasting outcome see Genzyme/Novazyme, in which the Commission, on case-specific grounds, declined to challenge a merger to monopoly in research programs for the cure to a rare genetic disorder. Genzyme, FTC File No. 021-0026 (Jan. 13, 2004), available at http://www.ftc.gov/opa/2004/01/ genzyme.htm., discussed infra Part IV.B. Chairman Muris noted that an important feature of all these cases was the presence of the regularized FDA approval process, which made it possible for the FTC to identify potential entrants, determine how many years away from market entry they were, and to conclude that other substitutable R&D programs could not enter without having to start at the beginning of the approval process. See Muris Statement, Genzyme, id. at 4 n.11. Muris did not specify whether the number of actors protected in the first two cases was greater than would have been called for under the usual antitrust principles, although it appears probable that it was.
170. Here again there are likely to be technical problems whose solutions are not even approximately known. For example, is an economical, low-cost path to orbital flight best achieved through the Space Shuttle, air launches, single-stage-to-orbit technology, or by something else? We simply do not know. See, e.g., Graham Warwick, Reusable Reality, FLIGHT INT'L, July 8, 2003 at 29(examining the technical hurdles to reusable spaceflight and the increase in costs and complexity since the Columbia crash).
171. William E. Kovacic, Competition Policy in the Postconsolidation Defense Industry, 44 ANTITRUST BULL. 421, 433 (1999). The FTC has taken a similar institutional view. Although then-Chairman Pitofsky favored some defense consolidation to reduce expensive overhead, he also noted that it was important to preserve competition in quality and innovation: "In the defense industry, these nonprice indicators may be as important as, or even more important than, price." Robert Pitofsky, Chairman, Statement of the Federal Trade Commission Before the Senate Judiciary Committee, Subcomm. on Antitrust, Business Rights, and Competition (July 24, 1997), available at http://www.ftc.gov/os/1997/07/defense4.htm.
172. See generally Suzanne Patrick, Deputy Undersecretary of Defense for Indus. Policy, U.S. Dep't of Defense, Defense Industrial Base Capabilities Study (DIBCS) Series, Presentation to the FTC Staff by the Deputy Undersecretary of Defense for Industrial Policy (2005) [hereinafter Industrial Base Presentation] (copy on file with the authors). This presentation introduced the FTC antitrust lawyers to the content and methodology of the DoD's five-volume study of the nation's defense-related industrial base.
173. The DoD identified the critical areas of diversity fairly systematically. The Industrial Base Capabilities Study is a series of five reports, each one assessing a broad area of military activity - battlespace awareness, command and control, logistics, force application, and force protection. The five reports can be found on the DoD Web site at http://www.acq.osd.mil/ip/ip_products.html. A typical example is U.S. Dep't of Defense, Defense Industrial Base Capabilities Study: Force Application (Oct. 2004), available at http://www.acq.osd. mil/ip/docs/dibcs_fa_10-29-04.pdf [hereinafter Force Application Study]. Each of these reports first identifies the most theoretically promising military capabilities, then breaks those down to the component technologies involved, and then reasons backward from the technologies to identify the kind and number of industrial facilities needed to perform the tasks of inventing and manufacturing them. Id. at 9. However, attaining the optimal level of performance is more important in some areas of innovation than in others. The DoD, therefore, identifies certain technological fields where it is desirable for the United States to be ahead of other countries by a technology generation or by an order of magnitude in performance - such as locating underground structures or recovering a signal from background noise. Suzanne Patrick, Deputy Undersecretary of Defense for Indus. Policy, U.S. Dep't of Defense, Defense Industrial Base Capabilities Study: Relevance to Antitrust Reviews, Presentation to the FTC Staff by the Deputy Undersecretary of Defense for Industrial Policy 7-8 (May 3, 2005) (copy on file with the authors) [hereinafter Antitrust Presentation]. It also identifies still more critical fields where we want to be way ahead of rivals by several cycles of technology - such as the means of integrating various sensor inputs to depict the electromagnetic battlespace. Id. These fields are the ones in which it is most important to have diverse suppliers. For a more extensive breakout of fields in these terms see Force Application Study, supra, at app. A.
174. Antitrust Presentation, supra note 153, at 18.
175. See Industrial Base Presentation, supra note 152, at 17; see also Force Application Study, supra note 153, at 55 ("Deny teaming that limits innovation; maintain present number of sources at minimum.").
176. The DoD is not indifferent to the cost of maintaining alternative approaches, particularly when that requires expensive production facilities. See Force Application Study, supra note 153, at 26 (the limited market for hypersonic weapon propulsion systems is "not likely able to support more than one supplier at this time").
177. Industrial Base Presentation, supra note 152, at 18.
178. Id. at 16.
179. Id. at 16, 21. Other insights include beliefs that (1) important breakthroughs commonly come from small suppliers with fewer than 100 employees; (2) variety is often more important in early R&D than in later development; (3) separate companies may be useful in applying new technology to different fields; and (4) acquisition of a small innovator by a large parent is likely to trigger a round of defensive sales of other companies. For these reasons, the DoD has expressed concern about further consolidation in certain relatively unconcentrated markets, such as those involving active hyperspectral imagers, which are used for assessing the composition of debris clouds, where there are presently four domestic R&D programs; and infantrymen's helmet-mounted displays, where there are presently five programs. Id.
180. For practical purposes, the "enforcers" in the defense field include the Pentagon officials who decide whether to recommend a challenge to a merger. The DoD has substantial influence over antitrust decisions because it would be very difficult for the antitrust agencies to win cases without its supporting testimony as the sole purchaser of these products and as the primary voice for national security considerations.
181. See Press Release, U.S. Dep't of Justice, Justice Department Goes to Court to Block Lockheed Martin's Purchase of Northrop Grumman (Mar. 23, 1998) [hereinafter Lockheed Press Release], available at http://www.usdoj.gov/atr/public/press_releases/1998/212681.htm;
182. see generally Complaint, United States v. Lockheed Martin Corp., 6 Trade Reg. Rep. (CCH) ¶ 45,098 (D.D.C. Mar 23, 1998), available at http://www.usdoj.gov/atr/cases/f212600/212680.pdf.
183. Kovacic, Competition Policy, supra note 151, at 422.
184. See Lockheed Complaint, supra note 161, ¶ 2. The merger would also have reduced from two to one the suppliers of directed infrared countermeasures systems and of airborne early warning radar. These seem like more specialized areas of concern, however.
185. The DoD might have several reasons for accepting two suppliers rather than seeking to preserve the more common number of three. It might believe that the minimum efficient scale for producing complex products will permit only two producers. It might also have confidence - perhaps undue confidence - in its own powers as a large and sole institutional buyer.
186. The market for medium- to heavy-lift government vehicles was subsequently allowed to consolidate to a single joint venture. This caused concern, but was ultimately thought to be justified by qualitative efficiencies in reliability. See ULA Press Release, supra note 75.
