An Introduction to Antitrust Randal C Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright 200018 Randal C Picker All Rights Reserved ID: 705334
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Class 1Antitrust Fall 2020An Introduction to Antitrust
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright
© 2000-20
Randal C. Picker. All Rights Reserved.Slide2
1888 NY Trust
Investigation
September 21, 2020
2
NY Trust Investigation (1888
)Slide3
Standard Oil as Original
Trust
September 21, 2020
3
NY Trust Investigation (1888
)Slide4
Samuel Dodd: A
Defence
of
Trusts
September 21, 2020
4New York Tribune (2 Feb 1890
)Slide5
2 Jan 1882: The Standard Oil Trust Agreement
September 21, 2020
5
Ohio v. Standard Oil Co. (Oh. 1892)Slide6
Full and Free Competition, Raise Cost to
Consumer
September 21, 2020
6
S. 3445 (14 Aug 1888
)Slide7
Remedies: Double Damages; Corporate Franchise Forfeiture
September 21, 2020
7
S. 3445 (14 Aug 1888
)Slide8
What of useful combinations
?
September 21, 2020
8
CR, Sen. Hoar,
25 Jan 1889,
p1167Slide9
Act brings common law of England and states to interstate
commerce
September 21, 2020
9
Sen. Sherman,
25 Jan 1889,
p1167Slide10
May 1890: Ohio Sues Standard Oil
September 21, 2020
10
New York Times (9 May 1890)Slide11
June 1890: NYT Editorial on Ohio Suit
September 21, 2020
11
New York Times (5 June 1890)Slide12
June 1890: NYT Editorial on Ohio Suit
September 21, 2020
12
New York Times (5 June 1890)Slide13
The Sherman Act
September 21, 2020
13
26 Stat 209 (2 July 1890
)Slide14
September 21, 2020
14
Sherman Act Sec. 1
Sherman Act: July 2, 1890
Every
contract, combination in the form of trust or otherwise, or conspiracy,in restraint of trade or commerceamong the several States, or with foreign nations,is declared to be illegal.Slide15
September 21, 2020
15
Sherman Act Sec. 1
Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a [felony], and, on conviction thereof, shall be punished by fine not exceeding $[100,000,000] if a corporation, or, if any other person, $[1,000,000], or by imprisonment not exceeding [10] years, or by both said punishments, in the discretion of the court.Slide16
Jail Time for Price Fixing
September 21, 2020
16
USDOJ (17 Sept 2020)Slide17
September 21, 2020
17
Sherman Act Sec. 2
Every person
who shall monopolize,
or attempt to monopolize,or combine or conspire with any other person or persons, to monopolizeany part of the trade or commerceamong the several States, or with foreign nations,
shall be deemed guiltySlide18
September 21, 2020
18
Sherman Act Sec. 2 (15 USC 2)
of a [felony],and, on conviction thereof, shall be punished by fine not exceeding $[100,000,000] if a corporation, or, if any other person, $[1,000,000], or by imprisonment not exceeding [10] years, or by both said punishments, in the discretion of the court.Slide19
1830-1850: U.S. Railroads
September 21, 2020
19
Central Pacific RR MuseumSlide20
1860: U.S. Railroads
September 21, 2020
20
Central Pacific RR MuseumSlide21
1870: The West Opens
September 21, 2020
21
Central Pacific RR MuseumSlide22
1880: The Context for Trans-Missouri
September 21, 2020
22
Central Pacific RR MuseumSlide23
How Would You Run a Railroad Cartel?September 21, 2020
23
TTYN (1 of
4
)Slide24
Railroad CompetitionSeptember 21, 2020
24
A
B
RR2
RR1
TTYN (2 of
4
)
A
B
RR2
RR1Slide25
Trans-Missouri, 166 U.S. 290 (1897) (TTYN (3 of 4))
September 21, 2020
25Slide26
“[T]he peculiar nature of railroad property.” (TTYN (4 of 4))
September 21, 2020
26
Trans-Missouri (US 1897)Slide27
September 21, 2020
27
Trans-Missouri Ver. 1
Hypo 1
Each railroad makes its own decisions regarding prices; prices are posted as required by Interstate Commerce Act (Feb. 4, 1887), but no conversations or consultation regarding rates.
