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A summary.

Abstract

Part 1(1) articulates and explains (A) the specific-anticompetitive-intent test of illegality that the study claims is promulgated by the Sherman Act, the object-branch of the test of illegality promulgated by Article 101(1) of the Treaty of Lisbon, and the exclusionary-abuse branch of the test of illegality promulgated by Article 102 of the Treaty of Lisbon; and (B) the lessening-competition test of illegality that the study claims is promulgated by the Clayton Act, the effect-branch of the test of illegality promulgated by Article 101(1) of the Treaty of Lisbon, and the European Merger Control Regulation; and (2) attempts to justify the study's claims that its operationalizations of those tests of illegality are correct as a matter of law. Part 2(1) articulates the study's definition of the concept of "the impact of a choice on economic efficiency," (2) defines three categories of organizational allocative (economic) efficiencies the study distinguishes and explains why the fact that conduct generates any of these categories of organizational economic efficiency favors its legality under U.S. or E.U. antitrust law, and (3) defines the other categories of economic inefficiency the study identifies and explains why the impact of business conduct on the magnitudes of these categories of economic inefficiency in the society in question is irrelevant to its legality under U.S. or E.U. antitrust law. Part 3 then (1) summarizes the study's argument for its conclusion that definitions of both classical economic markets and antitrust markets are inevitably arbitrary not just at their periphery but at their core, (2) summarizes the study's discussion of the concept of a firm's dominance or economic (market) power and its explanation of why a firm's economic power could not be inferred from its market share even if markets could be defined nonarbitrarily, (3) outlines the conceptual systems the study develops and uses to analyze the competitiveness of prices and the impact of conduct on the intensity of price competition respectively in individualized-pricing and across-the-board-pricing contexts, and (4) articulates the study's definitions of (A) the concept of quality-or-variety-increasing-investment competition and (B) the concepts it uses to analyze the impact of conduct on such competition. Part 4 outlines the most salient points the study makes about (I) coordinated conduct and oligopolistic pricing, (2) predatory pricing and predatory investments, (3) horizontal mergers and acquisitions, (4) conglomerate mergers, and (5) various pricing-techniques, contract-clause and sales-policy surrogates for vertical integration, and vertical mergers and acquisitions. The Conclusion describes an important part of the policy-sequel to this antitrust-law study that I have contracted to publish. In particular, the Conclusion outlines the protocol that that sequel will use to analyze the economic efficiency of any exemplar of any category of antitrust-law-covered conduct or of any policy-responses to such conduct.

Keywords

allocative (economic) efficiency, conglomerate mergers, efficiency defense, essential-facilities doctrine, foreclosure, General Theory of Second Best, horizontal mergers, interbrand competition, intrabrand competition, joint ventures, long-term full-requirements contracts, long-term total-output-supply contracts, market definition, market dominance, market power, market share, oligopolistic conduct, oligopolistic pricing, predatory conduct, predatory investments, predatory price-squeezes, predatory pricing, qualitative-substantiality test, quantitative-substantiality test, reciprocity agreements, resale price maintenance, single-brand exclusive dealerships, toe-hold mergers (and toe-hold-merger doctrine), vertical customer-allocation clauses, vertical mergers, vertical territorial restraints

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This special issue of The Antitrust Bulletin is devoted to my two-volume study Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law. (1) This law-study has a not-yet-published policy-study sequel entitled The Welfare Economics of Antitrust Policy and U.S. and E. U. Antitrust Law: A Second-Best-Theory-Based Economic-Efficiency Analysis. (2)

Each of the contributions to this special issue focuses on one of the topics the law-study addresses. Although several refer to some elements of one or more of the conceptual schemes the law-study develops and uses to address various antitrust-law issues, none gives a comprehensive account of any of these schemes. The eight contributions in this issue also do not cover the law-study's analyses of the antitrust legality of many categories of business conduct; many of its critiques of conventional economic concepts, theories, and conclusions; and many of its critiques of the antitrust-law-related "theories" advanced by, analytic protocols used by, and legal doctrines promulgated by U.S. and European Union (E.U.) courts and U.S. and E.U. antitrust-enforcement authorities. This fact is not surprising: the two volumes of the law-study total more than 1,400 pages. The four parts of this article attempt both to fill in these gaps and to state the law-study's positions on the various questions that the other contributions to this special issue examine by providing, respectively, (1) statements of the law-study's conclusions about the tests of illegality and prima facie illegality that U.S. antitrust law and E.U. competition law respectively promulgate and about the "efficiency-defenses" these two bodies of law respectively recognize; (2) a definition of the concept of "the impact of a choice on economic efficiency," a list of the various categories of economic inefficiency an economy can contain, and an account of the kinds of efficiencies and reductions in economic inefficiency that do and do not favor the legality of conduct under U.S. and E.U. antitrust law; (3) accounts of (A) the law-study's positions on the concepts of classical-economic markets, antitrust markets, a firm's economic (market) power, and a firm's (market) dominance and (B) the two novel conceptual schemes the law-study develops to analyze, respectively, price-competition-related issues and quality-and-variety-competition-related issues; and (4) summaries of the most original and/or salient points the law-study makes about various categories of business conduct covered by U.S. and/or E.U. antitrust law. The article's conclusion provides a brief summary of the policy-sequel to the law-study on which this special issue of The Antitrust Bulletin focuses.

I. The Conduct-Coverage of, Tests of Illegality or Prima Fade Illegality Promulgated by, and Efficiency-Defenses Recognized by the U.S. Antitrust Statutes, the E.U. Treaty's Competition-Law Provisions, and the European Commission's (EC's) Antitrust Regulations

A. The Conduct-Coverage of and Tests of Illegality or Prima Facie Illegality Promulgated by U.S. and E.U. Antitrust Law

(I) The conduct-coverage of and formal statements of the tests of illegality promulgated by U.S. and EU. antitrust law. The U.S. Sherman Act (3) (which covers all types of business conduct other than natural oligopolistic conduct and any unsuccessful attempt to enter into a contract in restraint of trade (4)) prohibits agreements in restraint of trade (Section 1) and monopolization and attempts to monopolize (Section 2). The U.S. Clayton Act (5) (whose Section 2 covers "price discrimination" as defined by the statute; (6) whose Section 3 covers single-brand exclusive dealerships, full-requirements contracts, and total-output-supply contracts; and whose Section 7 covers mergers and acquisitions) prohibits the behavior it covers if that conduct is requisitely likely to or did lessen competition. The Federal Trade Commission Act (7) prohibits "unfair methods of competition." A subsequent statute (8) makes it clear that this prohibition is properly interpreted to prohibit conduct covered by the Clayton Act if it violates the Clayton Act's lessening-competition test of illegality. The Federal Trade Commission Act's prohibition of "unfair methods of competition" has also been interpreted more straightforwardly to prohibit methods of competition that are unfair even when they do not violate the Sherman Act or the Clayton Act.

Now-Article 101 of the E.C./E.U. Treaty of Lisbon (9) (which covers agreements by undertakings, decisions by associations of undertakings, and concerted practices--i.e., which, unlike the Shennan Act, [1] does cover natural oligopolistic conduct (see below) as a concertation but [2] does not cover single-firm predation (10) or contrived oligopolistic conduct that involves only threats of retaliation (11)) declares the conduct it covers to be illegal if the conduct has as its (critical (12)) object preventing, restricting, or distorting competition in the common market and declares the conduct it covers to be prima facie illegal if it would have the effect of preventing or restricting competition if it did not benefit relevant buyers by yielding eligible efficiencies. Now-Article 102 (13) prohibits dominant firms or (by interpretation) the members of a set of collectively-dominant rivals from abusing their dominant positions--by interpretation, from committing exclusionary and/or exploitative abuses of such positions. The European Merger Control Regulation (EMCR) (14) prohibits mergers and acquisitions and full-function joint ventures if they significantly impede effective competition.

The first set of test-of-illegality-related concepts that needs to be operationalized contains the Shennan Act's concepts of "agreements in restraint of trade," "monopolization," and "attempts to monopolize," now-Article 101(1)'s concept of covered categories of conduct that have as "their object" the "prevention" or "restriction" of competition, and the concept of an "exclusionary abuse," which is one of the two types of abuses that now-Article 102 of the Treaty of Lisbon has been interpreted to prohibit dominant firms from committing. In my view, for conduct to involve a restraint of trade, monopolization, or an attempt to monopolize in the Sherman Act's sense of these expressions, to have as its "object" the prevention or restriction of competition in the now-Article 101(l)'s sense of these expressions, or to constitute an exclusionary abuse in the now-Article 102 sense, the conduct must have been undertaken with specific anticompetitive intent--i.e.,

1. its perpetrator's or perpetrators' ex ante perception that it was profitable must have been critically affected by its or their belief that the conduct would or might reduce the absolute objective attractiveness of the offers against which it or they would have to compete, and

2. the conduct must have been economically inefficient in an otherwise-Pareto-perfect economy. (15)

The second set of test-of-illegality-related concepts that needs to be operationalized contains the concepts of "lessen[ing] competition" (U.S. Clayton Act), the effect of "preventing" or "restricting" competition (now-Article 101(1) of the Treaty of Lisbon), and the effect of "significantly impeding effective competition" (EMCR). I argue that, in U.S.-antitrust-law and E.C./E.U.-competition-law analyses, conduct should be said respectively to lessen competition or to impede effective competition if and only if it imposes a net equivalent-monetary loss on the combination of the potential customers of its perpetrator or perpetrators and the potential customers of its perpetrator's or perpetrators' rivals by reducing the absolute attractiveness of the best offer they respectively receive from any inferior potential supplier. I also argue that, although the Clayton Act's "lessening competition" language has the same meaning as the EMCR's "significantly impeding effective competition" language, now-Article 101's reference to preventing or restricting competition should be correctly read as a matter of law to refer to any equivalent-monetary loss (that is collectively "appreciable") that the conduct in question would impose on relevant buyers by reducing the absolute attractiveness of the best offer they respectively receive from any inferior supplier if the conduct would not benefit the relevant buyers by generating any organizational efficiencies: this interpretation is warranted because, if now-Article 101(1)'s language were interpreted in the way I claim the language of the Clayton Act and EMCR should as a matter of law be interpreted, now-Article 101(1) would render now-Article 101(3) irrelevant.

The third set of test-of-illegality-related concepts that needs to be operationalized contains two coincident members--conduct that constitutes an "unfair method of competition" (prohibited by Section 5 of the U.S. Federal Trade Commission Act) and conduct that has the object or effect of "distorting competition" (which now-Article 101(1) declares to be prima facie illegal if the conduct itself is covered by the Article). At this juncture, I am not concerned with the part of the Federal Trade Commission Act's "interpreted" meaning of "unfair methods of competition" language that deems it to cover all conduct that violates the Clayton Act's (natural-monopoly-type organizational-economic-efficiency-defense-qualified [see below]) lessening-competition test of illegality. For current purposes, the relevant point is that the expression "unfair methods of competition" has another, more straightforward meaning (which U.S. officials have also recognized)--viz., methods of competition that give or are designed to give their practitioners a competitive advantage that is not based on the conduct's making the practitioner allocatively better-placed (see below) than its disadvantaged rivals to supply the buyer in question. Unfair methods of competition can produce this outcome by causing the practitioner to be objectively privately-better-placed to supply a buyer when the practitioner was not allocatively-better-placed to do so, by causing a buyer to misperceive the relative value to it of the practitioner's and its rivals' products, and/or by causing the buyer to misperceive the relative costs the buyer would have to incur to purchase and maintain and repair the practitioner's and its rivals products. The concept in E.C./E.U. competition law that coincides with the straightforward variant of the Federal Trade Commission Act concept of an "unfair method of competition" is the Article 101(1) concept of "distorting competition." This conclusion reflects the fact that the straightforward reading of "distorting competition" is placing a seller that is not objectively privately best-placed (and would not be allocatively best-placed in an otherwise-Pareto-perfect economy) in the privately best position to make a sale to a particular buyer in one or more of the three ways just delineated.

B. The Efficiency-Defenses That the U.S. Antitrust Statutes and the E.U. Treaty Provisions and Regulations Should as a Matter of Law Be Interpreted to Recognize

Paradigmatically, the statement that something is a "defense" implies that the defendant bears the burden of persuasion on the facts that must be proven to establish the defense. Often, defendants also bear the burden of producing and paying for the cost of producing the evidence that relates to the facts that must be proven to establish any defense.