187. See Kovacic, supra note 151, at 423.
188. See Lockheed Complaint, supra note 161, ¶ 4. In this respect the complaint was expressing the views of the DoD management, if not necessarily those of the individual services. See id. ¶ 7 (quoting letter from William S. Cohen, Secretary of Defense, to Janet Reno, Attorney General (Mar. 23, 1998)). The press release quoted Janet Reno as saying that the merger, unless blocked, "would cost the taxpayer and take the competitive wind out of the sails of innovation in the production of many critical systems . . . ." Lockheed Press Release, supra note 161.
189. In order to be a truly effective center of innovation, however, several specific things are required. These include staff, research facilities, patents, and institutional culture. That, in turn, leads to a series of practical questions about minimum efficient scale: How many such centers are possible; how many are necessary; and how does that number compare with the result expected from the proposed actions? These questions call for careful industry-specific inquiry. See, e.g., JOHN BIRKLER ET AL., COMPETITION AND INNOVATION IN THE U.S. FIXED- WING MILITARY AIRCRAFT INDUSTRY (RAND 2003).
190. See http://www.af.mil/factsheets (links to AMRAAM, Sparrow, and Sidewinder systems can be found under the "Weapons" tab).
191. See Center for Security Policy, Decision Brief No. 97-D 87 (June 24, 1997) (the DoD deliberately invested to ensure that two firms could produce the AMRAAM missile; the competition between them "has saved taxpayers hundreds of millions of dollars") (attributing this view to Paul Kaminski, Under Secretary of Defense for Acquisition), available at http://www.centerforsecuritypolicy.org/index.jsp?section=papers&code= 97-D_87;
192. Lawrence Korb, Defense Mega-Mergers Weaken the U.S., NEWSDAY, Apr. 28, 1998, at A33 (competition had brought "improvement in the technology" and a 20% drop in unit cost).
193. See Force Application Study, supra note 153, at 36.
194. "Although the Department expects that these [AMRAAM price] negotiations will be concluded successfully, it will not file its complaint and proposed settlement with the court until that happens." Raytheon Press Release, supra note 9 (provisionally announcing agreement that required sale of two electronics businesses and construction of a firewall involving an anti-tank missile).
195. Id. Other divestitures were required as part of the contemporaneous purchase of Texas Instruments.
196. A second factor might also have eased the DoD's concerns. Some important sources of innovation can be found not in the missile manufacturer, but rather in the subcontractors who make critical components, such as sensors and guidance systems. These firms were not involved in the merger and their ability to innovate was unimpaired. This does not necessarily remove all concerns, however, because any prime contractor still needs to be competitively motivated to encourage, seek out, use, and pay for innovative technology.
197. "The review found that the components and characteristics of these missiles are shared by all air-intercept missiles and that the strengths of other companies in this market will ensure robust competition for any future programs." Press Release, U.S. Dep't of Defense, DoD Completes Review of Raytheon-Hughes (Oct. 2, 1997), available at http://www.defenselink.mil/ releases/1997/b10021997_bt527-97.html. It is not clear if the DoD study specifically assessed whether such entry would be induced by a 5% price rise, the usual merger methodology. See Horizontal Merger Guidelines, supra note 4, § 1.11; see also infra note 244.
198. See DEFENSE MERGERS & ACQUISITIONS NEWSL., Nov. 2001 ("the 'monopoly' which Raytheon gained in the air-to-missile market was of short duration, as both Lockheed Martin and Boeing scrambled to bring home foreign designs for the Pentagon's consideration").
199. Lawrence Korb was Assistant Secretary of Defense in the Reagan Administration and, more recently, a Senior Fellow at the Brookings Institution. He noted that Washington was "correct" to question the Lockheed-Northrop merger, but "it should have used the same criteria to halt . . . Hughes-Raytheon . . . ." Korb, supra note 170, at A33. William Kovacic noted soon after the merger was announced that the combined Raytheon-Hughes would be "truly dominant" in air-to-air missiles, and that "[t]heir challenge is to argue to antitrust officials that there's another plausible company the government can turn to . . . One potential danger in the deal is losing the benefit of different corporations' different technological solutions." See John Mintz, Raytheon Deals Raise Antitrust Concerns, WASH. POST, Jan. 28, 1997, at C1 (quoting Kovacic).
200. FTC File No. 021-0026 (Jan. 13, 2004). The Commission vote was 3-1-1. The closing letter, statement of Chairman Muris, dissenting statement of Commissioner Thompson, and separate statement of Commissioner Harbour are available at http://www.ftc.gov/opa/2004/01/genzyme.htm.
201. See Thompson Genzyme Statement, supra note 178, at 4.
202. See Muris Genzyme Statement, supra note 178, at 6-7.
203. See id. at 17.
204. See id. at 14.
205. See id. at 16.
206. See Thompson Genzyme Statement, supra note 178, at 10. See generally Geeta Anand, For His Sick Kids, a Father Struggled to Develop a Cure, WALL ST. J., Aug. 26, 2003, at A1. The dispute between Genzyme and the manager appears to have involved a personal divergence of interest rather than a dispute over research strategy. The manager wanted to enroll his own children - who suffered from the disease themselves - in early clinical trials. But the underlying point illustrated here is that corporate control over personnel implies control over policy.
207. There was also evidence that, after the merger, the schedule for the introduction of Novazyme products was delayed by several years, although the reasons for this delay are unclear. See Muris Genzyme Statement, supra note 178, at 17.
208. Michael Porter appears to be such a person. Speaking about mergers generally, he concluded that if there is a probability "greater than . . . 0.2" that a merger will lead to a "bad outcome" - by which he means a loss of future innovative potential - then he would block the merger absent "a pretty compelling counterargument in terms of the [short term cost savings]." Jonathan B. Baker & Steven C. Salop, Should Concentration Be Dropped from the Merger Guidelines?, 33 UWLA L. REV. 3, 15 (2001) (quoting Porter's comments from an ABA Roundtable Conference). See also SCHERER & ROSS, supra note 50, at 32-34, 575-76.
209. Several other special factors also weighed against a complaint. The Commission had two years of post-acquisition evidence that tended to show continuing robust research. In addition, a post-acquisition divestiture might have been especially disruptive to the ongoing combined research efforts in a way that would ultimately have harmed the public interest. Finally, the small size of the potential market here meant that any treatment would be subject to the terms of the Orphan Drug Act. See Muris Genzyme Statement, supra note 178, at 11. That act gives the initial therapy a seven-year period of exclusivity, unless a later drug can affirmatively demonstrate that it is superior. These provisions tended to affect the likelihood of having two therapies available even if an antitrust action were taken.
210. Dominican Santa Cruz Hosp., 118 F.T.C. 382 (1994).
211. The separate and difficult subject of abortions was not a significant issue in this case. In this county, as in many areas, abortions were generally performed in freestanding clinics and were, therefore, not directly affected by the hospital merger.
212. That hospital may not have been a fully effective substitute for the others because some insurance plans might not have included it and some doctors might not have had privileges there.
213. An article in the area newspaper quoted doctors expressing concern that the procedure would no longer be available when it needed to take place in a hospital setting. See Bob Levy, Hospital Offer Raises Concerns, SAN JOSE MERCURY NEWS, Feb. 28, 1990.
