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Chapter 14 Vertical Mergers and the Pricing-Techniques, Contract-of-Sale Provisions, and Sales/Consignment Policies That Are Surrogates for Vertical Integration

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Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law

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Abstract

Business integration is said to be vertical when the integrators are in a supplier-supplied relationship to each other. Vertical integration can be initiated or carried out by producers, distributors, or buyers. However, for expositional reasons, this chapter will assume that the vertical-integration initiator is a final-goods producer. Such a firm can vertically integrate either backward or forward—backward into the production of inputs and forward into distribution and/or final-good consumption. Firms can execute vertical integration through merger, acquisition, or internal growth. As we shall see, firms can also achieve some of the benefits that vertical integration can generate by using complicated pricing-techniques, contract-of-sale provisions, and sales and consignment policies all of which I call “surrogates for vertical integration.”

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Notes

  1. 1.

    See, e.g., Dennis W. Carlton and Michael Waldman, The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries, 33 rand. j. of econ. 194 (2002); Jay Pil Choi and Christodoulos Stefanadis, Tying, Investment, and the Dynamic Leverage Theory, 32 rand j. of econ. 52 (2001); Michael D. Whinston, Tying, Foreclosure, and Exclusion, 80 am. econ. rev. 837 (1990); Joseph Farrell and Garth Saloner, Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation, 76 am. econ. rev. 940 (1986); and Janusz A. Ordover, Alan O. Sykes, and Robert D. Willig, Nonprice Anticompetitive Behavior by Dominant Firms Toward the Producers of Complementary Products, in antitrust and regulation: essays in memory of john j. mcgowan 115 (Franklin M. Fisher, ed.) (MIT Press, 1985). This literature fails to mention some of the ways in which I argued a firm’s operating in the complement-production-and-distribution business will lower the barriers to its entering the basic-product production-and-distribution business, but it does point out (as I did not) that efforts to deter complement-business entry may be particularly successful in the presence of certain complement-related network effects.

  2. 2.

    See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

  3. 3.

    See herbert hovenkamp, federal antitrust policy 451 (hereinafter hovenkamp hornbook) (3rd ed.) (Thomson West, 2005) for a discussion of this sequence of events.

  4. 4.

    390 U.S. 145 (1968).

  5. 5.

    The requirement of contemporaneousness is implicit, though, as will be explained, its operationalization is not straightforward.

  6. 6.

    This requirement is definitional. However, as will be explained, its operationalization is not always straightforward.

  7. 7.

    hovenkamp hornbook 581.

  8. 8.

    Because perfect price discrimination and the mixed pricing-technique to which the text refers are used by sellers in relation to buyers they are best-placed to supply, the claim that such pricing-techniques can be used predatorily may be surprising. In fact, exemplars of both pricing-techniques will be predatory if (1) for pricing-cost reasons, their practitioner did not find them inherently profitable ex ante but (2) their practitioner did find them profitable ex ante, all things considered, because it believed that their substitution for their most-inherently-profitable alternative would reduce the absolute attractiveness of the offers against which it would have to compete in the future by driving a rival out and/or deterring a rival QV investment by reducing the demand curve that the target rival(s) faced or would face by increasing the discriminator’s unit sales and/or decreasing the relevant buyer’s buyer surplus (and hence wealth and demand for the target’s product).

  9. 9.

    Caribe BMW v. Bayerische Motoren Weke Aktiengesellschaft, 19 F.3d 745 (1st Cir. 1994). Both this cite and most of the others in this section are taken from hovenkamp hornbook 578–82.

  10. 10.

    See, e.g., Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200–201 & n. 17 (1974) on remand 618 F.2d 91 (9th Cir. 1980). This second requirement has led to further litigation in situations in which a manufacturer in one state has supplied an agent in another state that has in turn sold the good in question at discriminatory prices in the second state. The consensus appears to be that the sale in the second state would be deemed to be in interstate commerce if but only if the manufacturer knew the identity of the buyers in the second state to which the goods would be sold at the time it shipped the goods to the second state. See, e.g., Taggart v. Rutledge, 657 F. Supp. 1420, 1438-40 (D. Mont. 1987), affirmed mem., 852 F.2d 1290 (9th Cir. 1988).

  11. 11.

    The Robinson-Patman Act also covers so-called “indirect price discrimination”—the practice in which a seller offers different (1) credit terms, (2) delivery, stocking, storage, and/or advertising services, (3) brokerage allowances, (4) return privileges, etc. to different buyers and the value of all such preferential terms to favored buyers exceed any positive difference between the price that the favored and disfavored buyers are charged. In practice, the courts appear to be much more willing to accept evidence that the value to favored buyers of such preferential non-price terms equals the extra amount that they are charged (and to find for this reason that no “indirect discrimination” had been practiced) than to find cost-justification evidence adequate to establish this defense (see below).

  12. 12.

    See, e.g., Export Liquor Sales, Inc. v. Ammex Warehouse Co., 426 F.2d 251, 252 (6th Cir. 1970), cert. denied, 400 U.S. 1000 (1971).

  13. 13.

    Seaboard Supply Co. v. Congoleum Corp., 770 F.2d 367, 373 (3d Cir. 1985).

  14. 14.

    See Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp. 374 F.3d 701, 708–90 (8th Cir. 2004); S&W Constr. & Materials Co. v. Draro Banc Materials Co., 813 F. Supp. 1214, 1223 (S.D. Miss. 1992), affirmed, 1 F.3d 1288 (5th Cir. 1993); and Terry’s Floor Fashions, Inc. v. Burlington Indus., 713 F.2d 604, 615 (4th Cir. 1985).

  15. 15.

    See Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp., 374 F.3d 701, n. 25 at 710–11 (8th Cir. 2004) (sales within 4 months requisitely contemporaneous) and Xeta, Inc. v. Atex, Inc., 85 F.2d 1280 (Fed. Cir. 1988).

  16. 16.

    See, e.g., Innomed Laboratories, LLC v. Alza Corp., 368 F.3d 148 (2d Cir. 2004) (intellectual property); Advo, Inc. v. Philadelphia Newspapers, Inc. 51 F.3d 1191, 1995 (3d Cir. 1995) (dictum: print advertising); and Berlyn, Inc. v. The Gazette Newspapers, Inc., 157 F. Supp. 2d 609 (D. Md. 2001) (newspaper advertising); Ball Memorial Hospital v. Mutual Hospital Ins., 784 F.2d 1325, 1340 (7th Cir. 1986), rehearing denied 788 F.2d 1223 (7th Cir. 1986) (medical services); and Alliance Shippers, Inc. v. Southern Pacif. Trans. Co., 675 F. Supp. 105, 1006 (D.C. Cal. 1986), affirmed 858 F.2d 567 (9th Cir. 1988) (freight shipping).

  17. 17.

    See FTC v. Borden Co., 383 U.S. 637 (1966). See also Texas, Inc. v. Hasbrouck, 496 U.S. 543, 556 n. 14 (1990), indicating in dicta that chemically-identical branded and non-branded gasoline were products of “like grade and quality” under the Robinson-Patman Act.

  18. 18.

    See Brooke Group Ltd. (Liggett) v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 225 (1993), citing Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993) for the relevant element of the Sherman Act test and Falls City Industries, Inc. v. Vanco Beverages, Inc., 460 U.S. 428, 434 (1983) for the relevant element of the Robinson-Patman Act test.

  19. 19.

    See, e.g., Brooke Group Ltd. (Liggett) v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).

  20. 20.

    334 U.S. 37, (1948).

  21. 21.

    Texaco v. Hasbrouck, 496 U.S. 543 (1990).

  22. 22.

