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Antitrust/Competition laws place faith in the market.
EC Art. 81: prohibits agreements “ which have as their object or effect the prevention, restriction or distortion of competition within the common market”
US Sherman Act: outlaws "every contract, combination . . . , or conspiracy, in restraint of trade"
Sources of Confusion in Antitrust/Competition Law
Economic definition of monopoly
Legal definition of monopoly
KEY: market power
What’s wrong with concentrations of market power? How did Standard Oil acquire market power? John D. Rockefeller believed that monopoly was beneficial because it protected members of an industry from the harshness of the market (job losses and other upheavals). Do you agree or disagree? Who was hurt by Standard Oil’s business practices?
Sources of Confusion in Antitrust/Competition Law
Business competitors that fail to compete with one another (by cooperating illegally) violate the antitrust laws.
BUT, businesses that compete too aggressively also violate the antitrust laws
Forms of competition that are not illegal for one firm (a non-monopolist) may be illegal for another (a monopolist)
Illegal monopolization Illegal restraints of trade Sources of Confusion in Antitrust/Competition Law
The small town of Fort William has only two pharmacists. One pharmacist is Catholic, the other Protestant. One side of the town is predominantly Catholic; the other predominantly Protestant. The Catholic pharmacist is located on the Catholic side of town; the Protestant pharmacist on the Protestant side of town. But some Catholics shop at the Protestant pharmacist’s shop, and some Protestants at the Catholic pharmacist’s shop.
The two pharmacists agree that each will refrain from advertising their products to customers on the other’s side of town.
Every Sunday, the two pharmacists meet in the park and arrange to sell their products at identical prices.
Acme, the world’s largest producer of auto parts, has a new Wood Products division that manufactures saws and other woodworking tools.
Acme has no retail outlets of its own, but sells its products to several major retail chains, who make the retail sales.
Acme has worked very hard to produce products that are price-competitive with Black and Decker and other major manufacturers.
To gain market share, Acme requires buyers of its auto parts to (1) also purchase for resale Acme’s new wood products, and (2) agree to limit the markup (retail price – wholesale price) to 10% of the wholesale price.
DISTRICT COURT DECISION/ ISSUE #1: RELEVANT MARKET:
“ Microsoft possesses a dominant, persistent, and increasing share of the world- wide market for Intel-compatible PC operating systems . Every year for the last decade, Microsoft's share of the market for Intel-compatible PC operating systems has stood above ninety percent.
Even if Apple's Mac OS were included in the relevant market, Microsoft's share would still stand well above eighty percent. …”
DISTRICT COURT DECISION/ISSUE #1: HOW MICROSOFT DEFENDED ITS OPERATING SYSTEM (WINDOWS) MONOPOLY:
Vs. Netscape’s browser’s potential development as an “operating platform” in lieu of Windows:
“ As soon as Netscape released Navigator on December 15, 1994, the product began to enjoy dramatic acceptance by the public ... This alarmed Microsoft, which feared that Navigator's enthusiastic reception could embolden Netscape to develop Navigator into an alternative platform for applications development.”
Microsoft offered to leave the browser market for non-windows machines to Netscape (i.e., not to develop a version of Internet Explorer for those machines) and to give Netscape preferred access to information about new versions of Windows IF Netscape would refrain from developing its produce as a “platform” that could support applications.
“ The inventors of Java at Sun Microsystems intended the technology to enable applications written in the Java language to run on a variety of platforms . . . [so that] a program written in Java . . . will run on any PC system.”
Defending Windows against Sun Microsystems (cont’d):
“ Microsoft designed its Java developer tools to encourage developers to write their Java applications using certain "keywords" and "compiler directives" that could only be executed properly by Microsoft's version of the . . .”
“ Microsoft encouraged developers to use these extensions by shipping its developer tools with the extensions enabled by default and by failing to warn developers that their use would result in applications that might not run properly with any [version of Java] other than Microsoft's . . .”
“ Although Intel is engaged principally in the design and manufacture of microprocessors, it also develops some software.. . .”
At a meeting, “Gates told [Intel CEO] Grove that he had a fundamental problem with Intel using revenues from its microprocessor business to fund the development and distribution of free platform-level software. In fact, Gates said, Intel could not count on Microsoft to support Intel's next generation of microprocessors as long as Intel was developing platform-level software that competed with Windows.”
“ Intel's senior executives knew full well that Intel would have difficultly selling PC microprocessors if Microsoft stopped cooperating in making them compatible with Windows and if Microsoft stated to [PC manufacturers] that it did not support Intel's chips. Faced with Gates’ threat, Intel agreed to stop developing platform-level interfaces that might draw support away from interfaces exposed by Windows. . .”
“ QuickTime is Apple's software architecture for creating, editing, publishing, and playing back multimedia content. . . . QuickTime competes with Microsoft's own multimedia technologies . . .”
“ Microsoft tried to persuade Apple to stop producing a Windows 95 version of its multimedia playback software …” In return, Microsoft offered to cooperate with Apple in a joint multimedia product.
“ Microsoft's representatives made it clear that, if Apple continued to market multimedia playback software for Windows 95 that Microsoft would enter the authoring business to ensure that those writing multimedia content for Windows 95 would use Microsoft's product instead of Apple’s.”
IBM makes PCs, operating systems (OS/2) and software.
“ Microsoft tried to convince IBM to move its business away from products that themselves competed directly with Windows (OS) and Office (software) . . . . When IBM refused to abate the promotion of those of its own products that competed with Windows and Office, Microsoft punished the IBM PC Company with higher prices, a late license for Windows 95, and the withholding of technical and marketing support.”