214. At the time the acquisition was actually consummated, Dominican informed obstetricians that it would allow completion of some tubal ligations that had already been scheduled, although no further procedures of this kind would be booked. Thereafter the procedure apparently would be unavailable at the Dominican hospitals. See Lee Quarnstrom, Sterilization Services Limited but Santa Cruz Clinics Closed for Tubal Ligations, SAN JOSE MERCURY NEWS, Nov. 5, 1991, at 1B. Two years later, however, at the time the consent decree was becoming final, the hospital had obtained authorization from the local bishop to perform ligations under some defined circumstances.
215. See Lee Quarnstrom, Birth Control Ban Is Eased at Dominican, SAN JOSE MERCURY NEWS, Sept. 11, 1992, at 1B.
216. The hospital might have made two arguments against an enforcement action. Each has some merit, but neither should have prevented a successful challenge. First, Dominican might have argued that it would have been legal if Community Hospital had been bought by an unrelated out-of-state Catholic hospital, and tubal ligations would have been equally eliminated under that merger. Thus, it could not be said that the loss of this service flowed uniquely from the acquisition by Dominican. This observation, however, even if it could be proven factually correct, is legally irrelevant. The antitrust laws may not reach every loss of consumer options that flows from an acquisition, but that does not mean they cannot reach those losses that are the consequence of a legally relevant horizontal merger. Second, the hospital might have argued that any remedy here would involve the government in requiring the hospital to offer a service that is contrary to its religious values, and this would violate its freedom of religion under the First Amendment. This argument is also unpersuasive because any remedy is imposed as a result of a voluntary act by the hospital and, thus, is easily avoidable. If the hospital cannot make an acquisition without violating the antitrust laws, if it is not willing to be subject to an order that violates its religious beliefs, and if a satisfactory compromise cannot be negotiated, then it can simply forgo that particular transaction.
217. See Dominican Santa Cruz Hosp., 118 F.T.C. 382, 389 (1994).
218. The acquisition was consummated before the staff could open an investigation or consider seeking an injunction against it. By the time the consent order was negotiated, the acquired hospital had been converted to a skilled nursing and rehabilitative care facility and no longer operated as a hospital; reconversion would clearly have been difficult. In addition, another hospital chain had announced plans to enter the market, an action that would restore a third competitor. See Dominican Hospital, 118 F.T.C. at 390-91 (statement of Chairman Steiger). Notwithstanding these considerations, Commissioners Azcuenaga and Yao dissented and suggested that the consent order did not provide an adequate remedy. In 1996, subsequent to this discussion, and six years after the acquisition itself, the Sutter system opened the Sutter Maternity and Surgery Center, a small specialty hospital focusing on women's issues. This seems to have solved most problems of access. It is still worth considering whether antitrust policy should ordinarily be content with new entry that is subject to this many delays and uncertainties.
219. It would be desirable to keep any such order provision as non-regulatory as possible, perhaps by permitting delegation of the management of any specifically protected medical service to an independent entity.
220. FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1303 (W.D. Mich. 1996), aff'd without opinion, 121 F.3d 708 (6th Cir. 1997).
221. When they merged, the HHIs increased by between 1064 and 2001 points, to a level between 2767 and 5079, depending on the particular markets and units of measurement used. See id. at 1294.
222. See id. at 1295-98. The judge was apparently untroubled by the price-regulatory features of this undertaking.
223. See id. at 1298 (hospitals' preferred price guarantee "corroborates other evidence that nonprofit hospitals may be treated differently under the antitrust laws, and further undermines the predictive value of the FTC's prima facie case).
224. Id. at 1297 (hospital directors "testified convincingly that the proposed merger is motivated by a common desire to lower health care costs and improve the quality of care").
225. See supra notes 125-136 and accompanying text.
226. J.B.D.L. Corp. v. Wyeth-Ayerst Labs., Inc., No. 01-00704, 2005 U.S. Dist. LEXIS 11676 (S.D. Ohio June 13, 2005), appeal docketed, No. 05-3988 (6th Cir. Aug. 5, 2005). The problematic restraints in Wyeth might be characterized as involving incentives toward de facto exclusive dealing or, alternatively and more generally, as anticompetitive exclusionary contracts.
227. A conjugated estrogen differs chemically from other estrogen products. There are no generic equivalents of Premarin approved by the FDA. Id. at *4.
228. Id. at *14, *32.
229. Id. at *26.
230. One goal was to hold Cenestin "to less than two percent of prescription market share in 1999, approximately $20 million in assumed sales." Id. at *6.
231. Id. at *8. Financial incentives to exclusivity can sometimes limit choice as effectively as contractual provisions do. See Willard Tom, David Balto & Neil Averitt, Anticompetitive Aspects of Market-Share Discounts and Other Incentives to Exclusive Dealing, 67 ANTITRUST L.J. 615 (2000).
232. Id. at *11; Wyeth's index of its PBM contracts indicates that, as of January 1, 2000, 31 out of 74 contracts contained a "sole conjugated estrogen" clause. Id.
233. Id. at *30.
234. Id. at *22.
235. Id. at *8.
236. Id. at *7.
237. Id. at *48.
238. On the present publicly available record it is not clear whether the effective unit of innovation is the FDA-approved product or the broader manufacturing firm. Nor is it clear to what degree the excluded firm here is one that competes by innovation, as distinct from some generic firms that compete primarily on price. But the point is that these issues should have been explored.
239. See Matthew Mosk, Taxicab Firm's Influence Flagged, WASH. POST, Nov. 18, 2003, at A1. Similar situations appear to have occurred in other cities around the country.
240. See, e.g., Robert Hardaway, Taxi and Limousines: The Last Bastion of Economic Regulation, 21 HAMLINE J. PUB. L. & POL'Y 319, 324 (2000) (experience suggests that unregulated markets provide better service at lower prices);
241. Ross D. Eckert, The Los Angeles Taxi Monopoly: An Economic Inquiry, 43 S. CAL. L. REV. 407, 426, n.80 (1970) ("The Board has apparently been unconcerned that the Yellow Cab Company immediately upon its consolidation of competitors in 1934, reduced its number of operating cabs by approximately 30 per cent . . . and that the quantity of service offered has declined steadily over the past fifteen years." By 1952, Yellow Cab operated "about 900 cabs out of a total of 975" (footnotes omitted));
242. see also Edmund Kitch, Mark Isaacson & Daniel Kasper, The Regulation of Taxicabs in Chicago, 14 J.L. & ECON. 285, 286 (1971) (80% share of Chicago's market was held by two companies that came to be controlled by one person).
243. See Matthew Mosk, Duncan Pushes Cab Competition, WASH. POST, Dec. 16, 2003, at B1.
244. See Sue Anne Pressley, Montgomery to Add 150 Cabs Over 3 Years, WASH. POST, July 6, 1988, at B3.
245. See Claudia Levy, Upper County Has Few Easy Cab Riders, WASH. POST, Feb. 25, 1988, at D1.
246. E-mail from Nancy Kutz, Office of Medicaid and Taxicab Regulation, Montgomery County, Md., to Thomas Werthman, Research Assistant, University of Baltimore School of Law (Nov. 29, 2005) (on file with authors).