Does this violate Section 1? What if they see prices and end up with identical prices?
TTYN (1 of 3)Slide28
September 21, 2020
28
Trans-Missouri Ver. 2
Hypo 2
Trans-Missouri Ass’n formed
Rates are set through joint voting processVote of majority binds minorityDoes this violate Section 1?
TTYN (2 of 3)Slide29
September 21, 2020
29
Trans-Missouri Ver. 3
Hypo 3
Trans-Missouri Ass’n formed
Rates are set through joint voting processBut individual railroad can ignore vote and set rate separatelyDoes this violate Section 1?Which version is Trans-Missouri?
TTYN (3 of 3)Slide30
Price Fixing?Article II, Sec. 5“At each monthly meeting, the association shall consider and vote upon all changes proposed, of which due notice has been given, and all parties shall be bound by the decision of the association, as expressed”
September 21, 2020
30Slide31
Price Fixing?Article II, Sec. 5“unless then and there the parties shall give the association definite written notice that in ten days thereafter they shall make such modification, notwithstanding the vote of the association: provided, that, if the member giving notice of change shall fail to be represented at the meeting, no action shall be taken on its notice, and the same shall be considered withdrawn.”
September 21, 2020
31Slide32
Price Fixing?Article II, Sec. 5“Should any member insist upon a reduction of rate against the views of the majority, or if the majority favor the same, and if, in the judgment of such majority, the rate so made affects seriously the rates upon other traffic, then the association may, by a majority vote, ”
September 21, 2020
32Slide33
Price Fixing?Article II, Sec. 5“upon such other traffic put into effect corresponding rates to take effect on the same day. By unanimous consent, any rate, rule, or regulation relating to freight traffic may be modified at any meeting of the association without previous notice.”
September 21, 2020
33Slide34
September 21, 2020
34
1901 Report of the Interstate Commerce Comm’n
Regarding
Trans-Missouri
“It is not the business of this Commission to enforce the anti-trust act, and we express no opinion as to the legality of the means adopted by these associations. We simply call attention to the fact that the decision of the United States Supreme Court in the Trans-Missouri
case and the Joint Traffic Association case has produced no practical effect upon the railway operations of the country
.”Slide35
September 21, 2020
35
1901 Report of the ICC
“
Such associations, in fact, exist now as they did before those decisions, and with the same general effect
. In justice to all parties we ought probably to add that it is difficult to see how our interstate railways could be operated, with due regard to the interests of the shipper and the railway, without concerted action of the kind afforded to these associations.” Slide36
September 21, 2020
36
Subsequent Amendments
1920 Transportation Act
Finally gives ICC rate-setting authority
Reed-Bulwinkle Act (June 17, 1948)Gives ICC authority to approve carrier deals on ratesICC approval confers antitrust immunitySlide37
30 N.E. 279 (Oh.
1892)
September 21, 2020
37
Ohio v. Standard Oil Co. (Oh. 1892)Slide38
To Establish a Monopoly
September 21, 2020
38
Ohio v. Standard Oil Co. (Oh. 1892)
“
By this agreement—indirectly it is true, but none the less effectually—the defendant is controlled and managed by the Standard Oil Trust, an association with its principal place of business in New York city, and organized for a purpose contrary to the policy of our laws.
Its object was to establish a virtual monopoly of the business of producing
petroleum
,”Slide39
Void Against Public Policy
September 21, 2020
39
Ohio v. Standard Oil Co. (Oh. 1892)
“
and
of manufacturing, refining, and dealing in it and all its products throughout the country, and by
which it might not merely control the production, but the price, at its pleasure
.
All such associations are contrary to the policy of our state, and
void
.”Slide40
But Prices Have Been Dropping
September 21, 2020
40
Ohio v. Standard Oil Co. (Oh. 1892)
“
Much has been said in favor of the objects of the Standard Oil Trust, and what it has accomplished.
It may be true that it has improved the quality and cheapened the costs of petroleum and its products to the consumer.
