Monopsony and the Sherman act: Consumer welfare in a new light

Antitrust Law Journal

Volumn 74, Issue 3, 2007, Pages 707-737

  Werden, Gregory J ^a  

^a US Department of Justice   (United States)

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EID: 39449110084     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (237)

1. Confederated Tribes of Siletz Indians of Or, v. Weyerhaeuser Co., 411 F.3d 1030 (9th Cir. 2005).
2. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069 (2007).
3. Id. at 1076 (noting that the "case does not present... a risk of significantly increasing concentration in ... the market for finished lumber").
4. SeeJ. Thomas Rosch, Monopsony and the Meaning of "Consumer Welfare": A Closer Look at Weyerhaeuser, 2007 COLUM. BUS. L. REV. 353;
5. Steven C. Salop, Anticompetitive Overbuying by Power Buyers, 72 ANTITRUST L.J. 669, 677-78, 685-89 (2005) [hereinafter AnticompetitiveOverbuying];
6. Steven C. Salop, Remarks, General Approaches to Defining Abusive/Monopolistic Practices-Roundtable, in 2006 FORDHAM COMP. L. INST. 541, 549-50 (Barry E. Hawk ed., 2007);
7. Steven C. Salop, Question: What Is the Real and Proper Antitrust Welfare Standard? Answer: The True Consumer Welfare Standard (Nov. 4, 2005) (submission to Antitrust Modernization Commission), available at http://www.amc.gov/ public_studies_fr28902/exclus_conduct_pdf/051104_Salop_Mergers.pdf.
8. Many economists advocate what is termed a total surplus or total welfare standard. See, e.g., Ken Heyer, Welfare Standards and Merger Analysis: Why Not the Best?, COMPETITION POL'Y INT'L, Autumn 2006, at 29;
9. Oliver E. Williamson, Economies as an Antitrust Defense: The Welfare Tradeoffs, 58 AM. ECON. REV. 12 (1968). This standard focuses only on market participants. When final consumers buy from one or more sellers, the total surplus in the market is the sum of the sellers' revenues net of variable costs and the buyers' "surplus," i.e., the amount they would have been willing to pay for the quantity consumed less the amount that they actually paid. The rationale for focusing on total surplus is that, under certain conditions, changes in total surplus closely approximate changes in aggregate welfare.
10. See, e.g., ANDREU MAS-COLELL, MICHAEL D. WHINSTON & JERRY R. GREEN, MICROECONOMIC THEORY 328-34 (1995).
11. Alder mills produce products other than alder lumber, but alder lumber was the only output market in which the plaintiffs alleged a Sherman Act violation. Alder mills also sell alder chips, used to smoke salmon, and people who eat smoked salmon would be the end users if a violation had been alleged in the market for the sale of alder chips.
12. The factual description of the industry and the case is drawn from the court opinions and materials included in the appendix to the petition for certiorari in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069 (2007), available at http://www.alderantitrust.com. In this essay I take no position on any factual issue raised by the case, but rather analyzes the facts as the jury appears to have found them.
13. The increase in alder log prices and the exit of many sawmills could have an innocent explanation: As the value of alder lumber became more widely recognized, it was harvested in increasing quantities. After about three decades, mature alder trees became sufficiently scarce that the harvest began to decline in total volume while at the same time prices were bid up. With fewer logs to go around and higher log prices, the least efficient mills closed down.
14. Confederated Tribes of Siletz Indians of Or. v. Weyerhaeuser Co., 411 F.3d 1030, 1037-38 (9th Cir. 2005).
15. On the basic economic theory of monopsony, see ROGER D. BLAIR & JEFFREY L. HARRISON, MONOPSONY: ANTITRUST LAW AND ECONOMICS 36-42 (1993).
16. For a useful discussion of additional, real-world complications, see Roger G. Noll, "Buyer Power" and Economic Policy, 72 ANTITRUST L.J. 589 (2005).
17. On die origin of the word "monopsony," see Robert J. Thornton, How Joan Robinson and B.L. Hallward Named Monopsony, J. ECON. PERSP., Spring 2004, at 257.
18. If a monopsonist can discriminate among suppliers of die input, it may be able to pay less for the same quantity, provided that the marginal costs of the individual suppliers are constant within the relevant range.
19. Although the elasticity of alder supply was disputed, supply is completely inelastic in one common scenario - an auction to sell anything produced in the past, such as a work of art. There can be no quantity effects in such a scenario: the outcome of an auction cannot affect the number of Van Gogh paintings. Collusion among bidders nevertheless causes a transfer of wealth from the current owner of the property to the new owner.