    See, e.g., George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136 (2d Cir. 1998); Chroma-Lighting v. GTE Products Corp., 111 F.3d 653, 655 (9th Cir. 1997), cert. denied, 522 U.S. 943 (1947); and J.F. Feeser, Inc. v. Serre-A-Portion, Inc., 909 F.2d 1524, 1533 (3d Cir. 1990), cert. denied, 499 U.S. 921 (1991).

  23. 23.

    See, e.g., Chroma-Lighting v. GTE Products Corp., 111 F.3d 653, 655 (9th Cir. 1997), cert. denied, 522 U.S. 943 (1997).

  24. 24.

    Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 200–01 & n. 17 (1974), on remand, 618 F.2d 91 (9th Cir. 1980).

  25. 25.

    See Taggart v. Rutledge, 657 F. Supp. 1402, 1438–40 (D. Mont. 1987), affirmed mem. 852 F.2d 1290 (9th Cir. 1988); Indiana Grocery v. Super Valu Stores, 647 F. Supp. 254 (S.D. Ind. 1986); Zoslaw v. MCA Dist. Corp., 693 F.2d 870, 880 (9th Cir. 182), cert. denied 460 U.S. 1058 (1983); Walker Oil Co. v. Hudson Oil Co. of Missouri, 414 F.2d 588 (5th Cir. 1969), cert. denied, 396 U.S. 1042 (1970); and Cliff Food Stores, Inc. v. Kroger, Inc. 417 F.2d 203 (5th Cir. 1969). Contra: Rio Vista Oil, Ltd. v. Southland Corp., 667 F. Supp. 575, 762–64 (D. Utah 1987).

  26. 26.

    hovenkamp hornbook 586.

  27. 27.

    Id., citing United States v. Borden Co., 370 U.S. 460 (1962) and one more recent circuit-court case, Allied Accessories & Auto Parts Co., v. General Motors Corp., 825 F.2d 971 (6th Cir. 1987), appeal after remand, 901 F.3d 1322 (6th Cir. 1990).

  28. 28.

    Coastal Fuels of Puerto Rico, Inc. v. Caribbean Petroleum Corp., 990 F.2d 25 (1st Cir. 1993); OKI Distributing, Inc. v. Amana Refrigeration, Inc. 850 F. Supp. 637, 648 (S.D. Ohio 1994); FTC v. Standard Motor Products, Inc. 371 F.2d 613 (2d Cir. 1967); and Motor v. National Dairy Prods. Corp., 414 F.2d 403 (3rd Cir. 1969), cert. denied, 396 U.S. 1006 (1970).

  29. 29.

    hovenkamp hornbook 587.

  30. 30.

    FTC v. A.E. Staley Mfg. Co., 324 U.S. 746 (1945).

  31. 31.

    I do want to note one further Clayton Act Section 2 conclusion that the U.S. Supreme reached and one related assumption it seems to have made in the case in question. The conclusion is that Clayton Act Section 2 applies to sales that favor state and local governments as buyers if these government buyers proceed to resell the commodity in competition with disfavored buyers. The assumption that the Court made without explicitly addressing the issue is that sales to a state-government or local-government instrumentality for internal consumption are not covered by the Act. See Jefferson County Pharmaceutical Ass’n, Inc. v. Abbott Laboratories, 460 U.S. 150 (1983), rehearing denied, 460 U.S. 1105 (1983), on remand 709 F.2d 8 (5th Cir. 1983).

  32. 32.

    Great Atlantic & Pacific Tea Co. v. FTC (A&P), 440 U.S. 69 (1979).

  33. 33.

    See U.S. Department of Justice, Report on the Robinson-Patman Act (1977) and H.C. Hansen, Robinson-Patman Law: A Review and Analysis, 51 fordham l. rev. 1113, 1123 (1988).

  34. 34.

    See note 643 supra.

  35. 35.

    See Times-Picayune Publishing Co. v. United States (hereinafter Times-Picayune), 345 U.S. 594, 609 (1953). Obviously, the difference in these operational decision-rules for per se illegality under the Clayton and Sherman Acts does not track the difference in the tests of illegality that I think it legally incorrect to interpret these statutes to promulgate.

  36. 36.

    The quantitative-substantiality test was promulgated by Standard Oil Co. v. United States (Standard Stations), 337 U.S. 293 (1949). Tampa Electric C. v. Nashville Coal Co., 365 U.S. 320 (1961) replaced the quantitative-substantiality test with a qualitative-substantiality test, which focused on the percentage of sales locked in. In a concurring opinion in Jefferson Parish Hosp. Dist. No. 2 v. Hyde (hereinafter Jefferson Parish), 466 U.S. 2, 32 (1984) (O’Connor, J., joined by Burger, C.J., Powell, J., and Rehnquist, J., concurring), four justices of the Supreme Court stated that tie-ins should not be found to be per se illegal unless they cover a substantial share of tied-product sales.

  37. 37.

    The Government’s fear that advertising-space might not be deemed to be a “commodity” for Clayton Act purposes appears to have led it to bring the Times-Picayune case under the Sherman Act instead of under the Clayton Act. See Times-Picayune at 609 and at n. 27 at 609–10.

  38. 38.

    See, e.g., Jefferson Parish at 11–12.

  39. 39.

    See Times-Picayune at 609.

  40. 40.

    See, e.g., the Times-Picayune Court’s argument that advertisers could properly be found not to regard advertising-space in the relevant morning newspaper to be a different product from advertising-space in the relevant afternoon newspaper (to consider the two advertising-spaces to be the “‘selfsame’ product”) because they thought that the customers reached by the two kinds of advertising-space were “fungible.” Id. at 613. Obviously, even if the relevant two sets of newspaper readers were fungible from the advertisers’ perspective, the two advertising venues could be separate products: the fact that buyers would find two products equally desirable, all things considered, does not imply that they are the same product: even if buyers would be indifferent between a Mercedes and a BMW (at the same price), the two cars would be different products.

    The suggestion that the Times-Picayune Court misapplied this third test for separateness is suggested by another quite-remarkably-misleading claim its opinion made that relates to the question whether the morning newspaper (the Times-Picayune) had sufficient market power to render its tie of advertising-space in it with advertising-space in the company’s afternoon newspaper “coercing” and therefore illegal—viz., the claim (relevant to this market-power issue because the Court mistakenly believed that a firm’s market power was significantly and strongly correlated with its market share) that the Times-Picayune had about a 40% share of general and classified morning and afternoon advertising linage in New Orleans during the relevant years (a market share the Court deemed too low to justify the conclusion that the Times-Picayune paper had sufficient market power to render its tie-in coercive or legally problematic). This market-share claim is misleading because it ignores the fact that the tie-in under scrutiny guarantees that the highest market share that the Times-Picayune paper could have of the defined market was 50%.

  41. 41.

    International Salt v. United States, 332 U.S. 392, 396 (1947).

  42. 42.

    United Shoe Machinery v. United States, 258 U.S. 451, 458 (1922).

  43. 43.

    Northern Pacific Railway Co. v. United States, 356 U.S. 1, 6 (1958), quoting Standard Oil Co. v. United States (Standard Stations), 337 U.S. 293, 305–06 (1949).

  44. 44.

    International Salt v. United States, 332 U.S. 392, 397–98 (1947). Perhaps the text does an injustice to the Court: its point may have been that International Salt had not proven (indeed, had not submitted any evidence to establish) the tie-in’s greater proficiency at complement-quality control. My defense is that, for the reasons I explained in Section 2C(1)(A) of this chapter, the greater proficiency of the tie-in seems to be obvious.

  45. 45.