But such is not one of the usual or general results of a monopoly; and
it is the policy of the law to regard, not what may, but what usually,
happens
.”Slide41
Importance of Structure of Production
September 21, 2020
41
Ohio v. Standard Oil Co. (Oh. 1892)
“
A society in which a few men are the employers and the great body are merely
employees
or servants, is not the most desirable in a republic; and it should be as much the policy of the laws to multiply the numbers engaged in independent pursuits or in the profits of production as to cheapen the price to the consumer
.”Slide42
Broader Consequences of Policies
September 21, 2020
42
Ohio v. Standard Oil Co. (Oh. 1892)
“
Such
policy would tend to an equality of fortunes among its citizens, thought to be so desirable in a republic, and lessen the amount of pauperism and
crime
.”Slide43
NYT Editorial: State Competition
September 21, 2020
43
New York Times (24 Mar 1891)Slide44
Fleeing to New Jersey
September 21, 2020
44
New York Times (24 Mar 1891)Slide45
Fleeing to New Jersey
September 21, 2020
45
New York Times (24 Mar 1891)Slide46
Nov 1906: US Sues Standard
September 21, 2020
46
New York Times (16 Nov 1906)Slide47
Nov 1906: US Sues Standard
September 21, 2020
47
New York Times (16 Nov 1906)Slide48
NYT Editorial: Prices?
September 21, 2020
48
New York Times (16 Nov 1906)Slide49
NYT Editorial: Prices?
September 21, 2020
49
New York Times (16 Nov 1906)Slide50
NYT Editorial: Prices?
September 21, 2020
50
New York Times (16 Nov 1906)Slide51
Nov 1909: US Wins In Lower Court
September 21, 2020
51
New York Times (21 Nov 1909)Slide52
Nov 1909: US Wins In Lower Court
September 21, 2020
52
New York Times (21 Nov 1909)Slide53
173 F. 177 (E.D. Mo. 1909)
September 21, 2020
53
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide54
4 Judge Panel
September 21, 2020
54
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide55
Evolution of the Business: From One Refinery to Two
September 21, 2020
55
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide56
Evolution of the Business: To Forty
September 21, 2020
56
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide57
Killed Off Competition Among Purchased Firms
September 21, 2020
57
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide58
And That Violated SA1
September 21, 2020
58
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide59
SA2 Bans Only Monopolies Achieved via Illegitimate Means
September 21, 2020
59
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide60
But SA2 Was Violated Here
September 21, 2020
60
U.S. v. Standard Oil Co. (E.D. Mo. 1909)Slide61
15 May 1911: Standard Oil
Decision
September 21, 2020
61
New York Times (16 May 1911)Slide62
15 May 1911: Standard Oil
Decision
September 21, 2020
62
New York Times (16 May 1911)Slide63
President Taft on Moving to Unreasonable Restraints of
Trade
September 21, 2020
63
New York Times (16 May 1911)Slide64
Big Business Happy with
Decision
September 21, 2020
64
New York Times (16 May 1911)Slide65
Not mere size, but rather price fixing and output
controls
September 21, 2020
65
New York Times (16 May 1911)Slide66
Progressives Less
Happy
September 21, 2020
66
New York Times (16 May 1911)Slide67
September 21, 2020
67
Understanding Sec. 2
Monopolization?
What is the conception of monopolization that you see in
Standard Oil?Grants from the King/Queen?Engrossing (what was that exactly?)Something else?
TTYN (1 of 3)Slide68
Standard Oil, 221 U.S. 1 (1911) (TTYN (2 of 3))
September 21, 2020
68Slide69
No Ban on Monopoly As Such; Role of Freedom of Contract (TTYN (3 of 3))
September 21, 2020
69
Standard Oil v. U.S. (US 1911)Slide70
The Rule of Reason
September 21, 2020
70
Standard Oil v. U.S. (US 1911)
“
…
[I]t
became obvious that the criteria to be resorted to in any case for the purpose of ascertaining whether violations of the section have been committed, is
the rule of reason
… .”Slide71
What About
Trans-Missouri
?
September 21, 2020
71
Standard Oil v. U.S. (US 1911)Slide72
Limited If Need Be
September 21, 2020
72
Standard Oil v. U.S. (US 1911)