247. Mosk, Taxicab Firm's Influence Flagged, supra note 216, at A1. Until 2004, the Montgomery County Code gave regulators considerable discretion in how to treat cab operations. See, e.g., Montgomery County, Md., Code § 53-48(e) (provisions on transferability) ("The director may waive any prohibition against transferability if the director is satisfied that granting a waiver is likely to produce: (1) More effective competition; and (2) Based on the business plan of the transferee, an improved level of taxicab service for consumers in the County").
248. See id. § 53-106(a) (County Executive is to set the rates for all cabs and cab companies).
249. Mosk, Taxicab Firm's Influence Flagged, supra note 216, at A1.
250. Mosk, Duncan Pushes Cab Competition, supra note 217, at B1. The county administrator reached a similar conclusion: "Right now, you have one big player. If we can create competition, we'll see service improve." Id.
251. The current taxicab code provides: "The Director must not approve the transfer of any license if the transferee already holds, or would then hold, more than 40% of the total of licenses then in effect." Montgomery County, Md., Code § 53-204(e), available at http://www.montgomerycountymd. gov/content/DPWT/transit/taxi_reg/testfile/chapter53taxicabsrevised12.06.pdf. We believe that such a market share cap is wise in light of the historic domination of the Montgomery County taxicab market by one company. We also believe that the optimal level of nonprice competition is much more likely to result from competition than from rate regulation and administrative oversight of a firm with market power. The difficulties of oversight are especially worrisome in jurisdictions where the dominant firm has historically had a strong influence over its own regulation.
252. See Jeremy Gerard, TV Networks May Approve a Pool of Election Exit Polls, N.Y. TIMES, Oct. 31, 1989, at C26;
253. James A. Barnes, The Polling Business, 5 PUBLIC PERSP., Nov./Dec. 1993, No. 1, at 17;
254. Frank Reuven, Election Night, 75 NEW LEADER, Oct. 5, 1992, at 20;
255. see also Moshe Adler, Bungled Election Projection? Blame the Feds!, SALON.COM, Dec. 7, 2000, http://archive.salon.com/tech/ feature/2000/12/07/antitrust/index.html.
256. See James Grimaldi, Battle of the Titans, WASH. POST, Nov. 27, 2000, at E8;
257. Kathy Chen, Election 2000: Antitrust Advocacy Group Seeks Breakup of Voter News Service, Citing Florida, WALL ST. J., Nov. 28, 2000, at A12.
258. It could have raised neither advertising rates nor the price at which it sold its information to its client networks, because it was owned by the networks.
259. Associated Press v. United States, 326 U.S. 1 (1945).
260. For a more detailed description of this Voter News Service matter see Lande, Choice as Ultimate Goal, supra note 12, at 519-21.
261. Realcomp II, FTC Docket No. 9320; FTC File No. 061-0088 (Oct. 12, 2006), available at http://www.ftc.gov/opa/2006/10/realestatesweep.htm. A second, similar complaint was announced at the same time, along with five proposed consent agreements. Id.
262. See Press Release, Federal Trade Comm'n, FTC Charges Real Estate Groups with Anticompetitive Conduct in Limiting Consumers' Choice in Real Estate Services (Oct. 12, 2006), available at http://www.ftc.gov/opa/2006/10/ realestatesweep.htm.
263. It is likely that the efficiency paradigm succeeded in replacing the social/political paradigm, even though it actually has little foundation in the antitrust laws' legislative history, because its proponents successfully argued that it was the more objective and predictable approach. See Robert Lande, The Rise and (Coming) Fall of Efficiency as the Ruler of Antitrust, 33 ANTITRUST BULL. 429, 430-38 (1988).
264. Leary, supra note 89, at 556.
265. And, of course, we should always remember that choice analysis will make a difference only in a limited number of cases; most will continue to be assessed as they are now.
266. See Fisher, Johnson & Lande, supra note 34, at 809-13.
267. Id.
268. One important formal difference is that a choice model would count the transfer effects of the higher prices, in addition to the inefficiency effects. See Averitt & Lande, Consumer Sovereignty, supra note 12, at 717 n.11. Because the transfer effects of market power can easily be calculated if the allocative inefficiency effects are known, however, this would not require the antitrust decision makers to obtain any additional information. See Fisher, Johnson & Lande, supra note 34, at 809-10; Fisher & Lande, supra note 34, at 1653-59.
269. Section 0.1, Purpose and Underlying Policy Assumptions, states: The unifying theme of the Guidelines is that mergers should not be permitted to create or enhance market power or to facilitate its exercise. Market power to a seller is the ability profitably to maintain prices above competitive levels for a significant period of time. [note 6] In some circumstances, a sole seller (a "monopolist") of a product with no good substitutes can maintain a selling price that is above the level that would prevail if the market were competitive. Similarly, in some circumstances, where only a few firms account for most of the sales of a product, those firms can exercise market power, perhaps even approximating the performance of a monopolist, by either explicitly or implicitly coordinating their actions. Circumstances also may permit a single firm, not a monopolist, to exercise market power through unilateral or non-coordinated conduct - conduct the success of which does not rely on the concurrence of other firms in the market or on coordinated responses by those firms. In any case, the result of the exercise of market power is a transfer of wealth from buyers to sellers or a misallocation of resources. Horizontal Merger Guidelines, supra note 4.
270. Id. at n.6 ("Sellers with market power also may lessen competition on dimensions other than price, such as product quality, service, or innovation.").
271. This is particularly true because note 6 referred to the existence of nonprice competition, so we know that topic must be covered somewhere in the Horizontal Merger Guidelines. Id.
272. Alternatively, one could make smaller additions to §§ 2.1 and 2.3.
273. In other words, there can be an efficiencies defense in the innovation context, a possibility that we will discuss below.
274. Markets are currently defined through a "thought experiment" keyed to price. We ask whether a hypothetical monopolist could profitably raise prices by a small but significant amount, such as 5-10%, for a significant period of time. See Horizontal Merger Guidelines, supra note 4, § 1.11. In markets where nonprice competition is the most important kind, however, the boundary-defining test might better be conducted in nonprice terms instead. The issue then would be whether a hypothetical monopolist could make the product less desirable in some "significant and non-transitory" nonprice way, without prompting market shifts that would frustrate the step. In a hospital context, for example, the question might be whether a monopoly institution could successfully cut corners to the point where its rate of complications rose by 5%. Giving choice considerations more emphasis might cause the markets for certain choice-sensitive products to become defined more narrowly, as the analysis is shifted to a new metric to which consumers are more responsive. This will tend to show market power in a larger number of cases. We cannot, however, predict how great any changes would be in practice.
275. Using this technique will take advantage of the FTC's unique asset in having both antitrust and consumer protection expertise under one roof.
276. For example, results from economic laboratory tests show that "four firms seem to be enough to approach a competitive equilibrium in most (but not all) experimental markets." Paul Pautler, Evidence on Mergers and Acquisitions, 48 ANTITRUST BULL. 119, 207 (2003).