I will now discuss the various efficiency-defenses that it is correct as a matter of law to interpret U.S. and E.U. antitrust law to recognize. U.S. courts have always recognized that defendants in a Sherman Act case can exonerate themselves by establishing an "efficiency defense." Although this defense was first discussed in a case in which the court appeared to believe that the State could establish its prima facie case under Section 2 of the Shennan Act by establishing facts--viz., the defendant's possession of monopoly power--that I do not think would meet the plaintiffs evidentiary burden, I do think that it is appropriate to require a defendant whose conduct has been shown to generate some Sherman-Act-illicit profits (i.e., to yield its perpetrators] some profits by reducing the absolute attractiveness of the best offers against which it or they have to compete in a way that would tend to render the conduct profitable even if it would be economically inefficient in an otherwise-Pareto-perfect economy) to demonstrate that it believed ex ante that its conduct would be profitable for Sherman-Act-licit reasons--inter alia (see below), because the conduct would yield its perpetrator(s) profits by increasing its or their organization's "proficiency" (by yielding static, dynamic, or duplication-reduction efficiencies--see below).

I believe that it is correct as a matter of law to interpret the Clayton Act to recognize two types of efficiency-defenses. The first, "conventional" efficiency-defense entitles one or more defendants whose conduct would be found (1) to be requisitely likely to inflict a net equivalent-monetary loss on the customers of the perpetrator(s) and the customers of its or their rivals and (2) to generate this effect by reducing the absolute attractiveness of the best offer that one or more such buyers received from any (privately) inferior supplier if the analysis of these two issues were based on the assumption that the conduct would not benefit these buyers by increasing the proficiency of the perpetrator's or perpetrators' operation(s) to exonerate itself or themselves by demonstrating (a) that the conduct would increase the allocative proficiency of the perpetrator's or perpetrators' operations and (b) that, as a result of its doing so, it would not inflict a net equivalent-monetary loss on relevant buyers.

The second efficiency-defense that I think the Clayton Act should be read to recognize is more contestable because it is not based on any Clayton Act text--more positively, because it is based on the fact that U.S. antitrust law and U.S. industrial policy more generally (for example, U.S. IP law) deem it legitimate for firms to take full advantage of any competitive advantages they secure through skill, foresight, industry, or luck. This natural-monopoly-type organizational-allocative-efficiency defense would entitle one or more defendants whose covered conduct would or did inflict a net equivalent-monetary loss on Clayton-Act-relevant-buyers by reducing the absolute attractiveness of the best offers they respectively received from any inferior supplier to exonerate itself or themselves by demonstrating that the conduct would not have inflicted (would not inflict) a net equivalent monetary loss on such buyers in this way had it not increased (if it would not increase) the allocative proficiency of the organization(s) of the perpetrator(s), thereby improving its (their) competitive-position array(s), thereby worsening the competitive-position array(s) of one or more of the perpetrator's or perpetrators' actual rivals and/or the prospective competitive-position array(s) of one or more potential makers of an additional investment in the relevant area of product-space, thereby leading to the exit of one or more rivals that would not be immediately replaced by an equally competitive firm and/or critically worsening the investment position of an otherwise-effective rival potential investor.

Article 101(3) explicitly creates an efficiency-defence that is far less generous to defendants than the conventional Clayton Act defense. More specifically, now-Article 101(3) exempts conduct that would otherwise be prohibited by now-Article 101(1) if the conduct generates efficiencies that improve production or distribution and/or promote technical or economic progress on condition that the conduct (1) confers on relevant buyers a fair share of the benefit generated by the conduct for its perpetrators and the relevant buyers "combined," (2) constitutes the least-restrictive-of-competition means of generating the efficiencies in question, and (3) does not "eliminat[e] competition in respect of a substantial part of the products" directly involved. (16)

Article 102 does not explicitly promulgate an efficiency-defence, and I do not think that any such defense could play a critical role in an Article 102 case. Thus, because I cannot conceive of a case in which the organizational efficiencies generated by exclusionary conduct would cause such conduct to benefit relevant buyers, I do not think that any defendant in an Article 102 exclusionary-abuse case will be able to establish any buyer-benefit-oriented variant of such a defence. Defendants in Article 102 exploitative-abuse cases will also not be able to establish any buyer-benefit-oriented efficiency-defence since the fact that the conduct whose legality is at issue yielded relevant buyers a net equivalent-monetary gain will be legally irrelevant once the State has established that the conduct caused its perpetrator(s) to obtain an exploitative share of the equivalent-monetary gains that the perpetrator's or perpetrators' transactions with relevant buyers yielded the perpetrator(s) and relevant buyers together.

The EMCR also does not explicitly promulgate an efficiency-defence. Nevertheless, I do think that it should be read to enable defendants in merger, acquisition, and full-function-joint-venture cases to exonerate themselves by demonstrating that, even if those transactions would have inflicted a net equivalent-monetary loss on relevant buyers by reducing the absolute attractiveness of the best offer they respectively received from any privately inferior supplier if the transactions would not generate any organizational efficiencies, the organizational efficiencies the transactions generate would render it sufficiently unlikely that the transactions would have inflicted such a net equivalent-monetary loss on such buyers in this way for the transactions to be lawful. However, although I think it is correct as a matter of law to conclude that the EMCR promulgates such a "conventional Clayton Act" efficiency-defence, the fact that Article 101(3) conditions the availability of its efficiency-defence on the relevant conduct's giving relevant buyers a fair share of the resulting benefits and the fact that Article 102 has been interpreted to promulgate an exploitative-abuse branch of illegality strongly favor the conclusion that the EMCR should not be read to promulgate the type of nonconventional organizational-economic-efficiency (natural-monopoly-type) defence that 1 think the Clayton Act should as a matter of law be interpreted to recognize.

2. The Definition of "the Impact of a Choice on Economic Efficiency," the Categories of Increases in Economic Efficiency That Antitrust-Law-Covered Conduct Can Generate, and the Categories of Conduct-Generated Economic-Efficiency Increases That Respectively Do and Do Not Favor the Conduct's Legality Under U.S. and E.U. Antitrust Law

Many industrial-organization economists and (more surprisingly and disappointingly) many U.S. law-school antitrust-law professors who are conversant with economics claim either that U.S. antitrust law promulgates an economic-inefficiency test of illegality or that U.S. courts should conclude that all covered conduct that decreases economic efficiency (or whose prohibition would increase economic efficiency) violates U.S. antitrust law. I have included this section both to emphasize how those positions differ from the positions that Part 1B of this Article takes on the efficiency-defenses that U.S. and E.U. antitrust law should as a matter of law be read to recognize and to explain various realities that I think might well cause those that claim that U.S. antitrust law promulgates or should be applied as if it did promulgate an "economic-inefficiency test of illegality" to rethink their position. This part of the article will also set up the conclusion's brief summary of the policy-sequel to the antitrust-law study on which this article and this issue of The Antitrust Bulletin focus.

A. The Definition of "the Impact of a Choice on Economic Efficiency"

If the concept of "the impact of a choice on economic efficiency" is defined in the way that best fits professional and popular understanding and contributes most to the nonnative assessment of any choice, a nongovernment or government choice will be said to increase (decrease) economic efficiency to the extent that the number of monetary units (for example, dollars or euros) that would have to be transferred to its beneficiaries to make them as well-off as the choice would make them (the equivalent-monetary gains the choice would yield its beneficiaries) exceeds (is exceeded by) the number of monetary units (hereinafter dollars) that would have to be withdrawn from its losers to leave them as well-off as the choice would leave them (the equivalent-monetary losses the choice would impose on its victims) if the transfers and withdrawals could be executed without causing any economic inefficiency (17) and a number of other conditions are fulfilled. (18) Relatedly, a seller will be said to be allocatively-best-placed to supply a given buyer if its supply of that buyer would yield a larger increase in economic efficiency (relative to the state of the world that would prevail if the relevant buyer were not supplied with the relevant "product") than would any other seller's supply of that "product" to the buyer in question.

B. The Various Categories of Economic Inefficiency That an Economy Can Contain (Whose Magnitudes Antitrust-Law-Covered Conduct Can Affect)

After defining and exemplifying the concepts of "a resource-use" and "a resource allocation," Part 2B will provide an exhaustive list of the categories of resource misallocation--i.e., of economic inefficiency--that an economy can contain. Economists distinguish various types of uses to which resources can be devoted:

1. uses in which the resources are employed to increase the unit output of an existing product;

2. uses in which the resources are employed to create a quality-or-variety-increasing-investment--i.e., to create a new (different and perhaps superior) product, a new (different and perhaps superior) distributive outlet, or additional capacity or inventory (which enable their owner to offer buyers faster average speed of supply through a fluctuating-demand cycle);

3. uses in which the resources are employed to execute a production-process-research project--a research-project aimed at discovering a production process whose use will lower the average allocative total cost or perhaps the average private total cost of producing a relevant quantity of an existing product (where the allocative cost of using a resource in any way equals the allocative value the resource would have generated in its alternative use [the "opportunity cost" of using the resource in the way in question]);

4. uses in which the resources are employed to reduce the average allocative total cost or perhaps the average private total cost of producing a relevant quantity of an existing product by modernizing an existing plant to incorporate exclusively known-technology or by constructing a new plant that incorporates exclusively known-technology;

5. resources can also be used to produce units of an existing product through one known production process rather than another when neither production process involves the construction of a new production plant using exclusively known-technology or the modernization of an old production plant using exclusively known-technology; and

6. after having been transformed into a unit of a final product, resources can also be consumed by a final consumer.

I will use the symbol UO to stand for a unit of output or a unit-output-increasing resource-use, the symbol QV to stand for a quality-or-variety-increasing investment or a QV-investment-creating resource-use, and the symbol PPR to stand for production-process research or a PPR-executing resource-use. Uses of resources to modernize an existing plant to incorporate exclusively known-technology or to construct a new plant that incorporates exclusively known-technology will be conceptualized as a choice among known production processes.

Economists also use the expression "resource allocation." In standard usage, a resource allocation differs from a resource-use in that the expression "resource allocation" refers not only to the use to which the resources in question are being devoted but also to the use or uses from which the resources used in the specified way are being withdrawn. Thus, each category of resource-use can be associated with a variety of categories of resource allocation that differ according to the assumption that is being made about the type of use or types of uses from which the resources in question are being withdrawn. For example, a UO-to-UO resource allocation is one in which resources are withdrawn from the production of one or more products and devoted to the production of a different product, and a QV-to-UO resource allocation is one in which resources are withdrawn from the creation of one or more QV investments and allocated to the production of a particular good. Most of the categories of resource allocation on which the policy-sequel of the law-study focuses are counterfactual because most are components of actual resource allocations. Some explanation is required. Most actual resource allocations involve allocations of resources from two or more categories of resource-use to a single category of resource-use, while most of the resource allocations on which the policy-sequel focuses involve allocations of resources from one category of resource-use to one category of resource-use. For example, rather than focusing on an actual resource allocation in which a QV investment is created with some resources that are withdrawn from unit-output production, with some resources that are withdrawn from PPR execution, and with some resources that are withdrawn from the creation of alternative QV investments, the policy-study (and this subpart of this article) will decompose this actual resource allocation into its UO-to-QV, PPR-to-QV, and QV-to-QV components. I break down more complex actual resource allocations into their one-type-of-use to one-type-of-use constituent parts purely to simplify the exposition and facilitate the relevant analytical work. The soundness of the economic-efficiency-analysis protocol I recommend is not affected by this step.