20. Although alder lumber was the only output market in which the plaintiffs alleged a Section 2 violation, lumber is not the only output of an alder mill, and Weyerhaeuser might have had market power in some other output market. Alder mills presumably are the principal source of alder chips used to smoke salmon. It is possible that there was a relevant market for smoked salmon and that Weyerhaeuser's conduct threatened to injure end users of smoked salmon even if not end users of alder kitchen cabinets.
21. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222, 224 (1993) (holding that a plaintiff must establish "that the prices complained of are below an appropriate measure of the rival's costs" and that the defendant has "a dangerous probability . . . of recouping its investment in below-cost prices").
22. Confederated Tribes of Siletz Indians of Or. v. Weyerhaeuser Co., 411 F.3d 1030, 1035-39 (9th Cir. 2005). The court did not state explicitly why end-user effects were dispositive, or indeed, why they were even relevant. Moreover, if the court's rationale had been that end-user welfare is the sole concern of the Sherman Act, the court should have set aside the jury verdict because no injury to end users was threatened. This was Commissioner Rosch's preferred disposition of the case.
23. See Rosch, supra note 4, at 368-69.
24. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1078 (2007).
25. Id.
26. Id. at 1076.
27. Id. at 1077.
28. Id.
29. Id. (internal quotations omitted).
30. Id. at 1077-78. The Court, curiously, did not observe that a failed predatory pricing scheme necessarily benefits the predator's customers, while a failed predatory bidding scheme only might benefit them.
31. Id. at 1077.
32. Id. at 1077 n.4.
33. Id. at 1078. The Court used the word "consumer" rather than "end user," but clearly referred to consumers at the end of the relevant chain of distribution.
34. Most notable among the contributions to this debate are 1 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 103, at 40-61 (2d ed. 2000);
35. ROBERT H. BORK, THE ANTITRUST PARADOX 61-63, 66, 68 (1978);
36. Robert H. Bork, Legislative Intent and the Policy of the Sherman Act, 9 J.L. & ECON. 7 (1966);
37. Robert H. Lande, Wealth Transfers as the Original and Primary Concern of Antitrust: The Efficiency Interpretation Challenged, 34 HASTINGS L.J. 65 (1982).
38. One brief review of the legislative history, which did focus on monopsony, erroneously concluded that the "Sherman Act debates exhibit an almost exclusive focus on restraints on selling-side competition." Jonathan M. Jacobson & Gary J. Dorman, Joint Purchasing, Monopsony and Antitrust, 36 ANTITRUST BULL. 1, 40 (1991).
39. The Supreme Court has relied on legislative history in interpreting the Sherman Act, once reasoning that the intentional "vagueness of its language" left to the courts the task of giving "content to the statute" and that "courts should interpret its words in the light of its legislative history and of the particular evils at which the legislation was aimed." Apex Hosiery Co. v. Leader, 310 U.S. 469, 489 (1940). The Court also found that "[t]he unanimity with which foes and supporters of the bill spoke of its aims as the protection of free competition, permit use of the debates in interpreting the purpose of the act." Id. at 495 n.15. Nevertheless, modern jurisprudence maintains, as a general rule, that the authoritative statement is the statutory text, not the legislative history or any other extrinsic material. Extrinsic materials have a role in statutory interpretation only to the extent they shed a reliable light on the enacting Legislature's understanding of otherwise ambiguous terms. Not all extrinsic materials are reliable sources of insight into legislative understandings . . . . [L]egislative history is itself often murky, ambiguous, and contradictory.
40. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 568-69 (2005).
41. 21 CONG. REC. 2461 (1890) (statement of Sen. John Sherman) (quoting Sen. James Z. George).
42. See HANS B. THORELI.I, THE FEDERAL ANTITRUST POLICY 210-13 (1955).
43. 21 CONG. REC. 2726 (1890) (statement of Sen. George F. Edmunds).
44. In addition, the cotton seed oil trust was condemned for having "put down the price of cotton seed about one-third and put up the price of oil." Id. at 2645 (statement of Sen. John H. Reagan, author of rival antitrust bill).
45. Id. at 2470 (statement of Sen. John H. Reagan).
46. Id. at 2606 (statement of Sen. William M. Stewart).
47. Id. at 4098 (statement of Rep. Ezra B. Taylor).
48. Id. at 4099 (statement of Rep. Richard P. Bland).
49. Id. at 4101 (statement of Rep. John T. Heard).
50. 3819 CONG. REC. 4208-4216 (1888).