277. The FTC's R-value rule, mandating disclosures on the effectiveness of home insulation, was, in part, an attempt to help the market provide better insulation products. See Labeling and Advertising of Home Insulation, 16 C.F.R. pt. 460 (2005). For an interpretation, see Averitt, Unfair Acts or Practices, supra note 12, at 260, 263. This may also have been a factor behind the Green Guides. Guides for the Use of Environmental Marketing Claims, 16 C.F.R. pt. 260 (1992).
278. Relevant topics might include such things as the degree of actual control that parent media companies typically exercise over their subsidiaries and information about the effects of newspaper joint operating agreements.
279. For example, the number of firms that will maximize innovation under various types of market conditions remains in dispute. Further studies that help to resolve these issues - or even just narrow the range of disagreement - would obviously be useful for antitrust purposes.
280. See U.S. Dep't of Justice & Federal Trade Comm'n, Antitrust Guidelines for Collaborations Among Competitors, Safety Zone for Research and Development Competition Analyzed in Terms of Innovation Markets § 4.3 (2000), available at http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf. It could be argued that this rule is aimed primarily at defending against charges of traditional collusion, but the underlying concept of critical concentration levels may be useful in other contexts as well.
281. This new approach would have some real consequences for merger enforcement. Admittedly, the measurement of changes in the HHI index now plays only a small role in enforcement agency and court decisions. So many other factors are involved that, despite what some of the language in the Guidelines appears to suggest, modern merger analysis is close to following a full rule of reason for all cases that are not within the Guidelines' safe harbors. "[M]erger policy has been moving away from reliance on surrogates [such as the HHI] and towards an approach that instead tells a story of anticompetitive harm - an approach that directly asks and answers the ultimate question: are prices to consumers likely to increase as a result of a merger?" Lande & Langenfeld, From Surrogates to Stories, supra note 66. The HHI provides a starting point for the analysis, however, and starting points often have an effect on conclusions.
282. Even when stated in the Horizontal Merger Guidelines, of course, this number would merely be a presumptive starting point for analysis. It would not establish an absolute bar to above-threshold mergers.
283. Some have argued that there is an element of imperfect communication in the Horizontal Merger Guidelines, in the sense that analysis actually begins with presumptions at HHI levels different from those formally announced. We do not address that issue in this article, however.
284. See Barry Harris & David Smith, The Merger Guidelines vs. Economics: A Survey of Economic Studies, ANTITRUST REP., Sept. 1999, at 23;
285. see also Paul Pautler, Evidence on Mergers and Acquisitions, 48 ANTITRUST BULL. 119 (2003).
286. In other words, a rough bipartisan consensus has emerged as to both the formally announced and the actually enforced thresholds, whatever those latter might be.
287. Indeed, the outcome of cases may become more predictable than they are now because the relevant choice considerations will have been openly identified and articulated, rather than left to work behind the scenes as unannounced "fudge" factors.
288. Horizontal Merger Guidelines, supra note 4, § 3.
289. Id. § 2.
290. Id. § 4.
291. See, e.g., Memorandum from Jonathan Baker, Professor of Law, American Univ. Washington Coll. of Law, to the FTC/DOJ Joint Workshop on Merger Enforcement, Comments on Applying the Horizontal Merger Guidelines 18 (Mar. 18, 2004), available at http://www.ftc.gov/bc/mergerenforce/comments/ bakerjon.pdf (federal enforcers should "consider adding a new section making explicit their approach to analyzing innovation competition," and can do so "without altering any existing Guidelines text"). An alternative method for explicitly considering the effects of a merger on innovation was suggested by Michael Porter. See Porter, supra note 36, at 936-42 (using "five forces" analysis).
292. This is analogous to unilateral effects analysis, except that instead of more carefully scrutinizing a merger between two firms that are active within the same market-space niche of a market, choice analysis could be said to focus on a niche consisting of innovators. It is also similar to the "innovation market" idea. See supra note 37.
293. We need not take this idea further by extending it to additional or less important dimensions of nonprice competition. Suppose that only three of the five firms in a market compete by offering high levels of sponsorship of local sports teams (or high-quality advertising, or any other significant but secondary dimension of competition) and that two of the sponsorship-oriented firms want to merge. Should we prevent tins merger? Not necessarily, because those other arenas are not, in most cases, as important for consumers as choice and innovation. This proposition can be tested by imagining the consumer response to a 5% diminution in the relevant conduct.
294. This assumes that the merger enforcement or liability decision properly permits an efficiency defense in the first place. The Clayton Act does not contain an explicit exception for an efficiency-enhancing merger. It prohibits mergers the effect of which "may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18. However, competition could be enhanced in the long run if a merger leads to increased innovation that helps the innovating firm challenge an established monopolist, so an innovation defense might still be implicitly justified under the statute. For an analysis of the relevant policy considerations see Fisher & Lande, supra note 34, at 1651-77.
295. See Porter, supra note 55.
296. See generally Malcolm Coate, Twenty Years of Federal Trade Commission Merger Enforcement Activity (1985-2004), at 17-18 (Potomac Law and Econ. Working Paper No. 05-02, 2005), available at http://papers.ssrn.com/so13/papers.cfm?abstract_id=708503.
297. The importance of innovation in services is illustrated by the growth of Internet-based shopping options.
298. See Horizontal Merger Guidelines, supra note 4, § 4.
299. The Preamble to the EU Merger Control Regulation states that the Commission must assess competition and market concentration "within the general framework of the achievement of the fundamental objectives referred to in Article 2 of the Treaty establishing the European Community . . . ." Council Regulation (EC) No. 4064/89, art. 3, 1989 O.J. (L 257) ¶ 23, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX: 31989R4064:EN:HTML. Article 2 of the Treaty then provides: The Community shall have as its task . . . to promote . . . a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable and non-inflationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States. Treaty Establishing the European Community (Consolidated Text) art. 2, 2002 O.J. (C 325) 8, available at http://eur-lex.europa.eu/en/treaties/dat/12002E/pdf/ 12002E_EN.pdf.
300. Former EU Competition Commissioner Mario Monti observed that most people commenting on proposed revisions to the merger regulations "consider that there should be an 'efficiency defense' that could mitigate a finding of dominance." He further noted that "I share this approach," and that only "a small minority" of commentors advocated "for the introduction of other policy considerations in the assessment of mergers, like . . . their social consequences." Mario Monti, Review of the EC Merger Regulation - Roadmap for the Reform Project, Remarks Before the British Chamber of Commerce, Brussels (June 4, 2002), available at http://europa.eu/ rapid/pressReleasesAction.do?reference=SPEECH/02/252&format=HTML&aged= 0&language=EN&guiLanguage=en.
301. The Europeans have defined their areas of concern more broadly. "Market power is the power to influence market prices, output, innovation, the variety or quality of goods and services, or other parameters of competition on the market for a significant period of time." DG Competition, Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses ¶ 24 (Dec. 2005), available at http://ec.europa.eu/comm/competition/antitrust/others/discpaper2005.pdf.