Obviously, exemplars of each category of resource allocation I distinguish can be either economically efficient or economically inefficient. Accordingly, for each such category of resource allocation, there is a corresponding category of economic inefficiency (or resource misallocation). In all, I distinguish nine major categories of resource misallocation or economic inefficiency (because, for reasons that Part 3 A of this Article will explain, I do not believe that either classical economic markets or antitrust markets can be defined nonarbitrarily, the list that follows will substitute the term ARDEPPS [an acronym for "arbitrarily-defined portion of product space"] for the conventional term "market"):

1. misallocations of resources between or among alternative unit-output-increasing uses (inter-ARDEPPS UO-to-UO misallocations [when the products in question are distant competitors] and intra-ARDEPPS UO-to-UO misallocations [when the products in question are close competitors]);

2. misallocations of resources between or among alternative QV-investment-creating uses (inter-ARDEPPS and intra-ARDEPPS QV-to-QV misallocations);

3. misallocations of resources between or among alternative PPR-executing uses (inter-ARDEPPS and intra-ARDEPPS PPR-to-PPR misallocations);

4. misallocations of resources between unit-output-increasing and QV-investment-creating uses (UO-to-QV or QV-to-UO misallocations);

5. misallocations of resources between PPR-executing and QV-investment-creating uses (PPR-toQV or QV-to-PPR misallocations);

6. misallocations of resources between PPR-executing and UO-increasing uses (PPR-to-UO or UO-to-PPR misallocations);

7. misallocations of resources between known, alternative production processes (non-research-related "production optimum" misallocations);

8. misallocations of final goods among their potential final consumers that do not derive from any associated poverty and income/wealth inequality (conventional "consumption optimum" misallocations); and

9. misallocations of final goods among their potential final consumers that is generated by the poverty and/or income/wealth inequality that results from the actual allocation of final goods among their potential final consumers (nonconventional "consumption optimum" misallocation)--viz., the misallocation that poverty and/or income/wealth inequality generate (A) by increasing the amount of misallocation the economy generates because economically-efficient investments in the human capital of children and adults are not made; (B) by increasing the amount of misallocation that consumption-choices generate because it is advantageous for individuals when they are poor to make external-cost-generating consumption-choices that are economically inefficient; (C) by increasing the amount of misallocation generated because final consumers make privately-disadvantageous consumption-choices that are economically inefficient--i.e., because (i) by reducing their preparedness for schooling and the quality of the education they receive both inside and outside schools, the poverty of the poor increases both the frequency with which the individuals who are poor fail to understand the attributes of products and their full cost to them and the frequency with which they do their math wrong or make consumption choices unthinkingly and (ii) by increasing the relevant individuals' frustration and unhappiness, the poverty of individuals who are poor leads them to discount future benefits too highly from the perspective of their own lifetime welfare; (D) by increasing the amount of misallocation that poverty causes by inducing individuals who are poor to make economically-inefficient decisions to perform dangerous, lawful labor in all the ways that it causes poor individuals to make economically-inefficient consumption decisions that are not in their interest and, in a society in which poor individuals who have been injured at work or their families receive various types of government transfers for which their nonpoor counterparts would not be eligible, by rendering economically inefficient decisions to perform dangerous lawful labor profitable for those who make them or for their families; (E) by increasing the amount of misallocation that the people who are poor or have significantly less income and wealth than does the average participant in the relevant economy generate by engaging in economically-inefficient criminal activities by making them less concerned about the impact of their criminal choices on their victims (by alienating them), by reducing the difference between the attractiveness of life in prison and life without successful crime outside prison, by causing them to place too high a discount-rate on their future welfare, and by causing them to be too optimistic about the profitability of crime for reasons other than the discount-rate they apply to their future welfare; (F) by reducing the political influence of the individuals who are poor and thereby increasing the amount of economic inefficiency the government of the relevant society generates because its choices are based on a calculation that places a lower weight on the average dollar gained or lost by the individuals who are poor than on the average dollar gained or lost by the individuals who are not poor; and hopefully (G) by increasing the economic inefficiency the economy generates because its distributive outcome disserves (on balance) the external preferences of the members of and participants in the society in question (their nonparochial preferences for others' having resources and opportunities).

C. The Categories of Efficiencies and Economic-Inefficiency Reductions That Respectively Do and Do Not Favor the Legality of Conduct Under U.S. and E.U. Antitrust Law

(I) The categories of conduct-generated efficiencies that do favor the conduct's antitrust legality. Antitrust-law-covered conduct can generate three categories of (organizational) allocative (as opposed to purely private) efficiencies--allocative "static efficiencies," allocative "dynamic efficiencies," and "reduction-in-economically-inefficient-duplication-related efficiencies"--that favor its antitrust legality. All three relate to the allocative proficiency with which the conduct's perpetrator operates its company (perpetrators operate their companies).

The allocative "static efficiencies" that conduct generates are efficiencies that relate to the economic-efficiency proficiency with which the actor produces its pre-choice product and/or distributive services (or finances its pre-choice operations). Such efficiencies will increase economic efficiency by reducing what economists call "production-optimum misallocation"--i.e., the economic inefficiency that results when the economy could have produced more of one or more goods without producing less of any other good. The allocative static efficiencies that conduct generates will usually favor its legality under a specific-anticompetitive-intent test of illegality because such efficiencies will usually contribute to the licit profits the conduct that generated them yields. The allocative static efficiencies that conduct generates will usually favor its legality under a "lessening competition" test of illegality because they will usually yield net dollar gains to the customers of the actor(s) and to the customers of the actor's or actors' rivals (though usually not to each such customer--see below). I will outline the law-study's analysis of the determinants of the impact that the allocative static efficiencies conduct generates on its perpetrator's or perpetrators' licit profits and on the relevant consumers' positions below.

The second legally-relevant, economic-efficiency-related effects that conduct can generate are allocative "dynamic efficiencies." The allocative "dynamic efficiencies" that conduct generates are conventionally defined to be allocative efficiencies that relate to the economic-efficiency proficiency with which the actor can create and produce a new product variant, create and run a new distributive outlet, or create and use additional capacity or inventory (can create and use what I denominate a QV investment). If the allocative dynamic efficiencies that conduct generates causes a more-allocatively-efficient QV investment rather than a less-allocatively-efficient QV investment to be created, it will (obviously) increase economic efficiency on that account. However, if the allocative dynamic efficiencies that conduct generates causes an additional QV investment to be made in a relevant area of product-space, it may either decrease or increase economic efficiency on that account (because [as the policy-sequel to the law-study will explain] that additional QV investment may have been profitable despite the fact that it was rendered economically inefficient by the interaction of the Pareto imperfections the relevant economy contains). The allocative dynamic efficiencies that conduct generates will favor its legality under a straightforward specific-anticompetitive-intent test of illegality to the extent that they enable the actor(s) to realize licit supernormal profits by making a QV investment it or they would not otherwise have made or to make a QV investment that is more supernormally profitable than the QV investment that it or they would otherwise have made. The allocative dynamic efficiencies that conduct generates will favor its legality under a lessening-competition test of illegality if it causes QV investment in the relevant area of product-space to be higher than it would otherwise would have been since the use of the extra QV investment will benefit relevant consumers both (1) by enabling them to obtain buyer surplus on the additional product or service created and (2) by reducing the prices charged for the other products and services that (roughly speaking) are rivalrous with the extra QV investment. I will outline below the law-study's analysis of the detenninants of the impact that the allocative dynamic efficiencies conduct generates on its perpetrator's or perpetrators' licit profits and on relevant buyers.

The allocative dynamic efficiencies that conduct generates may also deter the creation of a QV investment that would otherwise have been made by making it profitable for the perpetrator(s) to respond to a QV investment that a rival would otherwise have made by creating a QV investment and producing a situation in which that rival and the perpetrator(s) confront each other with critical natural oligopolistic QV-investment disincentives (see below). Because, for reasons that the policy-sequel will explain, I think that the relevant Pareto imperfections tend to make the least-profitable but not-unprofitable QV investments in any area of product-space economically inefficient, I believe that dynamic efficiencies that reduce QV investment will tend to increase economic efficiency on this account.

Although the law-study adopts the conventional assumption that allocative "dynamic efficiencies" relate to the creation of QV investments, conduct can also generate allocative dynamic efficiencies that relate to the execution of PPR projects. PPR-related allocative dynamic efficiencies will clearly increase economic efficiency when they result in a more-economically-efficient PPR project being executed instead of a less-economically-efficient PPR project. In fact, because (for reasons that the policy-sequel to the law-study explains) the relevant Pareto imperfections will almost always cause PPR to be less profitable than economically efficient, I am confident that PPR-related allocative dynamic efficiencies will almost always increase economic efficiency when they result in the execution of additional PPR. Occasionally, the PPR-related allocative dynamic efficiencies that conduct generates will reduce the amount of PPR executed by deterring a perpetrator-rival from executing a PPR project it would otherwise have executed by creating a situation in which that rival and the perpetrator(s) confront each other with natural oligopolistic PPR disincentives (see below)--an outcome that I believe will be economically inefficient. In any event, the fact that conduct generates PPR-related allocative dynamic efficiencies will favor its legality under a specific-anticompetitive-intent test of illegality if it increases the allocative proficiency with which the perpetrator(s) execute a PPR project it or they would have executed anyway or renders it profitable for the perpetrator(s) to execute an additional PPR project because on either account the allocative efficiencies will increase the Sherman-Act-licit profits the conduct yields its perpetrator(s). The fact that conduct generates PPR-related allocative dynamic efficiencies will also favor its legality under a lessening-competition test of illegality when those efficiencies cause an additional PPR project to be executed that yields a discovery whose use reduces the marginal cost of producing the good to whose production process the discovery relates since some of the marginal-cost reduction will be passed on to relevant consumers. The fact that conduct generates PPR-related allocative dynamic efficiencies will also favor its legality under a lessening-competition test of illegality when those efficiencies cause an additional PPR project to be executed that yields a discovery whose use reduces the fixed or average variable cost of producing a relevant quantity of the good to whose production process the discovery relates since any reduction the use of the associated PPR discovery generates in either average variable or fixed costs may also benefit consumers by raising the profitability of producing the good to whose production process the PPR relates and thereby increasing equilibrium QV investment in the area of product-space in which that good is produced.

The third legally-relevant, economic-efficiency-related effects that conduct can generate are duplication-reduction economic efficiencies. Horizontal mergers, joint ventures, and related types of collaborative arrangements can enable the merger partners, the parents of the joint venture, or productive-activity non-joint-venture collaborators to increase the economic efficiency of their operations not only by enabling them to use given investments more allocatively proficiently or to increase "the intrinsic economic efficiency" of any new investment they make but also by enabling them to reduce the extent to which their QV or production-process-research investments are economic-inefficiently-duplicative. Although I would classify any reductions in allocative production costs such firms can achieve by closing down plants that produce a homogeneous product (by "rationalizing production") as an allocative static efficiency, I would place in a separate category any increase in economic efficiency that results when firms choose to create a less-duplicative and on that account more-allocatively-efficient set of products with a given amount of resources or not to make as many QV investments as they would otherwise have made or not to execute as many PPR projects as they would otherwise have executed when the eliminated investments would have been rendered economically inefficient by their resemblance to other investments of the same type already made. Obviously, conduct that results in the substitution of more-economically-efficient, less-duplicative QV investments or PPR projects for less-economically-efficient, more-duplicative QV investments or PPR projects will increase economic efficiency on that account. If the conduct that enables its perpetrators to reduce economically-inefficient duplication causes the perpetrators to eliminate an economic-inefficiently-duplicative project rather than to reposition their projects, it will increase economic efficiency on this account as well. If the conduct causes its perpetrators to create more QV investments or execute more PPR projects by enabling them to make less duplicative investments that are on that account more collectively profitable, I suspect that (for reasons previously referenced) it will respectively be less economically efficient and more economically efficient for having done so.

In any event, because (1) conduct that enables its perpetrators (A) to substitute a more economically-efficient, less-duplicative set of investments with a given allocative cost for a less-allocatively-efficient, more-duplicative set of investments of the same allocative cost, (B) to eliminate an economically-inefficient because duplicative investment, and/or (C) to make an additional investment that is profitable because it is less duplicative of its predecessors will yield its perpetrators profits on that account and (2) those profits are licit in that their generation would not render the conduct that yielded them profitable though economically inefficient in an otherwise-Pareto-perfect economy, the fact that conduct generates such efficiencies will favor its legality under a specific-anticompetitive-intent test of illegality. However, the fact that conduct that generates reduction-in-economically-inefficient-duplication efficiencies will tend to favor its legality under a lessening-competition test of illegality only if it increases the amount of QV or PPR investments made in the relevant area of product-space since only then will the relevant efficiencies tend to benefit relevant consumers. I should state, however, that in those cases in which the reduction-in-economically-inefficient-duplication efficiencies that conduct generates causes conduct that would not otherwise have inflicted a net equivalent-monetary loss on relevant buyers by reducing the absolute attractiveness of the best offers they respectively receive from any inferior supplier to do so by inflicting an equivalent-monetary loss on those buyers by substituting less competitive for more competitive investments or reducing total QV investment or PPR investment in the relevant area of product-space, that fact would not cause the conduct to be illegal if the relevant law were correctly interpreted to enable defendants to establish a natural-monopoly-type (nonconventional) organizational-economic-efficiency defense and that defense were interpreted (as I think it should be as a matter of Clayton Act law) to count reductions in economically-inefficient duplications as relevant increases in organizational allocative efficiency.

