Antitrust law and Economics
Antitrust Law & Trade Regulation Assessment One Essay Questions
Summer 2014
For this assessment assignment, you are to answer the questions below; your responses are due at the start of class (copies to be submitted on paper, no email
responses please) on July 28th, 2014. This is a take-home open-book exam. It is based on material discussed in class and assigned readings. You may discuss the
questions with others, but please identify these individuals on the back of your exam. Answers should be your own work and in your own words. Limited use of quotes
is acceptable, but stronger exams demonstrate your ability to explain material in your own words. Evaluation of the assessment exercise will emphasize comprehension,
support for your arguments, synthesis of material, and clarity of presentation. Excellent exams will incorporate sources from the readings as well as class notes and
material from the powerpoint slides and discussion(s). Exams should be typed, space and a half, with 1 inch margins.
ANTITRUST APPLIED: UNITED STATES v. APPLE INC., et. al.,
For this question I want you to take a look at some materials involving the following case (materials which are made available on the US DOJ website:
United States v.
Apple, Inc., Hachette Book Group, Inc., HarperCollins Publishers L.L.C., Verlagsgruppe Georg Von Holtzbrinck GmbH, Holtzbrinck Publishers, LLC d/b/a Macmillan, The
Penguin Group, A Division of Pearson PLC, Penguin Group (USA), Inc., and Simon & Schuster, Inc.
http://www.justice.gov/atr/cases/applebooks.html
RELEVANT MARKETS
Q1. For the first question, please take a look at the Complaint filed in the case by the Government. There are numerous materials available, but for these questions
you might find the following useful:
Opinion and Order (September 6, 2012)
Competitive Impact Statement (April 11, 2012)
Complaint (April 11, 2012)
Specifically take a look at the following, from pages 33-34 of the Complaint:
99. Where, as here, defendants.have engaged in a per se violation of Section I of the Sherman Act, no allegations with respect to the relevant product market,
geographic market, or market power are required. Where, as here, defendants.have engaged in a per se violation of Section I of the Sherman Act, no allegations with
respect to the relevant product market, geographic market, or market power are required. To the extent such allegations may otherwise be necessary, the relevant
product market for the purposes of this action is trade e-books. The anticompetitive acts at issue in this case directly affect the sale of trade e-books to consumers.
No reasonable substitute exists for e-books. There are no technological alternatives toe-books, thousands of which can be stored on a single small device. E-books can
be stored and read on electronic devices, while print books cannot. E-books can be located, purchased, and downloaded anywhere a customer has an internet connection,
while print books cannot. Industry firms also view e-books as a separate market segment from print books, and the Publisher Defendants were able to impose and sustain
a significant retail price increase for their trade e-books.
I 00. The relevant geographic market is the United States. The rights to license ebooks are granted on territorial bases, with the United States typically forming its
own territory. E-book retailers typically present a unique storefront to U.S. consumers, often with e-books bearing different retail pries than the same titles would
command on the same retailer’s foreign websites.
Do you agree with the Complaint’s definition of the relevant markets? What are the factors to consider in defining the product and geographic markets? Does the duPont
case or any of the other cases we mentioned in class have anything to offer in terms of support or criticism specifically of the product market definition offered by
the Government? What about the Complaint’s definition of the relevant geographic market? Do you agree or disagree? Explain how the economic concept of elasticity helps
us to understand relevant markets; how does this help us determine relevant product substitutes to consider in our analysis? You may want to take a look at the article
below as well as the classroom and case law materials before answering this question.
WHOSE SIDE ARE YOU ON, ANYWAY???
Q2. Take a look at the following article, from the Library of Economics & Liberty:
Featured Article, July 2, 2012
In Defense of Apple, by Richard B. McKenzie
http://www.econlib.org/library/Columns/y2012/McKenzieapple.html – note_4
Now that you have read the Complaint from the Government (hopefully you’ve read it from answering the question above!) and a defense of sorts from Professor McKenzie,
whose side are you on? What I explicitly want you to discuss is whose arguments do you find more compelling in terms of whether or not the behavior as described
engaged in by Apple and the publishers is an appropriate basis (or not) for the application of antitrust law. This will require you to reiterate what the goals of
antitrust law are; what the alleged violations are engaged in by Apple et. al.,; and whether you consider the Government or Professor McKenzie more compelling in their
arguments, ad why.
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CONSIDER THE SOURCE?
Q3 . Take a look at the following entry in the Concise Encyclopedia of Economics, from the Library of Economics & Liberty:
Antitrust, by Fred McChesney
http://www.econlib.org/library/Enc/Antitrust.html
One of the most worrisome statistics in antitrust is that for every case brought by government, private plaintiffs bring ten. The majority of cases are filed to
hinder, not help, competition. According to Steven Salop, formerly an antitrust official in the Carter administration, and Lawrence J. White, an economist at New York
University, most private antitrust actions are filed by members of one of two groups. The most numerous private actions are brought by parties who are in a vertical
arrangement with the defendant (e.g., dealers or franchisees) and who therefore are unlikely to have suffered from any truly anticompetitive offense. Usually, such
cases are attempts to convert simple contract disputes (compensable by ordinary damages) into triple-damage payoffs under the Clayton Act.
The second most frequent private case is that brought by competitors. Because competitors are hurt only when a rival is acting procompetitively by increasing its sales
and decreasing its price, the desire to hobble the defendant’s efficient practices must motivate at least some antitrust suits by competitors. Thus, case statistics
suggest that the anticompetitive costs from “abuse of antitrust,” as New York University economists William Baumol and Janusz Ordover (1985) referred to it, may
actually exceed any procompetitive benefits of antitrust laws.
The excerpt above suggests that the fact that the number of cases brought by non-government plaintiffs is troublesome. Should this be a cause for concern from a
public policy perspective? In other words, should we consider the source when we are evaluating the efficacy of antitrust law? Are there any reasons and/or
disadvantages that private plaintiffs have that may explain why there is such a disparity in the origination of cases under the antitrust laws?