    See, e.g., Henry v. Dick Co., 224 U.S.1 (1912) (mimeograph machine and complements to the machine); Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U.S. 502 (1917) (motion-picture projectors and films); United Shoe Machinery v. United States, 258 U.S. 451 (1922) (leases of one shoe-manufacturing machine and other inputs used to manufacture shoes); Carbice Corp. v. American Patent Development Corp., 283 U.S. 27 (1931) (box for transporting ice cream and dry ice used as a complement to the box); International Business Machines Corp. v. United States, 298 U.S. 31 (1936) (leases of tabulating/other related machines and tabulating cards); Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942) (license to use salt-dispensing machine and salt); International Salt Co. v. United States, 332 U.S. 392 (1947) (leases of either a machine to dissolve rock salt into a brine or to inject salt into canned products during the canning process and the salt or salt tablets that are complements of the machine); United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948) (block booking of copyrighted films into movie theatres); Northern Pacific Railway Co. v. United States, 356 U.S. 1 (1958) (sale of land and “preferential routing clauses” that [with some exceptions] required buyers to ship all commodities produced or manufactured on the land via the land-seller’s railroad [if the railroad matched competing carriers’ prices and, in some cases, services]); and United States v. Loew’s, 371 U.S. 38 (1962) (block booking of copyrighted feature motion pictures for television exhibition). But see FTC v. Sinclair Refining Co., 261 U.S. 463 (1923), finding lawful tie-ins of leases of underground gasoline-storage tanks with pumps with the lessor’s gasoline, apparently on the ground that the lessor did not have market power over gasoline and that the lessees retained the right to distribute rival brands of gas and Times-Picayune Publishing Co. v. United States, 345 U.S. 549 (1953) (advertising-space in a morning newspaper and advertising-space in an afternoon newspaper).

  46. 46.

    United States v. Jerrold Electronics Corp., 187 F. Supp. 545 (E.D. Pa. 1960), aff’d per curiam, 365 U.S. 567 (1961).

  47. 47.

    See Jefferson Parish at 12.

  48. 48.

    Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28, 36 (2006). The citation for Fortner II—not given in the opinion—is United States Steel Corp. v. Fortner Enterprises (II), 429 U.S. 10 (1977).

  49. 49.

    Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28, 35 (2006).

  50. 50.

    See, e.g., International Salt v. United States, 332 U.S. 392, 395–96 (1947).

  51. 51.

    Illinois Tool Works, Inc. v. Independent Ink, Inc. 547 U.S. 28, 44 (2006). Prior to Illinois Tool Works, the Courts of Appeals disagreed about the related issue of whether one could presume market power from the existence of a copyright. Compare, for example, Digidyne Corp. v. Data General Corp. 734 F.2d 336 (9th Cir. 1984), cert. denied, 473 U.S. 908 (1985) (recognizing the presumption for a copyright) with Grappone v. Subaru of New England, 858 F.2d 792 (1st Cir. 1988) (rejecting the presumption).

  52. 52.

    See United States Steel Corp. v. Fortner Enterprises (II), 429 U.S. 610, 619 (1977), citing as an example of a case in which the unique product was not patented or copyrighted, Northern Pacific Railway Co. v. United States, 356 U.S. 1 (1958) (land).

  53. 53.

    See Section 3 of Chapter 8.

  54. 54.

    Times-Picayune at 612.

  55. 55.

    Jefferson Parish at 7.

  56. 56.

    See Broadcast Music, Inc. v. Columbia Broadcasting System, Inc. 441 U.S. 1 (1979).

  57. 57.

    For example, although fast-food franchisees formerly won suits against franchisors that required them to purchase foodstuffs from them or enter into restaurant leaseholds with them, more recently the franchisees have tended to lose these suits. See, e.g., Principe v. McDonald’s Corp., 631 F.2d 303 (4th Cir. 1980) (finding lawful a meter-pricing tie-in in which McDonald’s required franchisees to rent their restaurants from it at rentals set to vary with the franchisees’ respective sales-volumes).

  58. 58.

    In one case, the Fifth Circuit questioned whether Section 3 of the Clayton Act covered reciprocity though it concluded that in any event the test of illegality would be the same under the Clayton and Sherman Acts. See Spartan Grain & Mill Co. v. Ayres, 581 F.2d 419, 423 (5th Cir. 1978), cert. denied, 444 U.S. 831 (1979).

  59. 59.

    Thus, in Spartan Grain & Mill Co. v. Ayres, 581 F.2d 419, 425 (5th Cir. 1978), cert. denied, 444 U.S. 831 (1979), the court stated that, like tie-ins, reciprocity involves “the extension of economic power from one market to another market.”

  60. 60.

    FTC v. Consolidated Foods Corp., 380 U.S. 592, 594 (1965).

  61. 61.

    United States v. Jerrold Electronics Corp., 187 F. Supp. 545 (E.D. Pa. 1960), aff’d per curiam, 365 U.S. 567 (1961).

  62. 62.

    See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961).

  63. 63.

    See, e.g., Industria Siciliana Asfalti Bitumi v. Exxon Research & Eng. Co., 1977 Trade Cas. ¶61256 (S.D. N.Y) (fact that two firms buy from each other does not establish reciprocity since the transactions could be independently motivated); Ryals v. National Car Rental System, 404 F. Supp. 481 (D. Minn. 1975) (arrangement in which one firm agreed to purchase new cars from the other on condition that the other agree to buy back those cars as used cars found not to entail reciprocity because a single product was involved); United States v. Airco, 386 F. Supp. 915 (S.D. N.Y. 1974) (no illegality inferred from mutual dealings, internal use of reciprocity language, actual consideration of potential sales when making purchases); but see Carlos Cos. V. Sperry & Hutchinson Co., 1974 Trade Cas. ¶75153 at 97173 (D. Minn.): “Inferences of reciprocity can be drawn from the bare fact” of mutual dealing for summary-judgment purposes.

  64. 64.

    See, e.g., Key Enterprises v. Venice Hospital, 919 F.2d 1550 (11th Cir. 1990), vacated, 979 F.2d 806 (11th Cir. 1992); Brokerage Concepts v. United States Healthcare, 140 F.3d 494 (3d Cir. 1988); and Great Escape v. Union City Body Co., Inc. 791 F.2d 532 (7th Cir. 1986).

  65. 65.

    Key Enterprises v. Venice Hospital, 919 F.2d 1550 (11th Cir. 1990), vacated 979 F.2d 806 (11th Cir. 1992).

  66. 66.

    See, e.g., Betaseed, Inc. v. U and I, Inc. 681 F.2d 1203 (9th Cir. 1982), which involved a reciprocity agreement in which a producer of sugar-beet seed conditioned its purchase of sugar beets on the supplier’s using the sugar-beet-seed producer’s seed or substantially-equivalent seed.

  67. 67.

    See, e.g., Diamond Shamrock Corp. 5 Trade Reg. Rep. ¶22825 (May 11, 1990); Georgia-Pac. Corp., 103 F.T.C. 203 (1984); and Southland Corp., 101 F.T.C. 373 (1983).

  68. 68.

    127 U.S. 2705 (2007).

  69. 69.

    Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911).

  70. 70.

    For reasons that Section 1 of Chapter 4 articulated, I do not think that the Court’s implicit buyer-equivalent-dollar-welfare test of illegality is a correct operationalization of the Sherman Act’s test of illegality. (Indeed, it is also not a correct operationalization of the Clayton Act’s test of illegality, to which it is admittedly more closely connected.)

  71. 71.

    As we shall see, the EC and the E.C./E.U. courts also believe that any tendency of RPM to inflict equivalent-monetary losses on consumers by reducing intra-brand competition counts against their legality under what is now Article 101 of the 2009 Treaty of Lisbon. In my judgment, this position is as wrong as a matter of E.C./E.U. law as its counterpart is as a matter of U.S. law.

  72. 72.

    See richard s. markovits, matters of principle: legitimate legal argument and constitutional interpretation in a liberal, rights-based state (NYU Press, 1998).

  73. 73.

    Joseph E. Fortenberry, A History of the Antitrust Law of Vertical Practices, 11 res. l. & econ. 133, 209 and n. 161 (1988).

  74. 74.