(2) The conduct-generated increases in economic efficiency that are irrelevant to its legality under U.S. and E.U. antitrust law. The fact that conduct generates the following categories of increases in economic efficiency are irrelevant to its legality under U.S. and E.U. antitrust law:

1. increases in economic efficiency that are related to the relative outputs of goods in production, given the total allocative cost of the resources devoted to producing units of extant products and the allocative proficiency with which each is or would be produced (reductions in UO-to-UO misallocation);

2. increases in economic efficiency that are related to the attributes of the QV investments that are created, given the total allocative cost of the resources devoted to QV-investment creation, the allocative proficiency with which each QV investment is created and used, and the duplicativeness of the QV investments that are created (reductions in the specified subcategory of nonduplication-related QV-to-QV misallocation);

3. increases in economic efficiency that are related to the attributes of the PPR projects that are executed, given the total allocative cost of the resources devoted to PPR execution, the allocative proficiency with which each PPR project is executed, and the duplicativeness of the PPR projects that are executed (reductions in the specified subcategory of non-duplication-related PPR-to-PPR misallocation);

4. increases in economic efficiency that are related to the proportions in which resources are allocated respectively to UO-increasing and QV-creating uses (decreases in UO-to-QV or QV-to-UO misallocation);

5. increases in economic efficiency that are related to the proportions in which resources are allocated respectively to PPR-executing and QV-creating uses (decreases in PPR-to-QV or QV-to-PPR misallocation);

6. increases in economic efficiency that are related to the proportions in which resources are allocated respectively to UO-increasing and PPR-executing uses (decreases in UO-to-PPR or PPR-to-UO misallocation);

7. increases in economic efficiency that are related to the allocations of the goods and services the economy produces among their potential final consumers (decreases in so-called consumption-optimum misallocation, some of which does and some of which does not derive from the income/wealth inequality associated with this allocation); and

8. increases in economic efficiency that a choice yields by preventing non-government and/or government actors from generating allocative transaction costs whose generation is not economically efficient.

In short, for two reasons, the various tests of illegality that I believe U.S. antitrust law and E.U. competition law respectively promulgate do not make the economic efficiency of the conduct they cover (or the economic efficiency of prohibiting that conduct) a touchstone for the conduct's antitrust legality: secondarily, (1) although the fact that conduct increases the organizational allocative efficiency/proficiency of its perpetrator(s) will almost always favor its legality under the specific-anticompetitive-interest test of illegality and will usually favor its legality under the lessening-competition test of illegality, it will sometimes not favor the conduct's legality under the lessening-competition test of illegality, and, primarily, (2) the impacts of antitrust-law-covered conduct on the magnitudes of many categories of economic efficiency are completely irrelevant to its legality under either a specific-anticompetitive-intent or lessening-competition test of illegality.

3. Four Additional Concepts or Sets of Concepts That the Law-Study Examines or Develops

A. The Concept of a Market

Economists, legal academics who specialize in antitrust law, antitrust lawyers, and judges refer to two types of economic markets. "Classical economic markets" are markets that have been defined by "ideal type" criteria--i.e., are markets whose definitions are supposed to satisfy certain ideal-type assumptions about the competitiveness of products placed inside a given market (ideally, that all such products are highly and equally competitive) and the difference between the competitiveness of products placed in the same market and products placed in different markets (ideally, that the members of each pair of products placed in the same market are far more competitive with each other than any product in that market is with any product placed in a different market). "Antitrust markets" are markets that are supposed to be defined in a way that best satisfies a functional criterion--viz., in the way that is associated with related market-aggregated parameters such as the market's four-firm or eight-firm seller-concentration ratio (the percentage of the market's sales made by its leading four or eight firms), the market's postmerger Herfindahl-Hirschman Index (HHI) figure (where the HHI equals the sum of the squares of the market shares of all firms placed in the market in question), and the merger-generated increase in the market's HHI figure--that can play a useful role in the "most-cost-effective" protocol for analyzing the antitrust-legality of conduct that could be devised.

As Chapter 6 of the law-study demonstrates, (19) neither classical economic markets nor antitrust markets can be defined nonarbitrarily. In particular, classical economic markets cannot be defined nonarbitrarily inter alia because

1. there is no nonarbitrary way to define the competitiveness of two products;

2. even if there were a nonarbitrary way to define the competitiveness of two products, there would be no nonarbitrary way to define the inequality of the competitiveness of the different pairs of products placed in a given market;

3. even if there were a nonarbitrary way to define the competitiveness of two products, there would be no nonarbitrary way to define the extent to which members of any pair of products placed in a given market are more competitive than any product in that market is with any product placed in a different market; and

4. when no set of market definitions is dominant--i.e., when one set does best at satisfying the "all market-insiders are highly competitive" condition, another does best at satisfying the "all market-insiders are equally competitive" condition, and/or another does best at satisfying the "the members of each pair of market-insiders are more competitive with each other than any market-insider is with any market-outsider" condition, there is no nonarbitrary way of ranking the different sets of market definitions (or the protocols that generate them).

Similarly, antitrust markets cannot be defined nonarbitrarily because

1. all market-oriented approaches to antitrust-law analysis are cost-ineffective--in fact, achieve the remarkable double of increasing cost while decreasing accuracy--because the non-market-aggregated data one uses to define a market have more predictive power than do data on the market-aggregated parameters one can define after having gone through the extraordinarily-expensive process of defining relevant markets;

2. even on the unrealistic assumption that the individuals who vote for antitrust legislation or ratify treaties that contain antitrust provisions had a well-thought-through maximand or objective function (knew their goals and the way in which they should be traded off against each other), it seems unlikely that one will be able (A) to develop correct protocols for ascertaining the objective function of the multi-member groups that pass antitrust laws or ratify treaties that contain antitrust provisions and (B) to determine the facts that any such protocol requires to be ascertained; and

3. even if one assumes that the promulgators'/ratifiers' objective functions are ascertainable, the relevant "goal" for applying the law may be to maximize the extent to which the application has secured the rights of parties in associated litigations to have the relevant cases decided correctly as a matter of law and (perhaps) the interests of others in profiting from lawful behavior and not suffering the harm that illegal conduct would inflict on them, and there may be no non-arbitrary way to decide whether those "goals" are best served by a decision-protocol that minimizes the number of cases decided wrongly or one that minimizes the number of cases decided wrongly weighted by the seriousness of the errors made, and, if the seriousness of the relevant errors is to be taken into account, there may be no non-arbitrary way to define the seriousness of such errors (to decide the "weight" that should be given to [A] the losses suffered by the losing parties in incorrectly-decided cases, [B] the gains secured by the winning parties in incorrectly-decided cases, [C] the gains secured and losses suffered respectively by the nonparty beneficiaries and victims of the illegal behavior induced by false-negative findings on the illegality issue, [D] the gains secured and losses suffered respectively by the nonparty beneficiaries and victims of the deterrence-effects of false-positive findings of illegality, [E] the seriousness of any intellectual errors that led to an incorrect decision's being made, etc.).

For these reasons, the law-study substitutes the acronym ARDEPPS (for [somewhat-] arbitrarily defined portion of product-space) for the conventional term "market" and develops protocols for the analysis of the antitrust legality of business conduct that do not involve or presuppose market definitions--i.e., that do not reference such market-aggregated concepts as a market's concentration ratio or a market's postconduct HHI figure and conduct-generated increase-in-HHI figure. Admittedly, the law-study's analysis of the determinants of the intensity of QV-investment competition in an ARDEPPS does assume (oxymoronically) that the relevant ARDEPPS can be defined nonarbitrarily. However, that analysis is designed to perform a purely-heuristic function. At no point do I propose using the ARDEPPS-oriented analysis of the detenninants of the impact of relevant conduct on the intensity of QV-investment competition in a way that renders critical any definition of an ARDEPPS.

B. The Concepts of a Firm's Dominance or Market Power

The concepts of a firm's market dominance or market power play important roles in antitrust-law provisions and antitrust-law doctrines. Thus, Article 102 prohibits "[a]ny abuse by one or more undertakings of a dominant position," the judicially-promulgated leverage theory of tie-ins and reciprocity makes tie-ins (reciprocity agreements) per se illegal if they are employed by a seller that has market or monopoly power in the tying-product market (by a firm that has monopsony power in the market in which it acts as a buyer), and the U.S. courts have ruled that the State or a private plaintiff in a monopolization or attempt to monopolize case must establish that the defendant had market or monopoly power in the area of product-space in which the allegedly-illegal conduct took place in order to be allowed to put in more detailed evidence on the illegal character of the conduct in question.

The law-study explains the complexities of the concepts of a firm's dominance or market power and the reasons why these concepts cannot be operationalized nonarbitrarily, criticizes the ways in which these concepts have been defined by U.S. and E.U. antitrust authorities, and explains why a firm's dominance or market power cannot be predicted acceptably accurately from its market share (20):

1. a firm's dominance or market power is a function of both its ability to obtain prices above its marginal costs for the products it sells in a relevant area of product-space and its ability to secure supernormal profits on its QV investments in the relevant area of product-space;

2. there is no nonarbitrary way to define the relevant area of product-space;

3. difficult interpretive problems are created by the fact that a part of a firm's ability to charge prices above its marginal costs and earn supernormal profits in any area of product-space is traceable not only to its "own monopoly power" and its own "oligopoly power" but also to the exercised economic power of its rivals; and

4. even if one ignores points (2) and (3) in this list, (A) there is no nonarbitrary way to determine whether a firm's dominance or market power over price should be measured by (P-MC), ([P-MC]/P), or ([P-MC]/MC) (where I am assuming that the P figures in question include the average per-unit magnitude of any lump-sum fee that is charged); (B) there is no nonarbitrary way to determine whether a firm's dominance or market power over QV investment should be determined by its total supernormal profits in the relevant area of product-space, its average supernormal profit-rate on its QV investments in the relevant area of product-space, or its highest supernormal profit-rate on any QV investment it owns in the relevant area of product-space; and (C) there is no non-arbitrary way to define a firm's total dominance or market power as a function of its market power over price and its market power over QV investment; and

5. even if one could generate a non-arbitrary definition of a firm's dominance or market power, one could not predict its dominance or economic or market power from its market share: thus, although a firm's market share is highly positively correlated with the percentage of "the market's" sales the firm is best-placed to make it, it is not at all correlated with the average amount by which it is better-placed than is its closest rival to supply those buyers the firm is best-placed to supply.

C. The Conceptual Systems the Law-Study Develops for Analyzing Price Competition

Price competition is the process through which firms compete away their profits by reducing their prices to or toward their marginal costs. This subpart describes the conceptual systems I use to analyze price competition respectively in individualized-pricing contexts (in which sellers set separate prices to each potential customer) and in across-the-board-pricing contexts (in which sellers announce a price that applies to all potential buyers).

(!) The conceptual scheme that describes the difference between an individualized pricer's price to a particular buyer it is privately-best-placed to supply and its marginal costs (21). In my terminology, a seller is said to engage in "individualized pricing" when it sets separate prices to each of its potential customers. The individualized-pricing price-competition conceptual system defines various components of the gap between the price that a firm engaged in individualized pricing offers a buyer it is privately-best-placed to supply and the marginal cost the seller would have to incur to supply that buyer: an individualized pricer is said to be privately-best-placed to obtain the patronage of a specified buyer if the seller in question would find it inherently profitable to supply that buyer on terms contained in an offer that no rival would find inherently profitable to match (if the rival could supply the buyer on the terms contained in its matching offer). I divide the gap between an individualized pricer's price (P) to a buyer it is privately-best-placed to supply and the marginal cost it would have to incur to supply that buyer into three major components and various subcomponents. The three major components are formed by inserting a seller's "highest non-oligopolistic price" (HNOP) and "no-error highest nonoligopolistic price" (NEHNOP) between its actual price and its conventional marginal costs. An individualized-pricing seller's HNOP in its relations with a buyer it is privately-best-placed to supply is defined to be the highest price that would be profitable for such a seller to charge the buyer in question if the best-placed seller's rivals would always respond to its moves on the assumption that it could not react to their responses. An individualized-pricing seller's NEHNOP in its relations with a particular buyer it is privately-best-placed to supply is defined to be the highest price that would be profitable for the seller to charge the buyer in question if neither it nor any of its rivals nor any relevant buyer made any ex ante error and its rivals would always respond to its moves on the assumption that it could not react to their responses. The three major components of the difference between the price (P) that an individualized-pricing seller charges a buyer it is privately-best-placed to supply and the conventional marginal costs (MC) it would have to incur to supply that buyer are therefore its NEHNOP-MC, HNOP-NEHNOP, and P-HNOP gaps. Each of these three major components of the relevant P-MC gap can be divided into subcomponents.

In individualized-pricing situations, the NEHNOP-MC gap is first subdivided into (1) the best-placed seller's basic competitive advantage (BCA) when dealing for the patronage of the relevant buyer and (2) the contextual marginal costs (CMC) that the second-placed seller would have to incur to match (or infinitesimally beat) the best-placed seller's NEHNOP. Obviously, several terms in the preceding sentence require elucidation. I will analyze the concept "basic competitive advantage" on the assumption that neither the best-placed supplier of a given buyer nor its closest rival for that buyer's patronage (the second-placed supplier of that buyer) will have to incur any contextual marginal costs (see below) to supply the buyer in question on relevant terms. In this case, the best-placed supplier's BCA would equal the amount by which it was (privately) better-placed than anyone else to supply the buyer in question--the amount by which it could raise its price above its marginal costs of production and distribution without making it inherently profitable for any rival to "steal" the customer in question by beating its offer if no one made any relevant error. This amount is equal to the sum of the buyer preference advantage (disadvantage) the best-placed supplier has over its closest rival for the relevant buyer's patronage at the relevant set of prices (the [BPA.sub.#1]--the additional amount of money that it would be inherently profitable for the buyer to pay to obtain its best-placed supplier's product-variant or service-variant rather than its second-placed supplier's product-variant or service-variant) and the best-placed supplier's (conventional) marginal cost advantage (disadvantage) over its closest rival for the relevant buyer's patronage ([MCA.sub.#1]--the amount by which the marginal or incremental costs the best-placed supplier of the buyer in question would have to incur to supply the buyer in question were lower than the marginal or incremental costs its closest rival for that buyer's patronage would have to incur to supply that buyer). As the preceding statement implies, a seller may enjoy a BCA in its relations with a particular buyer because it has both a BPA and an MCA, because its buyer preference disadvantage (BPD) is smaller than its MCA, or because its BPA exceeds its marginal cost disadvantage (MCD).