302. See EUROPEAN COMM'N, EU COMPETITION POLICY AND THE CONSUMER 8 (2004), available at http://ec.europa.eu/comm/competition/publications/consumer_en.pdf (an anticompetitive merger "is likely to harm consumers through higher prices, reduced choice or less innovation");
303. see also Mario Monti, Preface, EUROPEAN COMM'N, COMPETITION POLICY IN EUROPE AND THE CITIZEN 4 (2000), available at http://ec.europa.eu/comm/ competition/publications/competition_policy_and_the_citizen/en. pdf (merger policy ensures "a diversity of mass-market consumer goods" as well as "low prices"). Moreover, "ensuring that consumers are able to make choices which affect the conduct of firms" is also a means of "guaranteeing that markets function on a competitive basis." Id. at 5.
304. See supra note 270. However, even if American and EU competition policies, as applied in recent years, have produced "broadly convergent outcomes," particularly with respect to cartels and horizontal mergers, Monti, supra note 269, they have not yet fully converged, particularly with respect to other issues like abuse of dominance.
305. See, e.g., Russell Pittman, Chief, Competition Policy Section, Antitrust Division, U.S. Dep't of Justice, The Heart of Antimonopoly Investigation: The Choices of Consumers, Remarks to Staff Members of Antimonopoly Offices of Central and Eastern Europe at FTC/DOJ Conference, Investigating Competition Cases (Mar. 7, 1994).
306. At the same time, we would not want national administrators to fall into the opposite error by using a choice theory to systematically oppose any reduction in the number of options, perhaps by protecting incumbent firms. A careful discussion of the limits on the theory would also be necessary.
307. See Barbara Swain, Consumer Choice: A Theme Jurors Find Compelling, ANTITRUST REP., Aug. 2000, at 8, 16 ("When structuring case themes, it is important to keep in mind that jurors today are concerned about consumer choice in the marketplace. They want assurances that consumers have price and product alternatives. Thus, it is important to establish choice, or lack thereof, in order to prevail.").
308. On several occasions one of the authors, Professor Lande, has discussed the efficiency approach with business journalists. He has tried to explain that under this approach the only problem with supracompetitive pricing is that it causes allocative inefficiency, and he also has tried to help journalists understand the underlying concept of the deadweight loss welfare triangle. On no occasion did the reporters seem to intuitively grasp the concept of allocative inefficiency, or to accept that the only problem efficiency adherents have with anticompetitive mergers or cartels is that they cause such inefficiency.
309. Compare Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752 (1984), with Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).
310. If the restraint will produce more choices for consumers, it is presumably beneficial because it probably helps overcome a free rider or other problem. By contrast, if all the restraint does is to reduce consumers' price choices, it is likely to be anticompetitive. Some other situations will have mixed effects that must be more carefully examined.
311. Cf. Note from the FTC and the U.S. DOJ Antitrust Division to the OECD Global Forum on Competition, The United States Experience in Competition Law Technical Assistance: A Ten Year Perspective (Feb. 6, 2002) ¶ 24, available at http://www.oecd.org/dataoecd/37/61/1833990.pdf: A competition agency cannot function in a vacuum. For it to do its job, there must be other institutions in place that understand the role of competition in a market economy . . . . The linkages between competition and consumer protection are well understood in the United States, and if the competition agency does not itself handle this function (as the FTC does in the U.S.), a competition agency should have a healthy relationship with the consumer protection agency and should be able to help it understand that consumer protection should complement, not replace, competition in a market economy.
312. The same synergy of coordination can sometimes also be achieved on a smaller scale by combining different categories within the single discipline of antitrust law. For example, it may sometimes be useful to use structural remedies to cure a conduct violation. See generally Neil W. Averitt, Structural Remedies in Competition Cases Under the Federal Trade Commission Act, 40 OHIO ST. L.J. 781 (1979).
313. The use of consumer protection laws in a business context should not be troublesome, in principle. Business corporations can certainly be "consumers" in their role as purchasers of inputs. See, e.g., McGregor v. Chierico, 206 F.3d 1378, 1380-81, 1388 n.11 (11th Cir. 2000) (deceptive acts by telemarketers to induce businesses to pay for unordered photocopier toner); FTC v. Certified Merchant Servs., Civ. Action No. 4:02cv44, Complaint ¶¶ 28-31 (E.D. Tex. Feb. 11, 2002), available at http://www.ftc.gov/os/2002/02/cmscmplnt.pdf (allegedly unfair to subject small businesses to unfavorable terms that had been improperly added to credit card processing contracts after signature);
314. Press Release, Federal Trade Comm'n, Three California Telemarketers Banned from Telemarketing as Part of FTC Settlement (Feb. 5, 2001), available at http://www.ftc.gov/opa/2001/02/datadist.htm (including consent order in FTC v. National Supply & Dist. Center, Inc., No. CV-99-12828 (C.D. Cal. filed Dec. 7, 1999) involving misrepresentation of the existence of prior business relationship when selling toner to small businesses). Management textbooks have long recognized that businesses can be subject to the same imperfect decision-making processes as individual consumers. See supra note 96.
315. The issues of definition and limiting principles will naturally be important when it comes to extending consumer protection law to these new antitrust contexts. Developing a formal list of limiting principles is outside the scope of this article, but a number of possibilities - which at this point we neither endorse nor reject - can be identified. Enforcement through consumer-protection theories could be limited to: (1) particular areas of the law (such as patent infringement suits) in which there is a heightened risk that private parties can engage in abusive litigation; (2) cases presenting objective proof that private defenses are ineffective; (3) cases presenting objective proof that the aggressor is not pursing bona fide economic goals; (4) cases involving conduct that deviates substantially from industry-standard methods to which purchasers have already grown accustomed; (5) situations where at least a substantial minority of consumers have had their decisions adversely swayed; and (6) cases involving particularly large economic harm. All these enforcement actions could concentrate on situations affecting initial purchase decisions, thus also excluding many forms of business torts, contract breaches, and other post-purchase opportunistic conduct. However, the list of limiting principles does not include a notion that consumer protection theories can be used in an antitrust context only to protect individuals and small businesses. To be sure, as a matter of resource allocation and prosecutorial discretion, those situations may account for virtually all FTC actions. As a matter of legal theory, however, the FTC Act covers unreasonable impairments of a purchaser's ability to choose, regardless of the size or nature of the purchaser; the law does not withdraw its equal protection from large entities merely because they are large.
316. See Press Release, Federal Trade Comm'n, FTC Finds Rambus Unlawfully Obtained Monopoly Power (Aug. 2, 2006) [hereinafter Rambus Press Release], available at http://www.ftc.gov/opa/2006/08/rambus.htm. The Commission pursued a somewhat similar theory against Unocal. See generally Complaint, Union Oil Co., FTC Docket No. 9305 (Mar. 4, 2003) [hereinafter Union Oil Complaint], available at http://www.ftc.gov/os/2003/03/unocalcmp.htm. Unocal involved charges that the patent-holding firm deceived a unit of the California state government as well as other industry participants. Unocal eventually agreed to release the relevant patents to the public as part of a settlement with the FTC, in the context of the firm's acquisition by Chevron. See Press Release, Federal Trade Comm'n, Dual Consent Orders Resolve Competitive Concerns About Chevron's $18 Billion Purchase of Unocal, FTC's 2003 Complaint Against Unocal (June 10, 2005), available at http://www.ftc.gov/opa/2005/06/chevronunocal. htm.
