Antitrust law Study Guide

📖 Core Concepts Competition (Antitrust) Law – Legal rules that preserve market competition by banning anti‑competitive conduct (cartels, abuse of dominance, harmful mergers). Public vs. Private Enforcement – Government agencies can prosecute; private parties may sue (U.S. treble‑damages). Consumer Welfare Standard – The primary test: does the practice lower consumer surplus (higher price, lower output/quality) ? Market Power – Ability of a firm to raise price above competitive level or cut output without losing sales. Barriers to Entry – Scale economies, network effects, control of essential inputs that let incumbents keep supracompetitive prices. 📌 Must Remember Key statutes: U.S. Sherman Act (1890), Clayton Act, EU Articles 101 & 102 TEU, Canada Competition Act. Treble damages – U.S. private actions can recover three times actual damages. HHI formula: $HHI = \sumi si^{2}$ (s = market share %). Abuse types: refusal to supply, tying, predatory pricing, price exploitation, price discrimination. Cartel = void – Any secret agreement to limit competition is illegal. Dominance presumption – EU treats very large market shares as dominant unless rebutted. Defenses: efficiency defense, failing‑firm defense. 🔄 Key Processes Merger Review (EU/US) Pre‑merger notification → authority assesses market definition → calculate post‑merger HHI → evaluate anticompetitive effects → consider efficiencies/failing‑firm → approve, block, or impose remedies. Private Antitrust Litigation (U.S.) Plaintiff alleges violation → court applies Rule of Reason (or per se for cartels) → damages calculated → treble damages awarded if proven. Abuse Investigation Identify dominant firm → assess conduct (e.g., tying, predatory pricing) → compare price/cost data → determine if conduct harms competition or is justified by efficiency. 🔍 Key Comparisons Cartel vs. Collusion Cartel: Formal agreement among competitors to fix price, limit output, or divide markets – automatically illegal. Collusion: Broader term; includes any secret coordination, but not all collusive behaviour rises to a cartel (e.g., tacit coordination). Horizontal vs. Vertical Merger Horizontal: Between direct rivals – highest scrutiny (e.g., price‑fixing risk). Vertical: Between upstream/downstream firms – less concern unless it forecloses competition. Chicago vs. Classical Perspective Chicago: Many conduct (price discrimination, vertical agreements) can enhance competition; focus on consumer welfare. Classical: Emphasizes free‑market self‑correction; warns that monopolies depress output and wages. ⚠️ Common Misunderstandings “Large market share = illegal” – Share alone isn’t unlawful; abuse of that share is required. “All price discrimination harms competition” – Can be pro‑competitive; Chicago school permits it if it benefits consumers. “Zero‑cost markets need no regulation” – Non‑monetary costs (information, attention) still create competition concerns. “Only governments can enforce antitrust” – Private parties can sue and obtain treble damages in the U.S. 🧠 Mental Models / Intuition “Consumer surplus = the ruler” – Any practice that shrinks the area under the demand curve (higher price or lower quantity) triggers antitrust scrutiny. “Barrier‑entry ladder” – Imagine steps (scale, networks, inputs). The higher the ladder, the easier a dominant firm can stay on top. “Merge‑or‑Block” – Treat each merger as a balance sheet: add up market shares (HHI), then weigh efficiency gains against potential loss of competition. 🚩 Exceptions & Edge Cases Article 101(3) TEU exemptions – Agreements that improve distribution or innovation may be allowed if they don’t overly restrict competition. Efficiency Defense – Merger allowed if proven efficiencies outweigh anticompetitive effects. Failing‑Firm Defense – Merger permissible when target would exit the market absent the transaction. Zero‑Cost Markets – Competition law still applies due to information/attention costs. 📍 When to Use Which Assessing a conduct → Apply Rule of Reason (U.S.) for most agreements; use per‑se rule for obvious cartels. Evaluating a merger → Use HHI thresholds (e.g., >2,500 indicates high concentration) and consider horizontal vs. vertical nature. Choosing enforcement route → Private suit (U.S.) when damages are sought; public authority when structural market harm is evident. 👀 Patterns to Recognize “Price below cost + market share increase” → Flag predatory pricing. “Same price across competitors + secret meeting” → Flag price‑fixing cartel. “Bundling a dominant product with a secondary one” → Look for tying abuse. “Post‑merger HHI jump >200 points in a market >1,000 HHI” → High likelihood of blocking. 🗂️ Exam Traps Confusing “price discrimination” with illegal price fixing – Discrimination is often permissible; price fixing is per se illegal. Assuming any “efficiency” justifies a merger – Efficiency must be verifiable and outweigh the anticompetitive impact. Misreading EU Articles – 101(1) bans agreements; 101(2) makes them void; 101(3) provides narrow exemptions – don’t mix them up. Treating “large share” as proof of dominance – Remember dominance is a factual analysis; share is only one indicator. --- Use this guide to scan key ideas, recall essential rules, and spot typical answer‑choice tricks before the exam.