The second component of the NEHNOP-MC gap I find worth distinguishing in individualized-pricing contexts is the contextual marginal costs that the second-placed supplier of the buyer in question would have to incur to match the best-placed supplier's NEHNOP-containing offer to that buyer ([CMC.sub.#2]). Contextual marginal costs are the extra costs a seller has to bear because the price it is charging the buyer in question might expose the seller to some risk of cross-selling or arbitrage (to the extent that the price it is charging is discriminatory or multipart [contains a lump-sum fee as well as a per-unit price]), might induce its other customers to intensify their bargaining (by putting the lie to its statements about its costs, by leading them to conclude that it has been treating them unfairly, or by suggesting that it can in fact be bargained down), might expose it to ex ante law-related costs (to the extent that the price may appear to some to involve illegal price discrimination or some other price-regulation violation), and/or might induce its rivals to retaliate. Such costs are said to be "contextual" because they depend on various features of the context in which they are charged--inter alia, the prices the relevant seller is charging other buyers, the cost to actual buyers of the seller's product of identifying higher-valuing potential consumers of the good, the cost to potential buyers of the seller's good of identifying actual buyers of the seller's good from whom they could purchase the good more cheaply than they could purchase it from the seller if nothing else made the arbitrage unprofitable, the perishability of the good, the other costs of transporting the good to an identified higher-valuing buyer, what the seller has told its other customers about its own costs, various features of the legal milieu (e.g., the existence of price-discrimination prohibitions or maximum or minimum price-regulations), etc. In individualized-pricing situations, a #2 seller (a seller that is second-placed to obtain the relevant buyer Y's patronage) is likely to have to incur CMC to quote Y a price that makes #2's offer as attractive to Y overall as the NEHNOP-containing offer Y received from its best-placed supplier (#1) because the price-component of #2's "matching" offer to Y is likely to be discriminatory--i.e., is likely to be lower than the price #2 charges those buyers it is best-placed to supply.

(Before proceeding, I need to define one additional concept that is related to the [CMC.sub.#2] concept defined in the preceding paragraph--[OCA.sub.#1], the overall competitive advantage an individualized pricer enjoys in its relations with a buyer it is best-placed to supply. This [OCA.sub.#1] is defined to equal [BCA.sub.#1] + [CCA.sub.#1] where [CCA.sub.#1] equals the difference between the contextual marginal costs the best-placed firm would have to incur to supply a buyer it is best-placed to supply at its NEHNOP for that buyer [because that NEHNOP was discriminatory or violated a maximum or minimum price-regulation] and the contextual marginal costs that seller's closest rival for the relevant buyer's patronage would have to incur to charge that buyer a price that would enable it to match the best-placed supplier's NEHNOP-containing offer. In most cases, a best-placed supplier will have a contextual-marginal-cost advantage over its closest rival for the relevant buyer's patronage because the #1's NEHNOP will usually be less discriminatory than is the price in the #2's matching offer.).

In my scheme, the second major component of the an individual pricer's P-MC gap for a buyer it is best-placed to supply is the HNOP-NEHNOP gap. This gap reflects various errors that can cause a best-placed seller's actual price to exceed or differ from its NEHNOP for nonoligopolistic reasons. My conceptual system distinguishes three subcomponents of the HNOP-NEHNOP gap--i.e., three categories of errors that can cause a seller's HNOP to exceed its NEHNOP: (1) the buyer-error-generated HNOP-NEHNOP gap or margin ([BEM#.sub.#1]); (2) the rival-error-related HNOP-NEHNOP gap or margin ([REM.sub.#1]); and (3) the best-placed-supplier-error-related HNOP-NEHNOP gap or margin (#1EM). In my system, the total extra margin a best-placed seller obtains because of all relevant actors' errors is symbolized at [EEM.sub.#1]. [EEM.sub.#1] can be either positive or negative.

In my scheme, the third major component of the gap between the price an individualized pricer actually charges a buyer it is best-placed to supply and the conventional marginal costs it would have to incur to supply that buyer are the oligopolistic margins it seeks to obtain from the buyer in question--i.e., the extra sum it tries to obtain from this buyer because it believes that its closest rival or rivals for the relevant buyer's patronage will be deterred from making what would otherwise be a profitable undercutting response to any price the best-placed seller charges above its HNOP by a correct realization that the best-placed seller will react to such a response in a way that makes undercutting unprofitable for any rival. When the best-placed seller believes that its rivals will be deterred from undercutting it by their correct perception that it will or may have the opportunity to react to such undercutting in one or more ways that will render the undercutting unprofitable and will or may find it inherently profitable to do so, the margin that it believes its ability to react will enable it to obtain is called a natural oligopolistic margin (NOM) and the best-placed seller's act of setting a price that relies on its rivals' being deterred from undercutting by their recognition that it might react to their undercutting by making an inherently-profitable move that would make their undercutting unprofitable for them is called natural oligopolistic pricing (NOP). When the best-placed seller believes that its rivals will be deterred from undercutting it by their perception that it will or may react to such undercutting by making an inherently-unprofitable (strategic) move that would render such undercutting unprofitable for them because it has communicated its intention to react strategically to its rivals' responses (e.g., that it would respond to their undercutting by charging [inherently-unprofitable] retaliatory prices to their potential customers that would inflict losses on them and/or would reciprocate to their not undercutting by foregoing opportunities to profit by beating their offers to their customers), the margin the anticipated strategic reaction enables the best-placed firm to obtain is called a contrived oligopolistic margin (COM), and the best-placed seller's act of setting a price that relies on its having induced its rival's or rivals' belief that it will or may react strategically to their undercutting and/or collaboration is called contrived oligopolistic pricing (COP). In my system, the total oligopolistic margin a best-placed individualized pricer obtains from a buyer it is best-placed to supply is symbolized as [EOM.sub.#1] = [NOM.sub.#1] + [COM.sub.#1].

(2) The conceptual scheme that describes the difference between an across-the-board pricer's price and the marginal cost it incurs to produce its marginal unit of output (22). In my tenninology, a seller is said to engage in across-the-board pricing when it sets a set of prices (and other terms) that applies to all its potential customers. My breakdown of the gap between an across-the-board pricer's P-MC gap is very similar to its individualized-pricing counterpart. Once more, the P-MC gap is subdivided into P-HNOP, HNOP-NEHNOP, and NEHNOP-MC components. Once more, P-HNOP = NOM + COM, and HNOP NEHNOP = EEM. However, at least five differences between the across-the-board-pricing and individualized-pricing (P-MC)-gap breakdown are worth pointing out. First, because any across-the-board price that a seller charges will apply to some buyers that it is not "best-placed to supply" in any sense in which that expression might be usefully defined, I use the symbol S (for seller) rather than the symbols #1, #2, ... #N to refer to any across-the-board pricer whose P, HNOP, or NEHNOP I am considering. Second, and relatedly, the #1EM subcomponent of the individualized HNOP-NEHNOP gap is replaced by a seller-error-margin (SEM) subcomponent in the across-the-board pricing conceptual scheme. Third, and also relatedly, although I recognize that the following usage may be confusing and therefore not advisable, in across-the-board-pricing contexts, the analysis of the breakdown of an across-the-board-pricing seller's NEHNOP-MC gap will refer to its and its rivals' across-the-board-pricing BCA/BCD distributions where each across-the-board-pricing BCA or BCD that any S has in its relations with any particular buyer is equated with the sum of its BPA or BPD in relation to that buyer and the MCA or MCD it would have in relation to that buyer if the marginal cost that the seller in question and each of its rivals would have to incur to supply a unit of their respective products to that buyer (assuming the buyer paid the delivery costs) were equated with the marginal costs each such S would have to incur to supply the last unit of its product it would supply if all of them charged the prices that would equal their NEHNOPs if they announced their prices in the order in which they actually announced their prices. (The preceding sentence referenced the order in which the members of a set of rival across-the board pricers set their prices because the arrays of such sellers' NEHNOPs and HNOPs will be higher if those members of the set that could profit most by undermining their rivals' prices--viz., members that are second-placed or close-to-second-placed far-more-often than they are best-placed--announce their prices early in the price-announcement sequence and take steps [advertising their announced price, tagging their products with their announced prices, placing their announced prices on shelves, making sales at their announced prices] that increase the cost to them of changing their initially-announced prices.) This definition would not be problematic if, as there is some reason to believe is often the case, the MC curve of each relevant S were horizontal over the relevant ranges of output. However, when the relevant MC curves are not horizontal over the relevant ranges of output, that reality will increase the computational difficulty of calculating the NEHNOP and HNOP arrays of a set of across-the-board pricers. Fourth and again relatedly, the across-the-board-pricing counterpart to the BCA component of the gap between a best-placed seller's NEHNOP and MC in an individualized-pricing situation is the difference between the across-the-board price each across-the-board- pricing S would charge if it and its rivals knew that it could not react to its rivals' responses and they charged its customers' prices equal to their conventional marginal costs. This component will depend not just on the relevant S' across-the-board-pricing BCA/BCD distribution as defined above but also on the way in which that S' and its rivals' marginal costs vary above and below the unit outputs they would respectively produce if none behaved oligopolistically and they announced their prices in the order in which they actually did announce them. And fifth, the across-the-board-pricing counterpart to the [CMC.sub.#2] subcomponent of the individualized-pricing NEHNOP-MC gap is replaced by an analogous subcomponent that also equals the extra margin that the seller in question finds it profitable to charge because its rivals are charging its customers prices that exceed their respective conventional marginal costs. However, whereas (1) in the normal individualized-pricing situation, a best-placed supplier's closest rival will usually charge the #1's customers prices above the #2's conventional marginal costs if the #1 charges its NEHNOP to the relevant buyer because (A) the individualized price the #2 will have to charge the relevant buyer to match the #1's NEHNOP-containing offer to that buyer will discriminate in the relevant buyer's favor and (B) sellers (including #2) will normally have to incur arbitrage-related, goodwill-related, bargaining-related, and/or law-related CMC to discriminate in favor of a buyer (to charge that buyer a lower price than the seller is charging other buyers--in particular, is charging other buyers that the seller is best-placed to supply), (2) in across-the-board-pricing situations, each seller S' rivals will be charging that seller's potential customers prices above their respective conventional marginal costs because (A) by definition, in such situations, these rivals will be charging their own customers the same price they are charging the relevant S' customers and (B) each seller's rivals would have to incur a loss to charge those of its customers that would be willing to pay it more than its marginal costs for its product a price equal to its relevant marginal costs--i.e., because (i) each rival of each S would on this account charge supra-marginal-cost prices to that S' potential customers even if each such rival believed that the S in question and the other rivals of the S in question would equate their prices with their respective marginal costs and (ii) the S in question and each rival of the S in question would also be charging prices that exceed their respective marginal costs because each would realize that in reality its rivals would also be charging its customers (across-the-board) prices that exceed their respective marginal costs.

D. The Conceptual Scheme for the Determinants of the Intensity of QV-Investment Competition in any ARDEPPS

The intensity of QV investment competition in any ARDEPPS can be defined in a wide variety of ways: there is no nonarbitrary way to define this concept. For current purposes, I will define the intensity of QV investment in any ARDEPPS to be inversely related to the lifetime supernormal profit-rate yielded by the most-supernormally-profitable QV investments in that ARDEPPS.