51. S. REP. 829, 51st Cong. 4, 33 (1890).
52. In 1902 Attorney General Philander C. Knox was granted a preliminary injunction against the beef trust, which was made permanent and affirmed as modified after a direct appeal to the Supreme Court. Among the allegations made was that the defendants agreed "to refrain from bidding against each other when making purchases of. . . livestock, and by these means inducing and compelling the owners of such livestock to sell the same at less prices than they would receive if such bidding were competitive." United States v. Swift & Co., 122 F. 529, 530 (C.C.N.D. Ill. 1903), aff d, 196 U.S. 375 (1905). The popular press reported that the trust, including its buyers' cartel, continued unabated.
53. See, e.g., CHARLES EDWARD RUSSELL, The Greatest Trust in the World esp. 94-106 (1905) (first published as a serial in Everybody's Magazine). In 1905 Attorney General William H. Moody obtained an indictment of the prior defendants for ignoring the injunction, but it was dismissed on Fifth Amendment grounds because the prosecution was based in significant part on evidence the defendants had provided to the new Bureau of Corporations.
54. See United States v. Armour & Co., 142 F. 808 (N.D. Ill. 1906);
55. see generally Francis Walker, The "Beef Trust" and the United States Government, 16 ECON. J. 491 (1906). Sherman Act enforcement did not quell congressional concerns over the plight of farmers, and in 1921 the Sherman Act was supplemented by the Packers and Stockyards Act, Pub. L. No. 67-51, 42 Stat. 159 (codified as amended at 7 U.S.C. §§181-229). The "'chief evil' at which it was aimed was 'the monopoly of the packers, enabling them unduly and arbitrarily to lower prices to the shipper who sells, and unduly and arbitrarily to increase the price to the consumer who buys.'"
56. Stafford v. Wallace, 258 U.S. 495, 514-15 (1922).
57. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 (1940). One of just two cases cited in support of this rule concerned an agreement to depress prices paid for catle.
58. Id. at 222
59. (citing Swift & Co. v. United States, 196 U.S. 375 (1905), discussed supra note 40).
60. These statistics were complied by the author from case summaries in CCH Trade Regulation Reporter. Buyer cartel cases constituted 20 percent of total criminal Sherman Act cases during the period.
61. Vogel v. Am. Soc'y of Appraisers, 744 F.2d 598, 601 (7th Cir, 1984) (Posner, J.) (citation omitted).
62. See also Todd v. Exxon Corp., 275 F.3d 191, 201 (2d Cir. 2001) (declaring that "a horizontal conspiracy among buyers to stifle competition is as unlawful as one among sellers").
63. Int'l Outsourcing Servs., LLC v. Blistex, Inc., 420 F. Supp. 2d 860, 864 (N.D. Ill. 2006).
64. 4512 HERBERT HOVENKAMP, ANTITRUST LAW ¶ 20111b1, at 128-29 (2d ed. 2005).
65. Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219 (1948). The creation of monopsony power was condemned in United States v. Griffith, 334 U.S. 100 (1948), although possibly because of its likely downstream effects.
66. A buyer cartel was considered by the Court in American Tobacco Co. v. United States, 328 U.S. 781, 798-803 (1946), but the offense in that case was monopolization.
67. Collusive purchasing was a major part of the unlawful conduct in United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 167, 178-91 (1940), but that cartel was aimed at increasing output prices rather than decreasing input prices.
68. Mandeville Island Farms, 334 U.S. at 223.
69. Id. at 235.
70. Id. (footnotes omitted), The Court suggested that the price fixing had "influence toward reducing competition in the distribution of the finished product,"
71. id. at 241, but this suggestion likely related only to the nexus to interstate commerce, and it is unclear what impact the price fixing could have had in the relevant refined sugar market.
72. Id. at 242. The agreement caused some growers to receive more for their beets than they otherwise would and some to receive less, but the Court held that fact irrelevant.
73. Id. at 242-43. The fact that the plaintiff received less was all that mattered for its damages claim.
74. NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 103-04 (1984).
75. Similarly, in Radovich v. NFL, 352 U.S. 445 (1957), the Court considered a damages claim brought by an ex-player alleging a conspiracy among NFL teams as purchasers of player labor. The Court found that the complaint stated a claim, noting that the Sherman Act "protect[s] the victims of the forbidden practices as well as the public,"
76. Id. at 454. Interestingly, the Weyerhaeuser Court noted that the case did "not present the situation of suppliers suing a monopsonist buyer under § 2 of the Sherman Act," thus hinting that the Court might be favorably disposed to such a claim.
77. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1076 (2007).
78. Cf. Ad. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 342 (1990) (explaining the per se rule as "a presumption of unreasonableness based on 'business certainty and litigation efficiency,'" quoting Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 344 (1982)).