317. Complaint at ¶¶ 122-124, Rambus, Inc., FTC Docket No. 9302 (June 18, 2002), available at http://www.ftc.gov/os/adjpro/d9302/ 020618admincmp.pdf.
318. Antitrust violations involve conduct that takes place "outside the head" of the consumer and so they imply the existence of market power, whereas consumer protection violations take place "inside the head" of the consumer and so they do not require any particular market context. See Averitt & Lande, Consumer Sovereignty, supra note 12, at 730, 733.
319. See Dell Computer Co., 121 F.T.C. 616, 632 (1996) (Azcuenaga, Comm'r, dissenting) ("the majority fails to identify the relevant market in which market power assertedly was 'conferred'").
320. See, e.g., Holland Furnace Co. v. FTC, 295 F.2d 302, 303 (7th Cir. 1961) (salesmen disassembled home furnaces for inspection and then refused to reassemble them until the customer agreed to buy additional parts or services); see also Arthur Murray Studio of Washington, Inc. v. FTC, 458 F.2d 622, 625 (5th Cir. 1972) (high-pressure, closed-door sales pitches for dance lessons); Door-to-Door Sales Rule, 16 C.F.R. pt. 429 (1972) (establishing a cooling-off period out of concern for the effects on consumers who are cornered in their own homes). See generally Averitt, Unfair Acts or Practices, supra note 12, at 252-55.
321. There is also a second advantage to use of consumer protection theories in strike-suit cases - the conduct then does not appear to be protected by the Noerr petitioning immunity that normally shields even ill-founded litigation from antitrust challenge. Compare Prof'l. Real Estate Investors v. Columbia Pictures Indus., Inc., 508 U.S. 49, 64 (1993) (setting strict test for bad-faith antitrust litigation), with Spiegel v. FTC, 540 F.2d 287, 294 (7th Cir. 1976), and J.C. Penney Co., 109 F.T.C. 54 (1987) (consent order) (challenging as unfair the practice of suing consumers for unpaid debts in distant or inconvenient fora). There appears to be a principled basis for this distinction. Consumers with shallow pockets are more readily intimidated and abused by bad-faith litigation than businesses would be and, thus, predators' freedom to institute such litigation under the protection of Noerr should be more restricted on the consumer protection side of the statute. This principle might apply even where the targets of the abusive lawsuits are businesses, at least where they are small businesses that may have many of the behavioral and resource characteristics of an individual consumer. It is also possible that the Noerr immunity should be more restricted for FTC actions in general, and not just consumer protection actions in particular. See generally Union Oil Complaint, supra note 282 (raising although not resolving this issue).
322. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 458 (1992). Kodak had changed its photocopier service policies around 1985, in a effort to limit the growth of independent service organizations. Customers who had bought copiers before the policy change were forced against their expectations to pay higher prices as a result of this new tie-in because they were already locked in to using Kodak machines. See Averitt & Lande, Consumer Sovereignty, supra note 12, at 738-40. For a more detailed discussion of this case, see Robert H. Lande, Chicago Takes It on the Chin: Imperfect Information Could Play a Crucial Role in the Post-Kodak World, 62 ANTITRUST L.J. 193 (1993).
323. See Orkin Exterminating Co., 108 F.T.C. 263, 347, 368 (1986) (company breached "lifetime" service contract by raising annual renewal fees when it had promised not to do so); cf. FTC v. Certified Merchant Services, Civ. Action No. 4:02cv44, Complaint ¶¶ 28-31 (E.D. Tex.), available at http://www.ftc.gov/os/2002/02/cmscmplnt.pdf (unfairness authority invoked to keep small businesses from being held subject to contracts for credit card processing services on unfavorable terms, when the adverse terms had been improperly added to the contracts after signature). Of course, if there is merely a policy change, but no reasonable understanding of any promise that the policy would not be changed, then there is no violation at all.
324. This has long been a concern. See Ernest Gellhorn, Two's a Crowd: The FTC's Redundant Antitrust Powers, 5 REGULATION, Nov./Dec. 1981, at 32;
325. Miles W. Kirkpatrick et al., Report of the American Bar Association Section of Antitrust Law Special Committee to Study the Role of the Federal Trade Commission, 58 ANTITRUST L.J. 43, 113-24 (1989).
326. See Allied Tube & Conduit v. Indian Head, Inc., 486 U.S. 492, 499, 511 (1988) (abuse of standard-setting process in way that effectively misrepresented the state of professional opinion on safety issues); Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768, 775-76 (6th Cir. 2002) (among other acts of monopolization in market for moist snuff, U.S. Tobacco misrepresented its sales figures to retail purchasers).
327. See Rambus Press Release, supra note 282 and accompanying text; cf. Dell Computer Co., 121 F.T.C. 616 (1996).
328. Tying arrangements frequently present this situation. A tie can be a technical antitrust violation because it restricts the choices available to consumers. See Lande, Choice as Ultimate Goal, supra note 12, at 510 n.33. What often makes a tie of actual enforcement concern, however, is that it can also enable a firm to harm consumers' decision-making abilities, perhaps through some exploitation of particular vulnerabilities. For example, a tie between two related products may make it more difficult for consumers to determine the price of either of the products in the package, thus making price competition less effective. See Sandoz Pharm. Corp., 115 F.T.C. 625 (1992) (consent order) (tie between drug and services to monitor for adverse reactions). Or a tie between a product and a service can take advantage of those consumers who have difficulty calculating lifetime service costs. Cf. Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 475-76 (1992) (presenting, but not deciding, these issues). Conversely, other ties can be justified on consumer protection grounds, as when they assign responsibility for the performance of multi-part systems to a single visible party. Cf. United States v. Jerrold Elecs. Corp., 187 F. Supp. 545, 560 (E.D. Pa. 1960), aff'd per curiam, 365 U.S. 567 (1961). Similarly, some other nonprice vertical restraints might be justified on consumer protection grounds because they preclude a certain mode of doing business - that is, a certain marketplace option - that presents an exceptionally high risk of consumer abuse. See Bd. of Trade of City of Chicago v. United States, 246 U.S. 231, 240 (1918) (upholding restrictions on afterhours commodity trading because such trading could lead to abuse of less-well-informed parties). Whatever the specifics of these varied tying cases, they all involve an integral balancing of competition and consumer protection goals and thus should go to the FTC.
329. What makes such a horizontal agreement either bad or good is its underlying consumer protection impact. The standards may burden advertising with so many disclosures that the firms can no longer communicate effectively to potential customers, which would make the standards impermissibly anticompetitive. Or the standards could actually protect consumers from false or misleading information, in which case the defendants would have an efficiency defense. See, e.g., Vogel v. Am. Soc'v of Appraisers, 744 F.2d 598, 603-04 (7th Cir. 1984).
330. See supra Part III.B, notes 79-88.
331. To answer this question the agency will have to draw, in part, on consumer protection methodologies, using polling, focus groups, opinion surveys, advertising studies, and other techniques to understand the consumer demand for variety. See supra Part IV.C, notes 244-49.