    Between 1937 and 1975, when the “fair-trade” amendment was repealed, 46 states (at one time or another) passed “fair-trade” legislation, permitting producers to engage in RPM.

  75. 75.

    Continental T.V., Inc. v. GTE Sylvania, Inc. 433 U.S. 36, 51 n. 18 (1977).

  76. 76.

    See, e.g., the Supreme Court majority’s reference to a “Colgate right” in Leegin Creative Leather Products v. PSKS, Inc. 555 U.S. 877, 902 (2007).

  77. 77.

    250 U.S. 300 (1919).

  78. 78.

    See United States v. Parke, Davis & Co., 362 U.S. 29 (1960).

  79. 79.

    See Monsanto v. Spray-Rite Service Corp., 465 U.W. 752 (1984) and Russell Stover Candies, Inc. v. FTC, 718 F.2d 256 (8th Cir. 1983).

  80. 80.

    The text ignores a body of case-law that developed post-1979 that could be viewed as either expanding or narrowing the Colgate limitation of the coverage of the rule that minimum-price-fixing RPM is per se illegal. The relevant cases addressed the following question: Under Colgate, could a supplier lawfully terminate a distributor after receiving a complaint from a competing distributor that the former distributor was charging lower prices than the supplier had recommended or posted? The courts seem to have concluded that the answer to this question depends on whether an “agreement” can be inferred from the fact that the supplier terminated one or more resellers in response to one or more other resellers’ complaints, though the outcome of some cases seems also to have been affected by the Supreme Court’s statement in Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 728 (1988) that, for an agreement to be covered by the per se rule, it must be not just about price but about the particular price the dealer must charge. For an intelligent discussion of this body of case-law, see hovenkamp hornbook 466–71.

  81. 81.

    272 U.S. 476 (1926).

  82. 82.

    377 U.S. 13 (1964).

  83. 83.

    For one case that did apply this holding faithfully, see United States v. General Electric, 358 U.S. 731 (S.D. N.Y. 1973).

  84. 84.

    See, e.g., Mesirow v. Pepperidge Farm, Inc., 703 F.2d 339 (9th Cir. 1983), cert. denied, 464 U.S. 820 (1983), Hardwick v. Nu-Way Oil Co., Inc., 589 F.2d 806 (5th Cir. 1979), rehearing denied, 592 F.2d 1190 (5th Cir. 1979); and Pogue v. International Indus., Inc., 524 F.2d 342 (6th Cir. 1975).

  85. 85.

    Illinois Corporate Travel, Inc. v. American Airlines, 806 F.2d 722 (7th Cir. 1986), after remand, 889 F.2d 751 (7th Cir. 1989), cert. denied, 495 U.S. 919 (1990).

  86. 86.

    Ryko Manufacturing Co. v. Eden Services, 823 F.2d 1215 (8th Cir. 1987), cert. denied 484 U.S. 1026 (1988).

  87. 87.

    Other cases in which circuit courts have rejected Simpson Oil for an economically-sound approach to determining whether an arrangement is a consignment or sale include Ozark Heartland Electronics v. Radio Shack, 278 F.3d 759 (8th Cir. 2002); Belfiore v. New York Times Co., 826 F.2d 177 (2d Cir. 1987), cert. denied, 484 U.S. 1067 (1988); and Kowalski v. Chicago Tribune Co., 854 F.2d 168 (7th Cir. 1988). See also Miller v. W.H. Bristow, Inc., 739 F. Supp. 1044 (D. S.C. 1990) (stating that inter alia the determination of whether an arrangement constitutes a consignment or sale depends on whether the intermediary is responsible for payment immediately on delivery, makes substantial changes in the goods, bears risk of losses, and pays taxes on inventory [though this court’s list of factors also includes whether the distribution system is vast and whether title has passed]).

  88. 88.

    390 U.S. 147 (1968).

  89. 89.

    522 U.S. 3 (1997).

  90. 90.

    Id. at 15–16.

  91. 91.

    Id. at 17.

  92. 92.

    Id.

  93. 93.

    Id.

  94. 94.

    372 U.S. 253 (1963).

  95. 95.

    Id. at 278 (Clark, J., joined by Warren, C.J. and Black, J., dissenting).

  96. 96.

    388 U.S. 365 (1967).

  97. 97.

    Id. at 379.

  98. 98.

    As we shall see, even though the Supreme Court subsequently overturned the rule that vertical non-price constraints are per se illegal under the Sherman Act, it still thinks that the tendency of such restraints to reduce intra-brand competition should be counted against their legality in the Rule-of-Reason analysis it considers to be warranted.

  99. 99.

    United States v. Arnold, Schwinn & Co., 388 U.S. 365, 378–79 (1967). This distinction is no more persuasive in relation to vertical non-price restraints than it is in relation to vertical price restraints.

  100. 100.

    hovenkamp hornbook 483. For a description of the exceptions, see Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 47–48 (1977).

  101. 101.

    Id.

  102. 102.

    See Murrow Furniture Galleries v. Thomasville Furniture Industries (hereinafter Murrow), 889 F.2d 524, 528–29 (4th Cir. 1989); Ryko Manufacturing Co. v. Eden Services (hereinafter Ryko), 823 F.2d 1215, 1231 (8th Cir. 1987), cert. denied, 484 U.S. 1026 (1988); and Bi-Rite Oil Co. v. Indiana Farm Bureau Co-op Ass’n (hereinafter Bi-Rite), 908 F.2d 802, 810 (6th Cir. 1988).

  103. 103.

    See Murrow at 528–29, Ryko at 1231, Bi-Rite at 204, and Crane & Shovel Sales Corp. v. Bucyrus Erie Co., 854 F.2d 802, 810 (6th Cir. 1988). I should note that, even if (contrary to my conclusion) the impact of an actor’s behavior on intra-brand competition were relevant to its legality under the Sherman Act, I would see no reason to believe that the negative impact of a defendant’s conduct would increase with its market power or market share. To investigate the claim to the contrary, one would first have to define “intra-brand competition.” Although no-one has ever to my knowledge even attempted to provide an operational definition of the concept of the intensity of such competition, I suspect that that operationalization would have to focus on the extent to which (1) price competition between or among a product’s resellers drove the price that final consumers had to pay for the product in question (defined in physical terms?) below the price they would have been willing to pay for it if they could not buy it more cheaply from any source and (2) QV-investment competition between or among a product’s resellers reduced its producer’s profits (or perhaps increased its final consumers’ buyer surplus directly) by increasing the QV investment in distribution above the level that was in the producer’s interest. My point is that the extent of intra-brand competition defined in this or any other remotely-defensible way will depend not on the producer’s market power but on its ability to prevent such competition by integrating forward into distribution itself or using RPM, non-price vertical restraints, supra-TSM-marginal-cost pricing, and/or other sorts of surrogates for vertical integration to prevent it, which ability does not depend at all on its competitive advantages as a producer of the good or its share of the “market” in which the good is sold.

  104. 104.

    hovenkamp hornbook 486. Hovenkamp cites the article David H. Ginsburg, Vertical Restraints: de Facto Legality Under the Rule of Reason, 60 antitrust l.j. 67 (1991) to support his conclusion. Judge Ginsburg found three plaintiff victories in Circuit Courts and one remand for trial. The three victories are Graphic Product Distrib., Inc. v. Itek Corp., 717 F.2d 1560 (11th Cir. 1983); Multiflex, Inc. v. Samuel Moore & Co., 709 F.2d 980 (5th Cir. 1983); and Eiborger v. Sony Corp. of America, 622 F.2d 1068 (2d Cir. 1980). The case that was remanded for trial is Dimidowich v. Bell & Howell, 802 F.2d 1473 (9th Cir. 1986), modified, 810 F.2d 1517 (9th Cir. 1987). A preliminary injunction was issued in another case, Kohler Co. v. Briggs & Stratton Corp., 1986-1 Trade Cas. (CCH ¶67,047), 1986 WL 946 (E.D. Wis. 1986). The cites in this footnote, like the cites in many of the other footnotes in this section, are taken from hovenkamp hornbook.