79. Weyerhaeuser, 127 S. Ct. at 1076.
80. The Court quoted two opinions by Judge Posner: Khan v. State Oil Co., 93 F.3d 1358, 1361 (7th Cir. 1996) (Posner, C.J.) (stating that "monopsony pricing ⋯ is analytically the same as monopoly or cartel pricing and [is] so treated by the law"),
81. vacated, 522 U.S. 3 (1997);
82. Vogel v. American Society, of Appraisers, 744 F.2d 598, 601 (7th Cir. 1984) (Posner, J.) (asserting that "monopoly and monopsony are symmetrical distortions of competition from an economic standpoint").
83. See also United Airlines, Inc. v. U.S. Bank N.A., 406 F.3d 918, 925 (7th Cir. 2005) (Easterbrook, J.) ("United fancies the position of monopsonist, which the antitrust laws forbid on equal terms with monopoly.").
84. 134 F.3d 1010 (10th Cir. 1998). This is one of very few cases involving labor market restraints that were outside the scope of both the statutory and non-statutory labor immunities, on which see Brown v. Pro Football, Inc., 518 U.S. 231 (1996).
85. Law, 134 F.3d at 1018-19.
86. Id at 1019-20.
87. Id. at 1022.
88. Telecor Commc'ns, Inc. v. Sw. Bell Tel. Co., 305 F.3d 1124 (10th Cir. 2002).
89. Id at 1133.
90. Id. at 1133-34 (citing Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219 (1948)).
91. Kartell v. Blue Shield of Mass., Inc., 749 F.2d 922 (1st Cir. 1984).
92. Id. at 924.
93. Id. at 925.
94. Id. at 927.
95. Id. at 930.
96. Id at 931.
97. Professor Salop has argued that Judge Breyer found that there was no Section 1 violation because the restraint was imposed by a buyer and benefited its customers. See Salop, Anticompetitive Overbuying, supra note 4, at 685-86;
98. Salop, Question, supra note 4, at 7-8.
99. Leegin Creative Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2722, 2724 (2007).
100. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 221, 224 (1993).
101. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1077 (2007).
102. NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 107 (1984).
103. Id at 107.
104. Reiter v. Sonotone Corp., 442 U.S. 330, 342-43 (1979).
105. BORK, supra note 26, at 66.
106. Id. at 90.
107. The term is used in the same way by Charles F. Rule & David L. Meyer, An Antitrust Enforcement Policy to Maximize the Economic Wealth of All Consumers, 33 ANTITRUST BULL. 677, 680-81 (1988), who argue that consumer welfare is, and ought to be, the "guiding principle" of antitrust. Rule recently restated his views before the Antitrust Modernization Commission.
108. Charles F. (Rick) Rule, Consumer Welfare, Efficiencies, and Mergers (Nov. 17, 2005), available at http://www.amc.gov/commission_hearings/pdf/ Statement-Rule.pdf.
109. See also Frank H. Easterbrook, When Is it Worthwhile for Courts to Search for Exclusionary Conduct, 2003 COLUM. BUS. L. REV. 345, 347 (arguing that "consumers' welfare [is] a convenient shorthand for the allocative efficiency costs of monopoly").
110. Bork took the view that the Sherman Act gives equal weight to the welfare of every consumer in the economy, and the term "consumer welfare" is an obvious shorthand for this aggregate welfare concept. It is implausible that Bork was being intentionally deceptive, as suggested by Robert H. Lande, Chicago's False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust, 58 ANTITRUST L.J. 631, 638 (1989). Bork's choice of words, however, may have been confusing to many, especially those who read only the three words from his book quoted by the Supreme Court.
111. Blue Shield of Va. v. McCready, 457 U.S. 465, 472 (1982)
112. (quoting Mandeville Island Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 236 (1948));
113. accord Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 530 n.19 (1983) (more fully quoting Mandeville Island Farms).
114. A few cases contrast protecting consumer welfare with protecting competitors, which indicates what consumer welfare does not mean rather than what it does mean. See, e.g., Coastal Fuels of P.R., Inc. v. Caribbean Petroleum Corp., 175 F.3d 18, 23 (1st Cir. 1999);
115. George Haug Co., Inc. v. Rolls Royce Motor Cars Inc., 148 F.3d 136, 143 (2d Cir. 1998).
116. Notable is Judge Posner's opinion in Brunswick Corp. v. Riegel Textile Corp., 752 F.2d 261, 266 (7th Cir. 1984): The purpose of the antitrust laws as it is understood in the modern cases is to preserve the health of the competitive process-which means, so far as a case such as this is concerned, to discourage practices that make it hard for consumers to buy at competitive prices - rather than to promote the welfare of particular competitors.
117. Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1433, 1444 n.15 (9th Cir. 1995) (citation omitted from second quotation).
118. See MetroNet Servs. Corp. v. U.S. West Commc'ns, 329 F.3d 986, 1006 (9th Cir. 2003),
119. vacated, 540 U.S. 1147 (2004);
120. Pool Water Prods, v. Olin Corp., 258 F.3d 1024, 1034 (9th Cir. 2001);
121. Templin v. Times Mirror Cable Television, Inc., 1995-1 Trade Cas. (CCH) ¶ 71,040, at 74,908 (9th Cir. 1995).
122. Rebel Oil, 51 F.3d at 1445, 1433.
123. Id. at 1433.
124. See, e.g., Abbouds' McDonald's LLC v. McDonald's Corp., 2006-2 Trade Cas. (CCH) ¶ 75,324, at 105,255 (9th Cir. 2006);
125. Paladin Assocs. v. Mont. Power Co., 328 F.3d 1145, 1156 (9th Cir. 2003);
126. W. Wholesale Supply, Inc. v. Holladay, 25 Fed. Appx. 507, 508 (9th Cir. 2001);
127. Pool Water Products, 258 F.3d at 1034;
128. Cassan Enters. v. Chrysler Corp., 1997-2 Trade Cas. (CCH) ¶ 71,993, at 80,882 (9th Cir. 1997).
129. E.g., Cal. Dental Ass'n v. FTC, 224 F.3d 942, 958 (9th Cir. 2000) ("Under rule-ofreason analysis, then, because [the defendants'] advertising restrictions do not harm consumer welfare, there is no antitrust violation.");
130. Rice v. Treasure Island Assocs., 1997-2 Trade Cas. (CCH) ¶ 71,920, at 80,475 (9th Cir. 1997) ("Although conduct that eliminates rivals reduces competition, such conduct does not rise to an antitrust violation until it harms consumer welfare.");
131. Metro Indus., Inc. v. Sammi Corp., 82 F.3d 839, 848 (9th Cir. 1996) (A "reduction of competition does not invoke the Sherman Act until it harms consumer welfare.");
132. Templin, 1995-1 Trade Cas. at 74,908 (same).
133. See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 367 (Powell, J., dissenting) (1982) ("I believe the Court's action today loses sight of the basic purposes of the Sherman Act. As we have noted, the antitrust laws are a 'consumer welfare prescription.'");
134. Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton Coll., 128 F.3d 59, 63 (2d Cir. 1997) ("the Sherman Act's essential purpose [is] safeguarding consumer welfare");
135. Reazin v. Blue Cross & Blue Shield of Kan., Inc., 899 F.2d 951, 960 (10th Cir. 1990) ("the purpose of the antitrust laws is the promotion of consumer welfare")
136. (quoting Westman Commc'n Co. v. Hobart Int'l, Inc., 796 F.2d 1216, 1220 (10th Cir. 1986));
137. Key Fin. Planning Corp. v. ITT Life Ins. Corp., 828 F.2d 635, 642 (10th Cir. 1987) ("the antitrust laws were designed to protect and promote consumer welfare");
138. Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986) (Bork, J.) ("the purpose of the antitrust laws [is] the promotion of consumer welfare").
139. E.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 221 (1993) (referring to "the antitrust laws' traditional concern for consumer welfare and price competition").
140. See L.A.P.D., Inc. v. Gen. Elec. Corp., 132 F.3d 402, 404 (7th Cir. 1997) (Easter-brook, J.) ("Antitrust law is designed to protect consumers from the higher prices-and society from the reduction in allocative efficiency-that occurs when firms with market power curtail output.");
141. Chicago Prof 1 Sports Ltd. P'ship v. NBA, 95 F.3d 593, 597 (7th Cir. 1996) (Easterbrook, J.) ("The core question in antitrust is output. Unless a contract reduces output in some market, to the detriment of consumers, there is no antitrust problem. A high price is not itself a violation of the Sherman Act.");
142. Schachar v. Am. Acad, of Ophthalmology, Inc., 870 F.2d 397, 399 (7th Cir. 1989) (Easterbrook, J.) ("Antitrust law isabout consumers' welfare and the efficient organization of production. It condemns reductions in output that drive up prices as consumers bid for the remaining supply.").
143. Leegin Creative Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2724 (2007);
144. Brooke Group, 509 U.S. at 224;
145. Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 338 (1990);
146. Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 110 (1986);
147. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767 n.14 (1984);
148. Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962).
149. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993).