I have found it useful to distinguish eleven intermediate determinants of the intensity of QV-investment competition in any ARDEPPS--the four barriers to entry that face any potential competitor that would be best-placed to execute an entry that would raise the ARDEPPS' QV-investment quantity above the ARDEPPS' equilibrium QV-investment quantity, the four counterpart barriers to expansion that could face any established firm that was best-placed to raise the ARDEPPS' QV-investment quantity above the ARDEPPS' equilibrium QV-investment quantity, the monopolistic QV-investment incentives or disincentives that a firm established in the relevant ARDEPPS that is best-placed to raise its total QV-investment quantity above the ARDEPPS' equilibrium QV-investment quantity may face in relation to its executing that QV-investment expansion, and the natural oligopolistic QV-investment disincentives that two or more potential QV-investment expanders that are best-placed to raise the ARDEPPS' QV-investment quantity above its equilibrium QV-investment quantity may face in relation to their executing any such QV-investment expansions. (23) All barriers to entry and expansion cause the "nominal" or "conventional book" supernormal profit-rate a potential entrant or expander would expect to realize on the most-profitable QV investment it could create in a specified situation to be lower than the lifetime supernormal rate-of-return that would be generated by the most-profitable QV investments in the relevant area of product-space at the quantity of QV investment the relevant ARDEPPS would contain in the specified situation prior to the relevant new QV investment's being created. In this last sentence, the word "nominal" and the expression "conventional book" indicate the fact that the relevant calculations ignore any monopolistic QV-investment incentives or disincentives and any natural oligopolistic QV-investment disincentives a potential expander may have to make a particular QV investment (see below). On my definition, the "conventional book" supernormal profits a QV investment generates or would generate does take into account any positive contribution the relevant QV investment makes or would make to the profit-yields of one or more of the investor's other QV investments by generating traditional joint cost-reduction economies or increasing the demand for its other products by filling out its product-line or increasing its reputation for quality. The monopolistic QV-investment incentives, monopolistic QV-investment disincentives, and natural oligopolistic QV-investment disincentives a QV investor faces on a particular QV investment all reflect the fact that for reasons that will be delineated below (reasons that are unrelated to its generating traditional joint-cost economies or increasing the demand for the investor's other products by filling out its product-line or increasing its reputation for quality), the QV investment in question will affect the profit-yields of the investor's other projects and, in the case of natural oligopolistic QV-investment disincentives, will yield lower nominal profits itself because it will induce the execution of a rival QV investment that would not otherwise have been made. After defining the four different types of barriers to entry or expansion that a QV investor may face, this section defines the monopolistic QV-investment incentives and disincentives and the natural oligopolistic QV-investment disincentives a QV-investment expander may face.

The definitions that I will delineate for the four barriers to expansion or entry will all assume (for simplicity) that all of the relevant ARDEPPS' most-supernormally-profitable QV investments have the same weighted-average expected rate-of-return and the same normal rate-of-return. [[GAMMA].sub.D]--the profit-rate-differential barrier to entry or expansion faced by a particular potential entrant or expander on the most-profitable QV investment it could make in the relevant situation--indicates the amount by which the weighted-average lifetime rate-of-return gross of risk costs that that project would be expected to generate in the absence of retaliation would be lower than its counterpart for the most-profitable QV-investment project or projects already in the relevant area of product-space prior to the new QV investment's being made if the associated ARDEPPS' QV-investment quantity were its equilibrium QV-investment quantity. R--the risk barrier to entry or expansion--indicates the amount by which in the absence of retaliation the normal rate-of-return for the most-supernormally-profitable QV investment that the relevant potential investor could make in the specified situation would be higher than its counterpart for the most-supernormally-profitable projects in the ARDEPPS in question in that situation. A potential expander or potential competitor will confront a risk barrier on the relevant QV investment to the extent that the profitability of the relevant project is less known than is the lifetime profitability of the most-profitable projects in the ARDEPPS in question, to the extent that the relevant potential expander or potential entrant is more risk-averse than the established owners of an ARDEPPS' most-profitable projects, and to the extent that the relevant potential expander or potential entrant is less able than the owners of the ARDEPPS' most-profitable projects to make investment-portfolio moves that reduce the contribution of the project in question to their respective overall risk. S--the scale barrier to entry or expansion--indicates the amount by which the relevant new entry or expansion would reduce the supernormal profit-rate generated by all projects in the relevant area of product-space in the situation in question (assuming, for simplicity, that the new project has an equal effect on all such projects) by increasing the amount of QV investment and (in the case of new entry) the number of independent sellers that the ARDEPPS contains. The retaliation barrier that a potential entrant or potential expander faces on a particular QV investment in the specified situation--L--indicates the amount by which the expected supernormal rate-of-return for that QV investment in question is reduced by the possibility of retaliation. I will assume for simplicity that the supernormal rate-of-return that will be generated by the set of most-profitable projects in the ARDEPPS will not be reduced by retaliation.

The monopolistic QV-investment incentives and disincentives (M) a potential expander may face on the most-profitable QV investment it could make in a specified situation reflect the effect the relevant QV investment would have on the profit-yields of the expander's preexisting (or, more generally, preexisting and other future) projects in the relevant ARDEPPS in the situation in question not by generating joint-cost economies or increasing the demand for the investor's other products by filling out its product-line or enhancing its reputation for quality but

1. by possibly or actually taking sales away from those projects directly,

2. by inducing established rivals to make nonretaliatory responses that do not involve their increasing their QV investments in the relevant area of product-space but that do reduce the expander's preexisting or other projects' profit-yields, and

3. by deterring established or potential competitors from making additional QV investments in the relevant area of product-space.

When a potential expander's QV investment would do more damage (in comparison with the status quo ante) to its preexisting (and future) projects' profit-yields in the first two ways listed above than would have been done by any QV investments it deters others from making, the potential expander will face a monopolistic QV-investment disincentive equal to the amount by which these effects reduce the actual supernormal rate-of-return its project should be expected to generate ex ante below the supernormal rate-of-return it should have been expected to generate absent these effects. When the project in question will do less damage in the first two ways listed above to the profit-yields of the relevant expander's preexisting (and future) projects than would otherwise have been done by the QV investments of others that its expansion would deter, the potential expander will have a monopolistic QV-investment incentive to make the QV investment in question.

Finally, the natural oligopolistic QV-investment disincentives that a potential expander may face (O) will be present when, in the situation in question, rather than deterring others from making QV investments, its expansion will induce an established rival to make a QV investment that that firm would not otherwise have made. On my definition, the Os a potential expander faces equal (1) the amount by which its QV investment will reduce its preexisting (and future) projects' profit-yields (A) by taking sales away from those projects directly and inducing others to make QV investments that take sales away from those projects directly and (B) by inducing established rivals to make nonretaliatory, non-QV-investment responses to the investment-expansion in question and the expansions it induces others to make plus (2) the amount by which the QV investment the relevant QV investment induces others to make reduces the nominal profits the relevant QV investment generates both (A) directly and (B) by inducing still others to react to the induced QV investment by making nonretaliatory changes in their prices and other non-QV-investment choices.

Unfortunately, considerations of space deter me from providing anything like a full account of the relationship between the intensity of QV-investment competition in any ARDEPPS and the magnitudes of the determinants I have just defined. In brief, that relationship depends on whether the entry-barred expansion-preventing QV-investment quantity in that ARDEPPS (the quantity of QV investment that would be made in the ARDEPPS in question if, usually counterfactually, it is assumed that entry could not take place) exceeds, equals, or is lower than its entry-preventing QV-investment quantity. (24)

4. The Most Original or Salient Points the Law-Study Makes About Some of the Categories of Antitrust-Law-Covered Conduct It Investigates

A. Coordinated Conduct and Oligopolistic Pricing

Firms can correctly be said to "coordinate" their conduct when each makes its decisions depend on the decision that the other(s) will make in response to its decision and/or on the decisions the other(s) had/ have already made (if such past decisions will influence the future choices that the relevant other[s] will make). Many of the behavior models that economists call "oligopolistic behavior" models implicitly define "oligopolistic interactions" to be interactions that manifest both this simple, two-step type of coordination and the more complicated, at-least-three-step type of coordination that is the defining characteristic of the conduct that I call "oligopolistic." As I indicated in Part 3C of this article, I distinguish two subcategories of oligopolistic conduct--natural oligopolistic conduct, which does not involve the making of any anticompetitive threat or promise, and contrived oligopolistic conduct, which does involve the making of an anticompetitive threat and/or promise. As we shall see, the distinction I draw between nonoligopolistic and oligopolistic coordination is legally critical in both the U.S. and the E.U. because neither U.S. nor E.U. antitrust law prohibits nonoligopolistic coordination, and the distinction between contrived and natural oligopolistic coordination is legally critical in the U.S. because U.S. law (the Sherman Act) prohibits most contrived oligopolistic behaviors but no natural oligopolistic conduct. (The distinction between contrived and natural oligopolistic conduct also has some policy relevance because contrived oligopolistic conduct but not natural oligopolistic conduct can result in the undercutting or undermining of contrived oligopolistic prices, retaliation against such undercutting or undermining, and defensive retaliation against retaliation in the service of contrivance--all of which tend to cause economic inefficiency directly because they tend to result in sales being made by privately-worse-placed suppliers that are presumptively also allocatively-worse-placed to make the sales in question.)

Although the law-study analyzes a wide variety of categories of oligopolistic conduct, I will restrict myself here to oligopolistic pricing. I will start by stating the law-study's conclusions about the legality of first natural and then contrived oligopolistic pricing that I think are correct as a matter of U.S. and E.U. antitrust law. (25) Natural oligopolistic pricing is not covered by either the Sherman Act or the Clayton Act. It is not covered by the Sherman Act because it involves neither the formation of an anticompetitive agreement (covered by its Section 1) nor monopolizing conduct or attempts to monopolize (covered by its Section 2)--i.e., because, by definition, it entails neither the making of an anticompetitive offer nor the making of an anticompetitive threat. Natural oligopolistic pricing is not covered by the Clayton Act because it involves neither "price discrimination" (covered by Section 2 of the Clayton Act), nor prohibitions of trading partners' dealing with perpetrator-rivals (covered by Section 3), nor mergers or acquisitions (covered by Section 7) (though the fact that a merger or acquisition would increase/decrease the NOMs that Clayton-Act-relevant-buyers must pay would favor/disfavor the merger's or acquisition's legality under the Clayton Act). This legal reality makes it all the more regrettable that no economist, no U.S. court, and (perhaps until recently) no U.S. antitrust-enforcement authority has recognized the distinction much less the legal relevance of the distinction between what I call "contrived" and "natural" oligopolistic pricing (or conduct). I wrote "perhaps until recently" because Section 7 paragraph 2 of the 2010 Horizontal Merger Guidelines issued jointly by the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) contains language that may refer to what I call natural oligopolistic conduct: "coordinated conduct includes conduct not otherwise condemned by the antitrust laws." Natural oligopolistic pricing is (in my judgment) covered by Article 101(1) as a concerted practice and does violate Article 101 because its effect is to prevent or restrict competition and it generates no economic efficiencies. Natural oligopolistic pricing does not constitute an exclusionary abuse of a dominant position under Article 102 for the same reason that it is not covered by the Sherman Act. However, natural oligopolistic pricing could constitute an exploitative abuse under Article 102 if its practice by a dominant firm or by one or more members or a set of collectively-dominant rivals caused its practitioner's (practitioners') seller surplus to constitute a sufficiently-high percentage of the transaction surplus generated by its (their) sales of the product in question for this conclusion to be warranted.

Contrived oligopolistic pricing that involves the formation of an anticompetitive agreement--both the making of a contrived oligopolistic offer that is accepted and the acceptance of such an offer--violates Section 1 of the Sherman Act, and contrived oligopolistic pricing that involves the making of an anticompetitive threat of retaliation against undercutters/underminers violates Section 2 of the Sherman Act on that account (constitutes monopolization or an attempt to monopolize), though I do not think that succumbing to a contrived oligopolistic threat should be held to constitute a Sherman Act violation. I believe that unsuccessful attempts to form a contrived-oligopolistic-pricing agreement do not violate the Sherman Act because (1) unlike Section 2, Section 1 does not contain an attempt clause, (2) U.S. federal law does not contain an attempt law (a law that renders illegal unsuccessful attempts to complete acts whose successful completion would be illegal), and (3) U.S. federal courts consistently refuse to read attempt provisions into federal statutes that do not contain them, even when it would have made good policy-sense for the statute to include an attempt provision.

Contrived oligopolistic pricing is not covered by the Clayton Act. However, if the difficulty of proving post-merger/acquisition contrived oligopolistic pricing is as great as I believe it to be, I would conclude that it is correct as a matter of law to interpret the Clayton Act to make any tendency of a merger or acquisition to increase/reduce the COMs Clayton-Act-relevant-buyers pay relevant to the merger's or acquisition's legality under the Clayton Act.

Article 101(1) does cover contrived oligopolistic pricing that involves the formation of an anticompetitive agreement but does not cover contrived oligopolistic pricing in which the contriver relies exclusively on anticompetitive threats. Clause (a) of Article 101(1) indicates that any tendency of a merger, acquisition, or joint venture to increase "price fixing" counts against its legality under the Article. I do not know whether it would be correct as a matter of E.U. law to read an attempt provision into Article 101(1)--i.e., to read Article 101(1) to cover unsuccessful attempts to form an anticompetitive contrived-oligopolistic-pricing agreement. Contrived oligopolistic pricing would constitute an exclusionary abuse of a dominant position under Article 102 if its practitioner(s) were individually or collectively dominant. Contrived oligopolistic pricing would violate Article 102 as an exploitative abuse of a dominant position if its practitioner(s) was (were) dominant and its practice caused the seller-surplus to transaction-surplus ratio for its or their sales to be requisitely high.