  105. 105.

    hovenkamp hornbook 486.

  106. 106.

    Id.

  107. 107.

    See, e.g., id. at 488–89.

  108. 108.

    Big Apple BMW v. BMW of North America, 974 F.2d 1358 (3rd Cir. 1992), cert. denied, 507 U.S. 912 (1993). See also Arnold Pontiac-GMC v. Budd Baer, 826 F.2d 1335 (3rd Cir. 1987).

  109. 109.

    See Conwood Co. v. United States Tobacco Co. (hereinafter Conwood), 290 F.3d 768 (6th Cir. 2002).

  110. 110.

    Coca-Cola Company v. Harman Bottling Co. (hereinafter Coca-Cola), 218 S.W.3d 671–689 (Tex. 2006).

  111. 111.

    Conwood at 788–91.

  112. 112.

    Id. at 791–95.

  113. 113.

    See R. J. Reynolds Tobacco Co. v. Philip Morris Incorporated, 199 F. Supp. 2d 362, 381–86 (M.D. N.C. 2002).

  114. 114.

    See Coca-Cola at 689-90.

  115. 115.

    See El Aguila Ford Products, Inc. v. Gruma Corp., 131 Fed. Appx. 450, 2005 WL 1156090 (C.A. 5 Tex.).

  116. 116.

    For example, the District Court in R.J. Reynolds Tobacco Co. v. Philip Morris Incorporated, 199 F. Supp. 2d 362 (M.D. N.C. 2002) discussed this issue at 387–89.

  117. 117.

    See, e.g., FTC v. McCormick (FTC Dkt. No. C-3939 [2000]).

  118. 118.

    See American Booksellers Assn., Inc. v. Barnes & Noble, Inc., 135 F. Supp. 2d 1031, 1057–58 (N.D. Cal. 2001).

  119. 119.

    See, e.g., id. at 1058.

  120. 120.

    See, e.g., id. at 1070–71.

  121. 121.

    The Intimate Bookshop, Inc. v. Barnes & Noble, Inc., 88 F. Supp. 2d 133 (S.D. N.Y. 2000).

  122. 122.

    116 F. Supp. 2d 190 (D. D.C. 2000).

  123. 123.

    Id. at 197.

  124. 124.

    FTC v. H.J. Heinz Co., 246 F.3d 708, 719 (D.C. Cir. 2001).

  125. 125.

    See Federal Trade Commission, Report on the Commission Workshop on Slotting Allowances and Other Marketing Practices in the Grocer Industry (2001) (summarizing the findings of a workshop held May 31-June 1, 2000) and Federal Trade Commission Staff Study, Slotting Allowances in the Retail Grocery Industries: Selected Case Studies in Five Product Categories (Government Printing Office, 2002).

  126. 126.

    Standard Oil Co. v. United States (Standard Stations), 337 U.S. 293 (1949).

  127. 127.

    See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961).

  128. 128.

    National Association of Attorneys General (NAAG), Vertical Restraint Guidelines (1985), Antitrust and Trade Reg. Rep. 49 (BNA) No. 1243,996.

  129. 129.

    William E. Kovacic, The Modern Evolution of U.S. Competition Policy Enforcement Norms, 71 antitrust l.j. 377, 382 (2003).

  130. 130.

    The historical account this section of the text presents draws heavily on Luc Peeperkorn, Donncadh Woods, & Mario Filipponi (hereinafter Peeperkorn et al.), Chapter 9: Vertical Agreements in the ec law of competition 1131–1231 (Jonathan Faull and Ali Nikpay, eds.) (Oxford Univ. Press, 2d ed., 2007), korah 134–89, and marco colino, vertical agreements and competition (hereinafter colino) (Hart Publishing, 2010).

  131. 131.

    See de Geus v. Bosch & van Rijh, Case 13/61, ECR 45, ¶¶ 53 and 69 (1962) and Italy v. Council and Commission, Case 32/65, ECR 389 (1966). See also Consten and Grundig v. Commission, Joined Cases 56/64 and 58/64, ECR 299 (1966). This conclusion was also endorsed by Advocate General Lagrange. See Peeperkorn et al. at 1131.

  132. 132.

    Consten and Grundig, OJ 161/245 (1964).

  133. 133.

    Consten and Grundig v. Commission, Joined Cases 56/64 and 58/64, ECR 299 (1966).

  134. 134.

    Council Reg. 17 of 13 March 962, JO 13-24 (1959–62) OJ Spec. Ed. 87 (1962).

  135. 135.

    See colino 63, citing for the first figure daniel goyder, competition law xli (Clarendon Press, 1998) and for the second, Commission of the EC, First Annual Report on Competition Policy (April 1972).

  136. 136.

    Council Regulation (EEC) No. 19/65 of 2 March 1965 on the Application of Article 85(3) of the Treaty to Certain Categories of Agreements and Concerted Practices, OJ L36 (1965).

  137. 137.

    Commission Regulation (EEC) 1983/83 of 22 June 1983 on the Application of Article 85(3) of the EEC Treaty to Categories of Exclusive Distribution Agreements, OJ L173/1 (1983), as amended at OJ L281/24 (1983); Commission Regulation (EEC) 1984/83 of 22 June 1983 on the Application of Article 85(3) of the EEC Treaty to Categories of Exclusive Purchasing Agreements, OJ L173/5 (1983), as amended at OJ L281/24 (1983); Commission Regulation 123/85 of 12 December 1984 on the Application of Article 85(3) of the EEC Treaty to Certain Categories of Motor Vehicle Distribution and Servicing Agreements, OJ L15/16 (1985) (subsequently replaced by Commission Regulation (EC) 1475/95 of 28 June 1995 on the Application of Article 85/(3) to Certain Categories of Motor Vehicle Distribution and Servicing Agreements), OJ L145/25 (1995), replaced by Commission Regulation (EC) 1400/202 of 31 July 2002 on the Application of Article 81/(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices in the Motor Vehicle Sector, OJ L203/30 (2002); Commission Regulation (EEC) 4087/88 of 30 November 1988 on the Application of Article 83(3) of the EEC Treaty to Categories of Franchise Agreements, OJ L359/46 (1988).

  138. 138.

    See, e.g., Barry E. Hawk, System Failure: Vertical Restraints and EC Competition Law, 32 CML Rev. 973, 989 (1995), claiming that the EC and E.C. courts have created “doctrinal formalisms” instead of “relying on the valuable compass of economics.”

  139. 139.

    Communication on the Application of the EC Competition Rules to Vertical Restraints, OJ C365/3 (1998), 4 CMLR 281 (1999).

  140. 140.

    Commission Regulation (EC) 2790/1999 of 22 December 1999 on the Application of Art. 81(3) of the Treaty to Categories of Vertical Agreements and Concerted Practices (hereinafter 1999 BER), OJ L336 (1999).

  141. 141.

    Commission Notice—Guidelines on Vertical Restraints, OJ C291 (2000).

  142. 142.

    C45/02 (2009). For additional citations to more specific twenty-first-century EC regulations, see notes 71 and 72 supra.

  143. 143.

    Admittedly, the probability that minimum-price-setting resale price maintenance and vertical territorial restraints or vertical customer-allocation clauses will have as their object effectuating horizontal price-fixing would increase with the total market share of their perpetrators if the relevant market could be defined non-arbitrarily, but the vast majority of the exemplars of these practices that are used by rivals with a collectively-high total market share will not have either the object or effect of decreasing inter-brand competition. Admittedly as well, the probability that single-brand exclusive dealerships or long-term full-requirements contracts or total-supply contracts will foreclose competition will increase with the percentage of buyers or suppliers that are locked up, but the correlation between their perpetrators’ market shares and the probability that such arrangements will decrease competition by driving an established rival out or raising the barriers to QV investment confronting an otherwise-effective potential QV investor is undoubtedly very low.