150. City of Lafayette, La. v. La. Power & Light Co., 435 U.S. 389, 398 (1978) (footnote omitted).
151. See, e.g., Jefferson County Pharm. Ass'n, Inc. v. Abbott Labs., 460 U.S. 150, 178 n.7 (1983) (O'Connor, J., dissenting) (referring to "the Sherman Act goal of protection of the competitive process");
152. Tal v. Hogan, 453 F.3d 1244, 1258 (10th Cir. 2006) ("The primary concern of the antitrust laws is the corruption of the competitive process . . . .");
153. Geneva Pharm. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 489 (2d Cir. 2004) ("The antitrust laws . . . safeguard consumers by protecting the competitive process.");
154. SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994) (declaring that "the Act's basic objective [ ] [is] the protection of a competitive process") (internal quotations omitted);
155. Monahan's Marine, Inc. v. Boston Whaler, Inc., 866 F.2d 525, 527 (1st Cir. 1989)
156. (Breyer, J.) ("Sherman Act seeks to protect the competitive process"), citing Interface Group, Inc. v. Mass. Port Auth., 816 F.2d 9, 10 (1st Cir. 1987);
157. Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 794 (1st Cir. 1988) (Breyer, J.) (observing that "the antitrust laws exist to protect the competitive process itself).
158. Morrison v. Murray Biscuit Co., 797 F.2d 1430, 1437 (7th Cir. 1986).
159. See also Olympia Equip. Leasing Co. v. W. Union Tel. Co., 797 F.2d 370, 375 (7th Cir. 1986) (Posner, J.) ("antitrust policy shifted from the protection of competition as a process of rivalry to the protection of competition as a means of promoting economic efficiency").
160. Fishman v. Estate of Wirtz, 807 F.2d 520, 536 (7th Cir. 1986).
161. United States v. Microsoft Corp., 253 F.3d 84, 58-59 (D.C. Cir. 2001) (en banc) (per curiam). The decision set out a three-step analysis in which the plaintiff first must show that the "conduct harmed competition" and then the defendant has the opportunity to demonstrate that "its conduct is indeed a form of competition on the merits."
162. Id. at 59. When the plaintiff and defendant both make these showings, the final step is the plaintiffs opportunity to demonstrate that "the anticompetitive harm of the conduct outweighs the procompetitive benefit."
163. Id. Citing this final step, Professor Salop has argued that the decision adopted consumer welfare as a liability standard.
164. Steven C. Salop, Exclusionary Conduct, Effect on Consumers, and the Flawed Profit-Sacrifice Standard, 73 ANTITRUST L.J. 311, 333-34 (2006). But even assuming the court intended to associate "harm" and "benefit" with effects on consumer welfare, harm to consumer welfare is neither necessary nor sufficient for liability under the court's analysis.
165. See Morris Commc'ns Corp. v. PGA Tour, Inc., 364 F.3d 1288,1294 (11th Cir. 2004) ("In order for a practice to be exclusionary, 'it must harm the competitive process and thereby harm consumers.'")
166. (quoting Microsoft, 253 F.3d at 58);
167. Dickson v. Microsoft Corp., 309 F.3d 193, 206 (4th Cir. 2002) ("To have an 'anticompetitive effect,' conduct 'must harm the competitive process and thereby harm consumers.' ")
168. (quoting Microsoft, 253 F.3d at 58).
169. Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 486 (1st Cir. 1988) (Breyer, J.).
170. See also Town of Concord, Mass. v. Boston Edison Co., 915 F.2d 17, 21 (1st Cir. 1990) (Breyer, C.J.) (explaining that "a practice is 'anticompetitive' only if it harms the competitive process").
171. Clamp-All, 851 F.2d at 486.
172. NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 106-07 (1984).
173. Id. at 107 (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979)
174. (quoting BORK, supra note 26, at 66).
175. Id. at 104.
176. Id. at 104 n.27
177. (quoting N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958)). The prominent reference to "the best allocation of our economic resources" gives primacy to aggregate welfare rather than to a narrow concept such as end-user welfare.
178. Bd. of Trade of the City of Chicago v. United States, 246 U.S. 231, 238 (1918). The Court cited this test as controlling law in FTC v. Indiana Federation of Dentists, 476 U.S. 447, 458 (1986).
179. See also Cal. Dental Assoc. v. FTC, 526 U.S. 756, 780 (1999) (holding that "the essential inquiry" is "whether or not the challenged restraint enhances competition")
180. (quoting NCAA, 468 U.S. at 104 (1985)).