The law-study also analyzes the determinants of the feasibility of a firm's practicing oligopolistic pricing naturally and the determinants of the profitability of contrived oligopolistic pricing. To simplify the exposition, I will assume that the relevant sellers engage in individualized pricing. Three sets of factors are relevant to such a seller's ability to practice oligopolistic pricing naturally: (26)

1. factors that affect the willingness of the relevant buyer to give its best-placed supplier an opportunity to beat any superior offer that buyer received from an inferior supplier--more specifically, factors that affect the likelihood that the buyer's decision to allow its best-placed supplier to rebid will become known to its inferior suppliers and will discourage them from beating the buyer's best-placed suppliers' future NOM-containing offers,

2. factors that affect the additional costs the best-placed firm would have to incur to reduce its initial price sufficiently for its new offer to be superior to the undercutting inferior supplier's undercutting bid, and

3. factors that affect the profits the best-placed firm would have realized initially by supplying the relevant buyer on the terms its revised offer contained had it offered those terms initially--inter alia, factors that determine the gap between the best-placed seller's HNOP and MC.

The law-study also lists and investigates ten sets of determinants of the ex ante profits that an individualized-pricing seller can earn by contriving an oligopolistic margin from a buyer it is best-placed to supply: (27)

1. the seller's reputation for engaging in strategic behavior--its known history of doing so--and all the factors that affect the profitability of its doing so,

2. the factors that affect the mechanical and law-related cost of the seller's communicating the necessary anticompetitive threats and/or offers to its potential undercutters--inter alia, its reputations for estimating its HNOPs and NOMs accurately and for practicing contrived oligopolistic pricing (which affect its ability to communicate the required anticompetitive offers and/or threats cheaply, simply by charging a contrived oligopolistic price),

3. the factors that affect the cost the seller would have to incur to identify those of its rivals who have cooperated (to which it must reciprocate),

4. the factors that affect the amount of benefits the seller can confer on those rivals that have cooperated by reciprocating--the frequency with which the contriver is second-placed to supply a buyer the cooperator is best-placed to supply and the average amount by which the contriver is better-placed to supply those buyers than are their third-placed suppliers,

5. the factors that affect the ability of the seller to detect that it has been undercut (by one or more worse-placed rivals)--(A) the number of sales the contriver has historically made to its old customers, to its rivals' former customers, and to new buyers, (B) the constancy of these figures through time, and (C) the ability of the contriver to identify the factors that affect the above numbers other than undercutting by inferior rivals and to measure these other factors' past and current magnitudes,

6. the factors that affect the ability of the seller to identify any worse-placed rival or rivals that have undercut it,

7. the factors that affect the loss the seller must incur to inflict any amount of harm on an undercutter by price retaliation (or any other form of retaliation), law-related costs aside--(put crudely) the frequency with which the contriver is second-placed or close-to-second-placed to supply an undercutter's customers and the undercutter's average (OCA + NOM) in its relations with buyers the contriver is second-placed or close-to-second-placed to supply,

8. the factors that affect the stake that the undercutter has in preserving or establishing a reputation for not being deterred from undercutting by retaliation,

9. the factors that affect the safe profits that the seller must put at risk to contrive an oligopolistic margin (inter alia, its OCA and NOM in its relations with the buyer in question), and

10. the factors that affect the benefits a seller can obtain across its whole organization by building or maintaining its reputation for engaging in strategic behaviors--(put crudely) the total sales its organization makes in all the ARDEPPSes in which it operates.

The law-study also delineates five types of evidence that can support the conclusion that one or more firms have engaged in contrived oligopolistic pricing, (28) criticizes various evidentiary proposals that other academics have made, (29) and criticizes the evidence (the so-called "plus factors") that U.S. courts claim make it more likely that consciously-parallel pricing is contrived oligopolistic (in their terms, violates the Sherman Act). (30) The five types of evidence that can help prove contrived oligopolistic pricing are (1) eyewitness testimony, audio recordings, or documentary evidence of contrived oligopolistic communications, defendant statements of contrived oligopolistic intentions, and defendant admissions of contrived oligopolistic acts, (2) evidence comparing the prices the defendants charged with their (HNOP + NOM), (3) evidence on (A) the prices that the defendant(s) charged at different times or contemporaneously in different geographic locations and (B) the likely differences (if any) in the defendant's (HNOP + NOM) sums at the two times or in the two regions in question--i.e., evidence on whether the relationship between the relevant prices is explicable by anything other than contrivance, (4) other types of behavioral evidence, and (5) evidence that relates to the profitability of the alleged contrived oligopolistic pricing (usually misnamed "structural evidence," misnamed because that name assumes incorrectly that the referenced evidence relates to the structure of a relevant market that can be defined nonarbitrarily). The law-study examines all these types of evidence in detail. I will restrict myself here to the following five points:

1. the first category of evidence will usually not be available and, when available, will sometimes be supplied by individuals whose credibility is suspect--e.g., by former employees who were fired by plaintiffs;

2. direct comparisons of actual prices with (HNOP + NOM) figures will rarely be practicable because of the difficulty of calculating both the HNOPs and the NOMs;

3. interregional and intertemporal comparisons are somewhat more practicable because it is easier to estimate acceptably accurately the relevant HNOP and NOM differences (i.e., differences in the magnitudes of the determinants of the relevant HNOP and NOM figures) than the relevant absolute HNOP and NOM figures (the absolute magnitudes of those determinants);

4. as my account of the determinants of the profitability of contrived oligopolistic pricing suggests, the relevant so-called structural evidence is not evidence on the magnitudes of market-aggregated parameters and is far more complicated than those who advocate its use appear to understand; such evidence is also far more relevant to the exoneration than to the conviction of defendants (since, hopefully, most companies that could profit by violating the antitrust laws choose not to do so); and

5. it will rarely be practicable to convict perpetrators of contrived oligopolistic pricing (which favors the conclusion that any tendency of a merger to increase the profitability of contrived oligopolistic pricing should count against its Clayton Act legality).

I do not have space here to review the law-study's assessments of all of the evidentiary proposals that others have made for proving contrived oligopolistic pricing. I will limit myself to the following three points:

1. some of the evidence that academics have argued courts should use and some of the evidence that U.S. courts have actually used to determine whether one or more defendants have practiced contrived oligopolistic pricing--for example, the proposal that a seller's practice of contrived oligopolistic pricing be inferred from proof that it had engaged in price discrimination--should not be used for this purpose because the proposed inference ignores the fact that firms that are not pure monopolists can enjoy BCAs in their relations with particular buyers, can take advantage of their rivals' CMCs, can secure NOMs, and can be affected by buyer and rival errors (so that, for example, although price discrimination can manifest price retaliation by an undercut contriver that is part of a contrived-oligopolistic-pricing sequence, it is far too likely to manifest differences in the [HNOP + NOM] figures that apply to the accused seller in its relations with different buyers it is best-placed to supply for the proposed inference to be justifiable);

2. some of the evidence that academics have argued courts should use and some of the evidence that U.S. courts have actually used to determine whether one or more defendants have practiced contrived oligopolistic pricing should not be used for this purpose inter alia because the proposed inferences ignore the fact that the increases in prices that contrived oligopolistic pricing will generate will increase equilibrium QV investment in the relevant ARDEPPS as well as the fact that many of the determinants of the intensity of QV-investment competition in any ARDEPPS and hence of the supernormal rate-of-return generated by its most profitable QV investments, the weighted-average supernormal rate-of-return generated by all its QV investments, and the excessiveness of its capacity from the perspective of economic efficiency are not strongly positively correlated either with the determinants of the profitability of contrived oligopolistic pricing in the ARDEPPS or a fortiori with the actual incidence of contrived oligopolistic pricing in the ARDEPPS; and

3. some of the evidence that academics have argued courts should use and some of the evidence that U.S. courts have actually used to determine whether one or more defendants have practiced contrived oligopolistic pricing should not be used for this purpose because the evidence is too likely to manifest the defendant's or defendants' practicing natural oligopolistic pricing (a possibility that critically affects the legality of the defendant's behavior under the U.S. Sherman Act) or arranging for the relevant set of rivals to announce their prices in an order that would raise the prices in the set of their across-the-board HNOPs (and make related decisions that increase the cost they would have to incur to charge prices that deviate from their announced prices)--viz., to induce sellers that are second-placed far more often than they are best-placed to announce their prices and lock themselves into their announced prices early in the price-announcement sequence.

Somewhat relatedly, the law-study also criticizes the U.S. DOJ's and FTC's assumption that, all things considered, the fact that the products in a relevant "market" are heterogeneous disfavors the profitability of contrived oligopolistic pricing (illegal coordinated pricing in their terms) (31) and analyzes the attributes of a firm's competitive-position array that will dispose it to be a "maverick"--a firm whose elimination by a horizontal merger will tend to increase contrived oligopolistic pricing because, as an independent, it would have been unlikely to cooperate with rivals that are trying to secure contrived oligopolistic margins. (32)

B. Predatory Pricing and Predatory Investments

(I) Predatory pricing. One or more sellers' pricing is predatory if its or their ex ante perception that it would be profitable was critically affected by its or their belief that the pricing would or might reduce the absolute attractiveness of the best offers against which it or they would have to compete by driving a rival out, deterring a rival QV investment, inducing an existing rival to relocate one or more of its existing QV investments further away in product-space from the predator's or predators' projects, or inducing a potential QV investor in its ARDEPPS to locate its QV-investment expansion or entry further away in product-space from the investor's or investors' projects. Single-firm predatory pricing violates Section 2 of the Sherman Act, and agreements to engage in joint predatory pricing violate Section 1 of the Sherman Act. Successful predatory pricing that involves the charging of different prices to different buyers at (roughly speaking) the same time violates Section 2 of the Clayton Act. Single-firm predatory pricing is not covered by Article 101, but agreements to engage in joint predatory pricing are covered by Article 101 and are illegal under the object-branch of its test of illegality and (if they would be or were successful) under the effect-branch of its test of illegality as well. If the perpetrator or perpetrators of predatory pricing are dominant firms, their predatory pricing would violate Article 102 in that it would constitute an exclusionary abuse of its or their dominant position(s) and might violate Article 102 as well by leading to the practitioner's or practitioners' committing an exploitative abuse of its or their dominant position(s) by raising to a requisitely-high percentage its or their postpredation share of the joint gains it or they and its or their buyers obtained from sales of the good or goods in question.

The antitrust-law study analyzes the determinants of the profitability of predatory pricing, (33) explains why I believe such pricing will sometimes be profitable, (34) criticizes various arguments that economists and academic lawyers who are conversant with economics have made for their conclusion that predatory pricing will rarely ever be profitable (or practiced) or that it will be profitable or practiced only if specified restrictive conditions are fulfilled, (35) explains the evidence that does favor the conclusion that a defendant has engaged in predatory pricing, (36) states and criticizes various claims that academics have made about the evidence that proves that one or more defendants have engaged in predatory pricing or on which courts should base their conclusions that one or more defendants have engaged in predatory pricing, (37) and comments on some of the conclusions that U.S. and E.U. courts have reached about the appropriate way to approach predatory-pricing cases. (38) I will briefly state here the most important points that the law-study makes about all these issues.

If, for simplicity, I ignore the effects of successful predation on the predator's NOMs and COMs, assume that the predator will sell one unit of its product to any buyer that purchases it, and assume as well that the target will exit as opposed to selling its business to someone else and that the target's investment will not be replaced by either the predator or anyone else, the short-run benefits that a prospective predator would obtain by driving a rival out will equal (the number of buyers the predator is uniquely-best-placed to supply and the target is uniquely-second-placed to supply) times (the average competitive advantage the target has over the third-placed suppliers of the buyers in question) plus (the number of buyers that the predator and its target are uniquely-equal-best-placed to supply) times (the average competitive advantage they have over the third-placed supplier of the buyers in question) plus (the number of buyers that the target is uniquely-best-placed to supply and the predator is uniquely-second-placed to supply) times (the average amount by which the predator is better-placed to supply the latter buyers than are their pre-predation third-placed suppliers). The benefits that predation will yield the predator in the medium or long run will depend not only on the benefits it will yield the predator in the short run but also on (1) whether and the speed with which the target's QV investment will be replaced by a rival QV investment (which will depend on the relative size of [A] the barriers and QV-investment incentives and disincentives faced by the target and [B] the barriers and QV-investment incentives and disincentives that would face the rival or rivals that is/are best-placed to replace the target's QV investment [including any additional retaliation barriers to QV investment the predator's predation erects]), (2) the extent to which the predator's predation will reduce the loss any replacement-investments by rivals inflicts on the predator by inducing them to locate their new QV investments further away from the predator's projects than the target's QV investments were, and (3) the extent to which the predator can reduce the loss that it sustains because rivals would replace the target's QV investment(s) if it did nothing to deter them from doing so by making one or more QV investments itself.