  144. 144.

    See Peeperkorn et al.

  145. 145.

    OJ L203 (2002).

  146. 146.

    OJ L123 (2004).

  147. 147.

    For a more detailed account of such cases, see Peeperkorn et al. at 1204–07.

  148. 148.

    Carles Esteva Mosso, Stephen A. Ryan, Svend Albaek, and Maria Luisa Tierno Centella, Article 82 in the ec law of competition 313, 370 (Jonathan Faull and Ali Nikpay, eds.) (Oxford Univ. Press, 2d ed., 2007).

  149. 149.

    Id. at 369. See also Guideline 216, which deems critical the closely-related issue of whether buyers of either product want to purchase both products.

  150. 150.

    Tetra Pak International v. Commission, Case T-83/91, ECR II-755 (1994).

  151. 151.

    Bull CE 10/84, ¶ 3.4.1. See also Microsoft, 37.792, 4 CMLR 965 (2004).

  152. 152.

    In my view, this mistake partially accounts for the E.C. authorities’ decisions to find illegal the tie-ins between packaging machines and packaging materials in Tetra Pak II and the tie-ins between nail guns on the one hand and nails and cartridges in Hilti. See respectively, Tetra Pak II, C-53/92P, ECR I-666 (1994) and Hilti, C-333/94P, ECR I-5951 (1996).

  153. 153.

    I suspect that the tie-ins involved in Tetra Pak II, Hilti, and Microsoft, 4 CMLR 965 (2004), and Microsoft v. Commission, T-201/04, 4 CMLR 406 (2005) were performing this function as well as (at least in the former two cases) the function of increasing the profitability of controlling the quality of the complements a producer’s customers combine with its product.

  154. 154.

    See, e.g., Communication From the Commission—Guidance on the Commission’s Enforcement Priorities in Applying Article 82 of the Treaty to Abusive Exclusionary Conduct by Dominant Undertakings (hereinafter 2009 EC Guidance Communication on Exclusionary Abuses) ¶¶ 5, 19, and 30, 2009/C 45/02 (2009).

  155. 155.

    See, e.g., id. at ¶ 30.

  156. 156.

    See, e.g., id. at ¶¶ 12, 16, and 20.

  157. 157.

    See, e.g., id. at ¶ 16.

  158. 158.

    See, e.g., id. at ¶ 20 inset four.

  159. 159.

    See, e.g., id. at ¶ 20 inset three.

  160. 160.

    See, e.g., id. at ¶ 21.

  161. 161.

    See, e.g., id. at ¶¶ 5, 11, and 34.

  162. 162.

    See, e.g., id. at ¶ 1: “…[A] dominant undertaking is entitled to compete on the merits. However, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market.” Although the reference to “undistorted” competition may make the second sentence compatible with the first, the word “However” is troubling, though the second sentence could be made consistent with the first by reading it to prohibit dominant undertakings from making any decision that would yield them private advantages not based on any economic-efficiency superiority even when their ex ante perception that the decision in question would be profitable was not critically affected by any belief that it would reduce the absolute attractiveness of the offers against which they would have to compete. Unfortunately, because I doubt that the EC had in mind the only type of decision that I can think of that would fall into this category—a decision to use an inherently-profitable pricing-technique that might in addition drive a rival out or deter a rival QV investment by increasing the unit sales of the perpetrator and thereby decreasing the profits that such actual and prospective rivals could earn, this charitable reading is something of a stretch.

  163. 163.

    See, e.g., id. at ¶ 85 and the market-share criteria of the EC’s various BERs. European commentators generally agree with the EC’s and E.C./E.U. courts’ assumption that the risk of exclusion increases with the perpetrator’s market share. See, e.g., colino 118 and 145–46.

  164. 164.

    See, e.g., 2009 EC Guidance Communication on Exclusionary Abuses ¶¶ 36, 39, and 54.

  165. 165.

    See id. at ¶¶ 14 and 15.

  166. 166.

    See id. at ¶¶ 23, 27, 60, and 67. Although at ¶ 24 the EC acknowledges that “in certain circumstances a less efficient competitor may also exert a constraint,” the circumstances it had in mind appear to be ones that would result in the excluded undertaking’s becoming equally efficient as the perpetrator in the future—in circumstances in which “in the absence of an abusive practice such a competitor may benefit from demand-related advantages, which will tend to enhance its efficiency.”

  167. 167.

    See, e.g., id. at ¶¶ 16 and 68.

  168. 168.

    See, e.g., id. at ¶ 17.

  169. 169.

    See id.

  170. 170.

    See, e.g., id. at ¶ 21.

  171. 171.

    For an interesting twist on this argument, see SA Binon & Cie v. SA Agence et Messageries de la Presse, Case 243/83, ECR 201 (1985), in which the ECJ stated: “…if the fixing of the retail price by publishers constitutes the sole means of supporting the financial burden resulting from the taking back of unsold copies and if the latter practice constitutes the sole method by which a wide selection of newspapers and periodicals can be made available to readers, the Commission must take account of these factors when examining an agreement for the purpose of Article 85(3) [now-Article 101(3)].”

  172. 172.

    See, e.g., 2009 EC Guidance Communication on Exclusionary Abuses at ¶¶ 29, 30, 46, and 85; the exception to Article 5(b) of the BER’s listing as a grey clause clauses that obligate buyers not to compete with their suppliers or clauses that prohibit buyers from doing so indefinitely or for over 5 years; see Pronuptia de Paris v. Pronuptia de Paris Irmgard Schillgalis, Case 161/84, ECR 374 (1996) and SPLR Louis Erauw-Jacquery v. La Hesbignonne SC, Case 27/87, ECR 1919 (1988), and Miller International Schallplatten GmbH v. Commission at ¶ 46, Case 19/77, ECR 131 (1978).

  173. 173.

    Practitioners should look to Peeperkorn et al. for cogent discussions of the EC’s and the E.C./E.U. courts’ treatment of these practically-important issues.

  174. 174.

    Cabour SA et Nord Distribution Automobile SA v. Arnor SOCO SARL, Case C-230/96, ECR I-2055 (1998).

  175. 175.

    See, e.g., Metro-SB-Grossmaerkte GmbH & Co. KG v. Commission and SABA, Case 26/76, ECR 1875 (ECJ) (1977).

  176. 176.

    See Peeperkorn et al. at 1225 n. 342.

  177. 177.

    See Recital 4 of Commission Regulation (EC) 1475/95 (1995) (the automobile industry); Campari OJ L70/69 (1978); SABA, OJ L28/19 (1976); and BMW, OJ L29/1 (1975). I should add that the 1995 automobile-distribution regulation in question also contained a number of other provisions that, to my mind, manifest the EC’s legally-unwarranted and independently-undesirable tendency to micro-manage the way in which producer-undertakings organize their affairs: for example, a white clause that establishes as conditions for the block exemption that the regulation grants automobile manufacturers a requirement that selected dealers be requested to provide repair and maintenance services on the manufacturer’s vehicles (although a prospective distributor’s possession of the ability to provide such services is one of the factors a car-producer would want to consider when deciding whether to select the distributor in question, there is no reason to believe that it would be a necessary condition for selection) and a number of other dubious black clauses.

  178. 178.

    See Commission Notice—Guidelines on Vertical Restraints at ¶ 187, OJ C291 (2000).

  179. 179.

    Id. at ¶ 189.

  180. 180.

    Id. at ¶ 190.

  181. 181.

    Id. at ¶ 191.

  182. 182.

    Id. at ¶ 195.

  183. 183.