181. Nat'l Soc'y of Prof1 Eng'rs v. United States, 435 U.S. 679, 693-94 (1978).
182. Id. at 688.
183. Id. at 695 (internal quotation and citation omitted).
184. FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 459 (1986). Although the agreement was challenged under the FTC Act, the Court held that "the legal question" before it was whether the findings made by the FTC "make out a violation of Sherman Act §1." Id. at 455.
185. Id. at 460-61.
186. Id. at 461-62.
187. NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998).
188. Id.
189. Id. at 136-37.
190. Eg., Augusta News Co. v. Hudson News Co., 269 F.3d 41, 49 (1st Cir. 2001) (Boudin, C.J.) ("[1]n a rule of reason case, negative effects or threatened effects on consumer welfare are almost always a necessary element but they are not sufficient, One still has to identify a specific agreement, locate it within some doctrinal framework or body of precedent, and assess the competitive benefits and disadvantages of the agreement. . . .");
191. Newman v. Universal Pictures, 813 F.2d 1519, 1522 (9th Cir. 1987) (observing that "the Sherman Act does not outlaw every action that hurts consumer welfare") (internal quotation omitted).
192. Commissioner Rosch does not advocate making end-user welfare the touchstone but nevertheless favors an approach that looks outside the relevant market in monopsony cases. See Rosch, supra note 4, at 359 ("In my view the antitrust laws protect consumers-and by 'consumers' I mean consumers who buy the output in the relevant market. . . . To me 'consumer welfare' means just that - the welfare of those who are confronted by actual or threatened exercises of seller market power in the output market."). Commissioner Rosch specifically opposes both the use of total surplus as the touchstone and any consideration of effects on allocative efficiency.
193. See id. at 358-59 & nn.17-18.
194. If aggregate welfare were the touchstone, looking beyond the boundaries of the relevant market generally would be unnecessary because aggregate welfare is approximated by total surplus, which is the welfare of all market participants. See supra note 5. This approximation may be misleading, however, in the case of pure transfer of wealth from one market participant to another. Such a transfer leaves total surplus unchanged, but aggregate welfare may be affected nevertheless, particularly over the longer term, because the changes in wealth affect investment decisions, which in turn affect the welfare of people in various ways.
195. See Heyer, supra note 5, at 36-37, 39-40;
196. Gregory J. Werden, An Economic Perspective on the Analysis of Merger Efficiencies, ANTITRUST, Summer 1997, at 12, 14.
197. See Luke Froeb, Steven Tschantz & Gregory J. Werden, Vertical Restraints and the Effects of Upstream Horizontal Mergers, in THE POLITICAL ECONOMY OF ANTITRUST 369 (Vivek Ghosal & Johann Stennek eds., 2007);
198. Daniel P. O'Brien & Greg Shaffer, Bargaining, Bundling, and Clout: The Portfolio Effects of Horizontal Mergers, 36 RAND J. ECON. 573 (2005).
199. FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001).
200. FTC v. H.J. Heinz Co., 116 F. Supp. 2d 190, 197 (D.D.C. 2000).
201. H.J. Heinz, 246 F.3d at 719.
202. The foregoing has presumed that plaintiffs are obliged to demonstrate anticompetitive effects, but per se cases would not be entirely different. If end-user welfare were the touchstone, plaintiffs presumably would be required to show that cartel conduct would harm end users if successful. The per se rule eliminates any need to prove actual anticompetitive effects, but the nature of the threatened effects still matters. Plaintiffs presumably would be have to show that "the unlawful conduct itself, if successful, would have a substantial [adverse] effect" on end users in the relevant chain of distribution. Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 335 (1991) (Scalia, J., dissenting) (characterizing what should have to be shown to demonstrate the required nexus to interstate commerce in a Sherman Act case).
203. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).
204. The antitrust injury requirement "forces antitrust courts to connect the alleged injury to the purposes of the antitrust laws." 2 PHILLIP E. AREEDA, ROGER D. BLAIR & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 337, at 306 (2d ed. 2000).
205. Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 113 (1986).
206. Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 341-45 (1990). The antitrust injury requirement most importantly precludes claims arising from injuries caused by conduct that does not threaten competition, as the Supreme Court understood all three of the claims it rejected on antitrust injury grounds. See Brunswick, 429 U.S. at 488 (damages sought for injuries from the defendant's acquisition, which "preserved competition");
207. Cargill, 479 U.S. at 116-17 (injunction sought to prevent "the threat of loss of profits due to possible price competition");
208. Atlantic Richfield, 495 U.S. at 337 (damages sought for injuries from a vertical restraint that "lowers prices but maintains them above predatory levels").