332. This is, of course, the basis for the market definition section of the Horizontal Merger Guidelines, which ask the likely effect on supply and demand in response to a small but significant and non-transitory increase in price. See Horizontal Merger Guidelines, supra note 4, § 1.11.
333. See FTC-DOJ Clearance Agreement (1993, as amended 1995), summarized at http://www.ftc.gov/opa/predawn/F95/h-s-r-reform.htm. The result of this process is that certain industries are generally handled by the FTC (e.g., supermarkets, pharmaceuticals, petroleum); others are generally handled by the Antitrust Division (e.g., steel, beer, telecommunications); and still others are handled by both agencies (e.g., computers, defense, hospitals).
334. Another group that can be handled by either agency involves cases in which creativity and organizational independence may be important to institutional buyers, such as corporations and governments. These cases involve purchases in such fields as pharmaceuticals, defense contracting, and other high-tech areas. The FTC may be particularly well suited to identifying the necessary number of competitors in markets serving individual consumers, such as media and fashion, since it has tools for assessing individual consumer preferences. (Just how many news sources does it take to make people feel comfortably well informed?) The DOJ would not have any disadvantage in assessing how many suppliers are needed to satisfy business organizations seeking to buy technical innovation, however, because that task is more likely to involve stated organizational policy rather than half-hidden individual preferences.
335. In Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979), composers had agreed on prices as part of the process of packaging and marketing blanket licenses for musical compositions. Under prior law, this conduct might have been challenged on a per se theory. However, the Court held that a full analysis should entertain the argument that the restraints were essential if the product were to be marketed at all. Id. at 24-25.
336. For a discussion of those purposes, see Averitt, Unfair Methods of Competition, supra note 12, at 251-71.
337. The Sherman Act reaches attempts to monopolize but not attempts to collude, unless that collusion would result in a monopoly if successful. For FTC Act cases in these circumstances, see Valassis Communications, FTC File No. 051-0008 (Mar. 14, 2006) (consent order); Stone Container Corp., 125 F.T.C. 853 (1998) (consent order); Precision Moulding Co., 122 F.T.C. 104 (1996) (consent order); YKK (U.S.A.), Inc., 116 F.T.C. 628 (1993) (consent order); AE Clevite, Inc., 116 F.T.C. 389 (1993) (consent order); Trailer Prods. Corp., 115 F.T.C. 944 (1992) (consent order).
338. See E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 128, 142 (2d Cir. 1984). In that opinion the Second Circuit rejected an FTC attempt to establish such a violation. That outcome appears to have been due to a failure to prove actual anticompetitive effects, however, rather than to any fatal flaw in the theory itself.
339. Airline mergers, for example, are handled by the DOJ. See Anne Bingaman, Ass't Att'y Gen., U.S. Dep't of Justice, Consolidation and Code Sharing: Antitrust Enforcement in the Airline Industry, Address Before the ABA Forum on Air and Space Law (Jan. 25, 1996), available at http://www.usdoj.gov/atr/public/speeches/speech.akb.htm. Cf. 15 U.S.C. § 45(a)(2) (FTC lacks jurisdiction over banks and common carriers).
340. Although we have written at greater length about cases that should go to the FTC, this does not imply that the FTC's cases should be more numerous or more important. It is instead an attempt to provide an introduction to some relatively unfamiliar consumer protection theory.
341. The FTC conducts its proceedings before a specialized and expert body; there is no private right of action; and remedies are prospective and injunctive only, rather than involving damages, and they do not automatically give rise to private treble damages actions. But cf. FTC v. Mylan Labs., 62 F. Supp. 2d 25, 36-37 (D.D.C. 1999) (supporting redress remedy). For these reasons many commentators have suggested that unfamiliar theories might, in fairness, be preferentially tried before the FTC.
342. See FTC-DOJ Clearance Agreement, supra note 298.
343. ROBERT BORK, THE ANTITRUST PARADOX 50 (1978).
344. Sometimes antitrust cannot as a practical matter grapple with the right questions and so must use surrogates, at least for a while. For example, some 25 years ago Landes and Posner argued that the only things we need to know to make correct enforcement decisions in merger cases are elasticity of demand and elasticity of supply. They then conceded that because we can rarely measure these things reliably in a merger context we should instead continue to use the surrogates of market definition, market share, etc. See William M. Landes & Richard A. Posner, Market Power in Antitrust Cases, 94 HARV. L. REV. 937, 938, 944 (1981). Since then, however, merger analysis has been moving closer to an approach that ignores the surrogates and instead tries to ascertain the relevant elasticity questions directly. For a discussion, see Lande & Langenfeld, supra note 66, at 6-8.
345. Since 1890, most changes in antitrust have been slight and gradual. Naked price fixing is prosecuted in any administration, and most mergers will be evaluated in a similar fashion (in light of the general acceptance of the Horizontal Merger Guidelines) under any view of antitrust. Many of the other core issues within antitrust enforcement show stability and usually do not involve wide pendulum swings from one administration to the next. See Timothy Muris, Chairman, Federal Trade Comm'n, How History Informs Practice - Understanding the Development of Modern U.S. Competition Policy, Remarks to the ABA Section of Antitrust Law Fall Forum (Nov. 19, 2003), available at http://www.ftc.gov/speeches/muris/murisfallaba.pdf; William Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71 ANTITRUST L.J. 377 (2003).
346. Although antitrust existed in limited form at common law, its modern incarnation started with the Sherman Act of 1890.
347. The Robinson-Patman Act, for example, can be understood as a response of independent grocery stores to the rise of the more efficient A&P chain supermarkets. See Richard C. Schragger, The Anti-Chain Store Movement, Localist Idealogy, and the Remnants of the Progressive Constitution, 1920-1940, 90 IOWA L. REV. 1011 (2005).
348. The field was not blind to issues of productivity, however, and tried to balance social and political concerns with other concerns for consumer welfare and corporate productivity. See John J. Flynn, Introduction, Antitrust Jurisprudence: A Symposium on the Economic, Political and Social Goals of Antitrust Policy, 125 U. PA. L. REV. 1182 (1977).
349. The efficiency revolution can be traced to a single article. See Robert Bork, Legislative Intent and the Policy of the Sherman Act, 9 J.L. & ECON. 7 (1966). For the history of the ascendancy of the efficiency perspective, see Lande, Efficiency as the Ruler of Antitrust, supra note 233.
350. See, e.g., Timothy Muris, Chairman, Federal Trade Comm'n, The Interface of Competition and Consumer Protection, Remarks at the Fordham Corporate Law Institute's 29th Annual Conference on International Antitrust Law & Policy 3-4 (Oct. 31, 2002) ("Competition presses producers to offer the most attractive array of price and quality options. In competitive industries, the imperative to gain new sales by satisfying consumer needs increases the spectrum of choices available. . . . competition does more than simply increase the choices available to consumers, however."). The growing role of choice analysis is illustrated by such varied and important matters as Microsoft, supra note 48; AOL/Time Warner, supra note 119; and Lockheed/Northrop, supra note 161.