    See, e.g., Hoffman-La Roche v. Commission at ¶ 90, Case 85/76, ECR 461 (1979); Suiker Unie v. Commission, Case 40/73, ECR 1663 (1975); and Continental Can v. Commission, Case 6/72, ECR 215 (1973).

  184. 184.

    See Michelin v. Commission, Case T-203/01, ECRII-4071 (2003). See also Solvay SA v. Commission, OJ L152/21/(1991) and ICI v. Commission, OJ L152/40 (1991).

  185. 185.

    See 2009 EC Guidance Communication on Exclusionary Abuses at ¶¶ 49 and 54.

  186. 186.

    See Commission Notice—Guidelines on Vertical Restraints at ¶ 222, OJ C291 (2000).

  187. 187.

    See id. at ¶ 56.

  188. 188.

    See id. at ¶52.

  189. 189.

    korah 163.

  190. 190.

    See Tetra Pak International SA v. EC Commission, C-333/948, ECR I-5951 (ECJ) (1996), reviewing Tetra Pak Rausing SA v. Commission, T-83/91, ECRII-755 (CFI) (1994), reviewing Commission Decision, Tetra Pak II, 92/163/EEC, OJ L72/1 (1992).

  191. 191.

    See Commission Decision Hilti, 88/138 EEC, OJ L65/19 (1988), confirmed in Hilti v. EC Commission, Case T-30/89, ECR-II 1439 (CFI) (1991).

  192. 192.

    See, e.g., SPRL Louis Erauw-Jacquery v. La Hesbignonne SC at ¶ 12, Case 27/87, ECR 1919 (1988) and Miller International Schallplatten GmBH v. Commission, Case 19/77, ECR 131 (1978).

  193. 193.

    See id. at ¶ 46.

  194. 194.

    See Commission Notice—Guidelines on Vertical Restraints at ¶ 180, OJ C291 (2000).

  195. 195.

    See Pronuptia de Paris v. Pronuptia de Paris Irmgard Schillgalis at ¶ 24, Case 161/84, ECR 374 (1996) and Bayerische Motorenwerke AG v. ALD Auto-Leasing D GmbH at ¶¶ 114–16, Case C-70/93, ECR I-3439 (1995).

  196. 196.

    Commission Notice—Guidelines on Vertical Restraints at ¶ 49, OJ C291 (2000).

  197. 197.

    Id. at ¶ 164.

  198. 198.

    Id. at ¶ 167.

  199. 199.

    Id. at ¶ 170.

  200. 200.

    Id. at ¶ 174.

  201. 201.

    Id. at ¶ 152.

  202. 202.

    Thus, single-branding is not one of the black clauses delineated in Article 4. Clauses that create direct or indirect non-compete obligations are on Article 5’s list of grey clauses, but Article 5(a), which places them on the grey list, creates the exceptions listed in the text.

  203. 203.

    Id. at ¶ 140.

  204. 204.

    Id. at ¶ 141.

  205. 205.

    Id.

  206. 206.

    See Peeperkorn et al. at 1221.

  207. 207.

    Commission Notice—Guidelines on Vertical restraints at ¶ 149, OJ C291 (2000).

  208. 208.

    Id. at ¶ 116.

  209. 209.

    Id. at ¶ 156.

  210. 210.

    2009/C 45/02 (2009).

  211. 211.

    Id. at ¶ 20 inset one.

  212. 212.

    Id. at ¶ 20 inset two.

  213. 213.

    Id. at ¶ 20 inset four.

  214. 214.

    Id. at ¶ 20 inset three.

  215. 215.

    Id. at ¶ 20 inset three.

  216. 216.

    Id. at ¶ 36.

  217. 217.

    Commission Notice—Guidelines on Vertical Restraints, OJ C291 (2000).

  218. 218.

    Id. at ¶ 205.

  219. 219.

    Id. at ¶ 206.

  220. 220.

    Id. at ¶ 208.

  221. 221.

    If the perpetrators’ ex ante belief that the merger would or might permit them to refuse to deal predatorily critically affected their ex ante perception that the merger was profitable, that fact would render this merger illegal under the Sherman Act.

  222. 222.

    This criticism was first made in David Reiffen and Michael Vita, Comment: Is There New Thinking on Vertical Mergers (hereinafter Reiffen and Vita), 63 antitrust l.j. 917, 927 (1995). Inter alia, Reiffen and Vita discuss the following revisionist articles: Michael H. Riordan & Steven C. Salop, Evaluating Vertical Mergers: A Post-Chicago Approach, 63 antitrust l.j. 513 (1995) and Janusz A. Ordover, Garth Saloner, & Steven C. Salop, Equilibrium Vertical Foreclosure, 80 am. econ. rev. 128 (1990). See also Thomas Krattenmaker & Steven Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power Over Price, 96 yale l.j. (1986), Michael Winston, Tying, Foreclosure and Exclusion, 80 amer. econ. rev. 837 (1990), and Steve Salop, Vertical Mergers and Monopoly Leverage in 3 new palgrave dictionary of economics and the law 669 (P. Newman, ed., 1998). For two excellent articles critiquing inter alia the post-Chicago analysis of vertical integration, see Timothy J. Brennan, “Vertical Market Power” as Oxymoron: Horizontal Approaches to Vertical Antitrust, 12 geo. mason l. rev. 895 (2004) and Understanding “raising rivals’ costs,” 33 antitrust bull. 95 (1988).

  223. 223.

    See note 31 supra.

  224. 224.

    See Reiffen and Vita at 929–30.

  225. 225.

    See, e.g., Masahiro Abiru, Vertical Integration, Variable Proportions, and Successive Oligopolies, 36 j. indus. econ. 315 (1988); Parthasaradhi Mallela & Babu Nahata, Theory of Vertical Control With Variable Proportions, 36 j. pol. econ. 1009 (1980); Michael Waterson, Vertical Integration, Variable Proportions, and Oligopoly, 92 econ. j. 129 (1982); Frederick R. Warren-Boulton, Vertical Control With Variable Proportions, 82 j. pol. econ. 783 (1974); and John Vernon & Daniel Graham, Profitability of Monopolization by Vertical Integration, 79 j. pol. econ. 924 (1971).

  226. 226.

    Hovenkamp attributes this economic conclusion to the courts’ desire to protect “smaller, unintegrated” firms even from disadvantages they suffer because vertical integration increases the organizational economic efficiency of its participants. See hovenkamp, antitrust hornbook 387. I am more inclined to think that the courts honestly believed that vertical integration was associated with foreclosure that put non-integrated firms at a competitive disadvantage that did not reflect their lesser economic efficiency—i.e., did not consist of competition on the merits, tilted the playing field in the vertically-integrated firms’ favor.

  227. 227.

    United States v. American Tobacco Co., 221 U.S. 106, 182–83 (1911).

  228. 228.

    334 U.S. 131, 174 (1948).

  229. 229.

    334 U.S. 495, 507–10 (1948).

  230. 230.

    United States v. Yellow Cab Co., 69 F. Supp 170, 174 (N.D. Ill. 1946).

  231. 231.

    United States v. Yellow Cab Co., 69 F. Supp. 170 (N.D. Ill. 1946).

  232. 232.

    United States v. Yellow Cab Co., 338 U.S. 338 (1949). I should note one additional pre-1950 case that addressed the legality of a firm’s extracting price-concessions from suppliers by executing vertical mergers or acquisitions, integrating vertically through internal growth, or threatening to vertically integrate in one way or another. Both the District Court and the Court of Appeals concluded that the extraction in these and other ways of price-concessions that put competitors at a disadvantage violate the Sherman Act. See United States v. New York Great Atlantic & Pacific Tea Co., 626 F. Supp. 626 (E.D. Ill. 1946), aff’d, 173 F.2d 70 (7th Cir. 1949). To my knowledge, the Justice Department did not even attempt to demonstrate in this case (1) that the defendant’s ex ante perception that its efforts to obtain price-concessions by vertically integrating, threatening to vertically integrate, or in various other ways was profitable was critically affected by its belief that such price-concessions might or would reduce the absolute attractiveness of the offers against which it would have to compete by driving out a rival that would not be immediately replaced by an equally-effective competitor and/or by critically raising the barriers to QV investment faced by an otherwise-effective potential QV investor or (2) that the sought-after price-concessions might, would, or did reduce competition in the relevant area of product-space in one or both of these ways.