209. Recent courts of appeals decisions affirming such grants include: E&L Consulting, Ltd. v. Doman Indus. Ltd., 472 F.3d 23 (2d Cir. 2006);
210. In re Canadian Import Antitrust Litig., 470 F.3d 785 (8th Cir. 2006);
211. Wallace v. IBM Corp., 467 F.3d 1104 (7th Cir. 2006).
212. On prudential grounds Judge Easterbook has proposed that competitors be denied a damages remedy. See Frank H. Easterbrook, Treble What?, 55 ANTITRUST L.J. 95 (1986).
213. See generally William J. Baumol & Janusz A. Ordover, Use of Antitrust to Subvert Competition, 28 J.L. & ECON. 247 (1985);
214. Edward A. Snyder & Thomas E. Kauper, Misuse of the Antitrust Laws: The Competitor Plaintiff, 90 MICH. L. REV. 551 (1991).
215. Loeb v. Eastman Kodak Co., 183 F. 704, 709 (3d Cir. 1910) (holding that injury suffered by a stockholder of a corporation victimized by an antitrust violation "was indirect, remote, and consequential").
216. Applications of the remoteness doctrine include: Loeb Indus., Inc. v. Sumitomo Corp., 306 F.3d 469, 484-86 (7th Cir. 2002) (denying standing to scrap dealers because they did not purchase in the primary copper metal market);
217. Vinci v. Waste Mgmt., Inc., 80 F.3d 1372, 1375 (9th Cir. 1996) (denying standing to discharged employee);
218. G.K.A. Beverage Corp. v. Honickman, 55 F.3d 762, 766-77 (2d Cir. 1995) (denying standing to distributors for a son drink bottler that allegedly was the target of exclusionary conduct);
219. Lovett v. Gen. Motors Corp., 975 F.2d 518, 521 (8th Cir. 1992) (denying standing to the owner of a company that failed allegedly as a result of an unreasonable restraint of trade);
220. Sharp v. United Airlines, Inc., 967 F.2d 404, 407-08 (10th Cir. 1992) (denying antitrust standing to employees of company that failed allegedly as a result of exclusionary conduct).
221. Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 532-35, 540-43 (1983);
222. Blue Shield of Va. v. McCready, 457 U.S. 465, 476-78 (1982).
223. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 417 (2004) (Stevens, J., concurring),
224. See also Sw. Suburban Bd. of Realtors, Inc. v. Beverly Area Planning Ass'n, 830 F. 2d 1374, 1378 (7th Cir. 1987) ("Merely derivative injuries sustained by employees, officers, stockholders, and creditors of an injured company do not constitute 'antitrust injury' sufficient to confer antitrust standing,").
225. Even if end users do not deal directly with the violators of the Sherman Act, they may suffer injuries that are not "purely derivative" of others' injuries and may be proximately caused by conduct violating the Sherman Act. Such was the conclusion of the Supreme Court in McCready. The injury complained of was not higher prices resulting from the elimination of competition, but rather denial of reimbursement for medical expenses resulting from a policy designed to eliminate competition. The Court held that end-user injury was a "necessary step in effectuating the ends of the alleged illegal conspiracy" and therefore was "inextricably intertwined with the injury the conspirators sought to inflict." McCready, 457 U.S. at 479, 484.
226. Ill. Brick Co. v. Illinois, 431 U.S. 720 (1977) (barring indirect purchaser claims by state and local governments);
227. Kansas v. Utilicorp United Inc., 497 U.S. 199 (1990) (barring parens patriae indirect purchaser claims by state governments on behalf of its citizens).
228. The only potential obstacle had been eliminated previously when the Court held that a direct purchaser can recover overcharges resulting from Sherman Act violations even if the overcharges were entirely passed on to its customers and ultimately to end users. Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968).
229. Associated General Contractors, 459 U.S. at 542.
230. Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000).
231. Id. at 988. Although the case was decided under state law, the court relied heavily on Sherman Act precedents.
232. The proper price-cost test would have to consider all of the outputs of the mills, and not just lumber. It could be perfectly normal for the revenue from lumber alone to fall short of covering the cost of the logs.
233. Per se rules are applied to " 'conduct that is manifestly anticompetitive,' that is, conduct 'that would always or almost always tend to restrict competition and decrease output.'" Bus. Elees. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988) (citation omitted)
234. (quoting Cont'l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 (1977),
235. and Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 289-90
236. (quoting Broad. Music, Inc. v. CBS Inc., 441 U.S. 1, 19-20 (1979))).
237. An abbreviated application of the rule of reason is employed when "an observer with even a rudimentary understanding of economics could conclude that the arrangement in question would have an anticompetitive effect on customers and markets." Cal. Dental Ass'n. v. FTC, 526 U.S. 756, 770 (1999).