  233. 233.

    See, e.g., Corwin D. Edwards, Vertical Integration and the Monopoly Problem, 17 j. marketing 404 (1953).

  234. 234.

    353 U.S. 586 (1957).

  235. 235.

    370 U.S. 294 (1962).

  236. 236.

    See John L. Peterman, The Brown Shoe Case, 18 j. l. & econ. 81, 117 (1975).

  237. 237.

    See f.m. scherer, industrial market structure and economic performance 480 (1970).

  238. 238.

    405 U.S. 562 (1972).

  239. 239.

    See hovenkamp hornbook 391.

  240. 240.

    Heat Transfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964 (5th Cir. 1977), cert. denied, 434 U.S. 1087 (1978).

  241. 241.

    Fruehauf Corp. v. FTC, 603 F.2d 345, 352 at n. 9 (2d Cir. 1979).

  242. 242.

    Ash Grove Cement v. FTC, 577 F.2d 1368 (9th Cir. 1978), cert. denied, 439 U.S. 982 (1978), affirming 85 F.T.C. 1123 (1975).

  243. 243.

    See Alberta Gas Chemicals Ltd. v. E.I. du Pont de Nemours & Co., 826 F.2d 1235 (3d Cir. 1987), cert. denied, 486 U.S. 1059 (1988).

  244. 244.

    Reazin v. Blue Cross & Blue Shield, 663 F. Supp. 1360, 1489 (D. Kan. 1987), affirmed, 899 F.2d 951 (10th Cir. 1990), cert. denied, 497 U.S. 1005 (1990). See also United States v. Loew’s, 882 F.2d 29, 33–34 (2d Cir. 1989) (approving a motion-picture producer’s acquisition of an exhibitor) and O’Neill v. Coca-Cola Co., 669 F. Supp. 217, 224 (N.D. Ill. 1987) (asserting that consumers could not establish the injury necessary to give them standing to challenge a soft-drink producer’s acquisition of a bottler). The cites in this footnote and its predecessor have been taken from hovenkamp hornbook 392 and n. 25.

  245. 245.

    See, e.g., United States v. Enora Corp., 107 F. Supp. 2d 10 (D.D.C. 2000).

  246. 246.

    United States Department of Justice Merger Guidelines at ¶ 12 (1968), 4 Trade Reg. Rep. (CCH) ¶ 13,101.

  247. 247.

    See Alan A. Fisher and Richard S. Sciacca, An Economic Analysis of Vertical Merger Enforcement Policy, 6 res. l. & econ. 1, Table 8 (1984).

  248. 248.

    49 Fed. Reg. 26,823 (1984).

  249. 249.

    For an intelligent description and critique of the FERC’s vertical-merger-and-acquisition decisions, see Timothy J. Brennan, “Vertical Market Power” as Oxymoron: Horizontal Approaches to Vertical Antitrust, 12 geo. mason l. rev. 895 (2004).

  250. 250.

    Case IV/M. 469, OJ L364/1 (1994).

  251. 251.

    See, e.g., Nordic Satellite Distribution, Case IV/M. 490, OJ L53/20 (1996); RTL/Veronica/Endemol, Case IV/M. 1157, OJ L183/1 (1999); Vivendi Canal/Seagram, Case COMP/M. 2050, and AOL/Time Warner, Case COMP/M. 1845 (2000), OJ L268/28 (2001).

  252. 252.

    See General Electric v. Commission, Case T-201/01, ECRII-5575 (2005), an appeal from EC decision in General Electric/Honeywell, Case COMP/M. 2220 (2001), OJ L048/1, 2004/134 (2004).

  253. 253.

    Tetra Laval, Case C-13/03 (2005), ECR-I/1113 (2005), an appeal from Tetra Laval v. Commission, Case T-5/02 (2002), ECR-II 4381 (2002), 5 CMLR 1182 (2002).

  254. 254.

    Case IV/M. 469, OJ L364/1 (1994).

  255. 255.

    Like the EC in MSG Media Service, the text ignores one ground for finding vertical joint ventures illegal under the EMCR that is arguable but I think wrong and three for doing so that will sometimes be justified. I have ignored these possibilities in the text of this chapter because they are peculiar to joint ventures and will be discussed in detail in Chapter 15. The EC cannot justify its failure to address these possibilities in this way. The contestable ground is that the EMCR should be interpreted to require the parents of a vertical joint venture to make participation in it available to all their rivals on “fair and equal” terms. The possible correct grounds are that the joint venture may facilitate the parents’ engaging in contrived oligopolistic pricing or cooperative predatory pricing in the upstream market by affording them the opportunity to communicate with each other, may reduce competition in the downstream market by preventing entries into that market by two or more parents, and may reduce competition in upstream markets by enabling the parents to arrange not to enter into each other’s markets when they would otherwise have done so and no-one else will do so either at all or as effectively as they would have done.

  256. 256.

    General Electric v. Commission, Case T-201/01, ECR-II 5575 (2005).

  257. 257.

    Tetra Laval, Case C-13/03 (2005), ECR-I/1113 (2005).

  258. 258.

    korah 420–21.

  259. 259.

    Id. at 421.

  260. 260.

    Id. at 420.

  261. 261.

    Id. at 421.

  262. 262.

    I should make brief reference to one other feature of the CFI opinion. Like the EC’s, the CFI’s conclusion that GE was a dominant firm in the commercial-jet-engine-manufacturing market was partly based on its contestable attribution to GE of all the production of various joint ventures of which GE was just one parent.

  263. 263.

    2008/C 265/07.

  264. 264.

    Id. at point 21.

  265. 265.

    Id. at points 40–46.

  266. 266.

    Id. at points 58–77.

  267. 267.

    Id. at point 78.

  268. 268.

    Id. at points 79–90.

  269. 269.

    Id. at points 13–14 and 54–57.

  270. 270.

    Id. at point 10.

  271. 271.

    Id. at point 12.

  272. 272.

    Id. at point 25.

  273. 273.

    Id. at point 26.

  274. 274.

    Id. at point 27.

  275. 275.

    Id. at point 46.

  276. 276.

    Id. at points 39 and 67.

  277. 277.

    This possibility is recognized implicitly in id. at points 49 and 64 and explicitly at id. at point 76.

  278. 278.

    Id. at point 76.

  279. 279.

    Id. at points 21 and 54–57.

  280. 280.

    Id. at point 33.

  281. 281.

    Id. at point 60.

  282. 282.

    Id. at point 46.

  283. 283.

    Id. at point 39.

  284. 284.

    Id.

  285. 285.

    Id. at point 38.

  286. 286.

    Id. at points 54–57.

  287. 287.

    Id. at point 55.

  288. 288.

    Eastman Kodak Co. of New York v. Southern Photo Materials Co., 273 U.S. 359 (1927).

  289. 289.

    hovenkamp antitrust 159.

  290. 290.

    727 F.2d 692 (8th Cir. 1984), en banc, cert. denied, 469 U.S. 872 (1984).

  291. 291.

    364 F.3d 1288 (11th Cir. 2004).

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    Richard S. Markovits

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Markovits, R.S. (2014). Chapter 14 Vertical Mergers and the Pricing-Techniques, Contract-of-Sale Provisions, and Sales/Consignment Policies That Are Surrogates for Vertical Integration. In: Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-24313-4_3

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