The cost of predatory pricing to the predator will depend on the amount of harm it must inflict on its target to drive it out (which depends on the supernormal profits the target would earn absent predation [which reflects inter alia the extent to which the target's assets in the ARDEPPS in question can be converted to profitable alternative uses] and the stake the target has in avoiding a reputation for exiting when targeted by a predator) and the loss it must incur to inflict the relevant amount of harm on the target (which, as we saw when analyzing the cost-effectiveness of retaliation against undercutting, depends on the frequency with which the predator was or was close to being the target's closest competitor for a buyer the target was best-placed to supply and the target's average [OCA + NOM] figure for the buyers it was best-placed to supply and the predator was second-placed or close-to-second-placed to supply [as well as the determinants of the law-related, arbitrage-related, and bargaining-with-its-own-customers- related costs the predator would have to incur to practice predatory pricing]).

As I have already indicated, I believe that predatory pricing will be profitable in a significant number of cases. This conclusion is rejected by the vast majority of economists. Different economists reach their conclusion for different reasons. Some do so because they believe that the loss that a predator will have to incur to inflict enough harm on its target to induce it to exit will always be extremely high and prohibitive. I reject this argument because (1) those who make it normally assume that the relevant predatory price-cuts will be across-the-board while I believe they will normally be individualized, (2) because they tend to assume that predation would never be profitable for a firm with a small market share (which they find relevant because they assume that the predatory price-cuts will be across-the-board and across-the-board price-cuts will be especially costly for firms with high market shares) while I think that, in a world in which products and locations are differentiated, predatory price-cuts will usually be individualized and will most frequently be profitable for firms with small market shares that have particular rivals that are far more competitive with the potential predator than with other sellers in the relevant "market," (3) because they ignore the possibility that predation may succeed by inducing its target to relocate its investments further away from the predator's projects, (4) because they ignore the fact that predation can deter rival QV investments by raising the retaliation barriers to entry and expansion faced by the predator's actual and potential competitors and can induce the predator's rivals to locate any QV investments they make in the relevant area of product-space further from the predator's projects than the target's QV investment(s) was/were located, (5) because they ignore the fact that in some cases the predator will be able to reduce the extent to which the possibility that rivals might replace the target's QV investment(s) decreases the profits yielded by predation by making QV investments itself, and (6) because they ignore the fact that predation in one ARDEPPS can increase the profits the predator can realize by engaging in additional strategic behavior in that ARDEPPS or in other ARDEPPSes by strengthening the predator's reputation for engaging in strategic conduct.

Other economists claim that predatory pricing will never be profitable because it will always be more profitable to buy the target out. I reject this argument (1) because it ignores the possibility that the law-related cost of practicing predatory pricing may be lower (given the difficulty of proving it--see below) than the law-related cost of a merger or acquisition and (2) because it ignores the possibility of combining predatory pricing with efforts to buy up the target at a distress price.

Admittedly, some economists do recognize that predatory pricing will sometimes be profitable, but they mistake the conditions under which predatory pricing will be profitable. Thus, some economists claim that predation will be profitable only for firms with monopoly power and only when "conditions of entry are difficult," by which I assume they mean "barriers to entry" on my definition are high. For reasons I will summarize below, I reject the preexisting-monopoly-power condition for the profitability of predatory pricing. For two reasons, I also reject the "high barriers to entry" condition:

(1) it ignores the possibility of QV-investment expansions by established rivals of the predator, and (2) it assumes incorrectly that potential competition will be ineffective when barriers to entry are high and effective when barriers to entry are low, whereas (put crudely) the effectiveness of potential competition actually depends on the height of the barriers to entry faced by the ARDEPPS' best-placed potential competitor relative to the height of the barriers to expansion and the monopolistic QV-incentives and disincentives or natural oligopolistic QV-investment disincentives that would face the best-placed potential expander at relevant QV-investment quantities.

Other economists implicitly claim that predatory pricing will be profitable when it is profitable for one or more established firms to charge lower prices than they would otherwise have found profitable to charge to deter entry--to practice so-called limit pricing. I wrote "implicitly" because these economists (and the courts that accept limit-pricing theory [which they sometimes call "wings" theory]) do not recognize that limit pricing is a variant of predatory pricing: even if limit pricing would differ from other variants of predatory pricing in that limit pricers would not be able to raise their prices after their pricing deterred an entry, it would still violate the specific-anticompetitive-intent test of illegality, and, in practice, limit pricers would probably be able to raise their prices after deterring entry because the deterred potential entrant would probably devote the assets it could have used to enter to some other use (because, on that account, even in the medium run, limit pricing would probably cause the barriers to entry faced by the ARDEPPS' [possibly-changing] best-placed potential competitor to rise). In any event, most economists who subscribe to limit-pricing "theory" seem to assume that established firms will practice limit pricing when the best-placed potential entrant faces moderate or substantial barriers to entry, not when it faces high or low barriers to entry. I reject limit-pricing "theory" (1) because I think that limit-price theorists vastly exaggerate the ability of limit pricing to deter entry, (2) because I can prove that, in the vast majority of situations, limit pricing would not be more profitable than allowing entry to occur even if it would deter entry, (3) because even if limit pricing were more profitable than allowing entry to occur, it would not be more profitable than other moves incumbents could make to deter entry (such as making [limit] QV investments), (4) because the limit-pricing theorists are incorrect in contending that, on their assumptions of efficacy, their theory implies that limit pricing will be profitable if and only if the barriers to entry facing the relevant ARDEPPS' best-placed potential competitor are moderate to substantial, (5) because the anecdotal evidence for the practice of limit pricing consists of accounts of cases in which an established firm made a limit investment, not of cases in which an established firm practiced limit pricing, and (6) because the alleged regression-equation tests of limit-price theory (which examine whether, controlling for seller concentration, supernormal profit-rates increase with barriers to entry) do not test the theory. (39)

Just as oligopolistic prices are prices above a relevant seller's HNOP, predatory prices are prices below a seller's HNOP. It should therefore be no surprise that all five categories of evidence that can favor the conclusion that a seller has engaged in oligopolistic pricing can be used to prove that a seller has engaged in predatory pricing. However, when the claim that a price is predatory is to be assessed, four possibilities that are either irrelevant to or were ignored by this article's discussion of the evidence that bears on whether a price is oligopolistic need to be considered--viz., the possibility that a low price was charged mistakenly, was a promotional price, was a leaming-by-doing price (a price charged to increase the seller's output because the costs the sellers will have to incur to produce a relevant quantity of the good in question in the future will be inversely related to the seller's current output of the good), or was defensively retaliatory (against a contriver who had retaliated against the pricer's undercutting or against a predator).

The law-study criticizes in detail a large number of price-cost-comparison-oriented proposals that have been made for resolving predatory-pricing cases. I will restrict myself here to reiterating two of these criticisms. First, the law-study rejects the proposal that prices below marginal costs be irrebuttably presumed to be predatory on the ground that such prices could have been charged mistakenly, could have been promotional, could have been motivated by leaming-by-doing benefits, and could have been defensively retaliatory: if the price was offensively retaliatory, it would be illegal if predatory pricing would have been illegal. (Recall that E.U. competition law does not prohibit predatory pricing practiced by an individual firm that is not dominant.) Second, the law-study rejects the proposal that prices above average total cost be irrebuttably presumed to be nonpredatory on the ground that a firm that could earn a higher supernormal profit-rate by charging its conventional (nonstrategic) profit-maximizing price for its product than the supernormal profit-rate a target rival could earn by charging conventional profit-maximizing prices for its product if it were not the victim of predatory pricing could practice predatory pricing by charging prices for its product that are lower than its nonstrategic profit-maximizing price but higher than its average total costs (say, if its predatory pricing lowered its short-run supemonnal profit-rate by the same amount that it lowered its target's).

The law-study also states and criticizes several other presumptions that academic economists have proposed courts use to resolve predatory-pricing cases. I will limit myself here to three of the points it makes about these other presumptions:

1. predatory pricing may be profitable for firms that did not have monopoly power over price prior to committing the allegedly-predatory acts;

2. the presumption that a price-cut made by an established firm after a new entry had taken place was predatory if it was followed by the exit of the new entrant and reversed within five (or two) years of its having been made is unwarranted because (A) a new entry will reduce the conventional profit-maximizing prices of all established firms in the relevant ARDEPPS, (B) many new entries fail even when the established firms do not respond to them by charging predatory prices, and (C) the exit of a recently-entered firm will increase the conventional profit-maximizing prices of the established firms in the relevant area of product-space; and

3. the irrebuttable presumption that any dominant firm that responded to entry by increasing its (unit) output by more than 10% within twelve to eighteen months of an entry has practiced predatory pricing is unwarranted because (A) (i) entry will lead to price-reductions and will also increase the total unit sales of the ARDEPPS in which it has taken place by increasing the quality and/or variety of the goods the ARDEPPS supplies and (ii) a dominant firm's unit sales might also rise following an entry because it has altered the products it offers for sale or because there has been a shift in tastes that favors its products' sales and (B) no empirical or theoretical argument justifies the irrebuttable inference that a dominant firm's increasing its output by more than 10% within twelve to eighteen months of an entry is requisitely likely to manifest its engaging in predatory pricing (is sufficiently likely to do so to justify its losing either a civil or a criminal predatory-pricing case).

I should add that, in my judgment, the irrebuttable presumption just delineated and several other proposals that economists have made about the way in which courts should handle predatory-pricing cases would be legally unjustifiable even if the presumption and proposals in question would make good legislative sense: defendants have both a legal and moral right (1) not to be found civilly liable for violating an antitrust law unless their liability is established by a preponderance of the evidence and (2) not to be found criminally liable (the Sherman Act is in part a criminal-law statute) unless their guilt is established beyond a reasonable doubt, and it seems to me that the irrebuttable presumptions and other proposals to which I am referring would violate these legal and moral rights of defendants even if a statutory revision adopting the presumptions and proposals in question would be desirable.

For reasons of space, I will restrict myself to stating five of the points or sets of related points the law-study makes about the U.S. and E.U. case-law on predatory pricing. The first point is that the U.S. case-law on predatory pricing reflects an effort by the U.S. courts to strike what they deem to be an appropriate balance between underdeterring predatory pricing by failing to convict or find liable defendants that have, in fact, engaged in predatory pricing and deterring legitimate price competition by convicting or finding liable defendants accused of predatory pricing whose pricing was, in fact, legitimately competitive. In my view, even if one could delineate an uncontestable standard for evaluating any such balance from a "policy" perspective, U.S. courts would not be authorized to handle predatory-pricing cases in this way. The duty of U.S. courts is to find the defendant(s) guilty in any criminal predatory-pricing case if and only if its (their) guilt has been established beyond a reasonable doubt and to find the defendant(s) liable in civil predatory-pricing cases if and only if its (their) liability has been established by a preponderance of the evidence. U.S. courts are not authorized to develop the decision-protocol for deciding predatory-pricing cases whose use will maximize economic efficiency or some other objective function that takes account of one or more relevant, defensible distributive norms when the use of that protocol will not result in the courts' deciding each such case as accurately as it can. If it would be desirable for the United States to have an operational decision-rule to determine the prices that are illegally low that was underinclusive, overinclusive, or partially underinclusive and partially overinclusive from the perspective of the goal of prohibiting predatory pricing, the Congress and not the courts should promulgate it. I hasten to add the obvious point that, in the United States, the preceding position does not imply the legal impermissibility or immorality of the Antitrust Division's deciding not to bring a civil or criminal predatory-pricing case that it thinks it should win on the legal merits if it believes that, from a policy perspective, it would be undesirable for it to bring the case.

The second point is that the way in which the U.S. courts strike the balance between underdeterring predatory pricing and deterring legitimate price-reductions is significantly influenced by the justices' and judges' belief that predatory pricing is rarely attempted and even more rarely successful. U.S. courts seem to have been persuaded that this is the case by the economics scholarship on this point that I criticized earlier. Although I cannot provide empirical evidence to support my contrary conclusion, I believe that predatory pricing is practiced far more often than U.S. courts recognize.

The third law-study point I want to make at this juncture relates to the Supreme Court's requirement that, to win a monopolization case, a private plaintiff or the government must demonstrate that the defendant had market power prior to engaging in the allegedly-illegal conduct. This "market power requirement" (which is operationalized in a less-demanding way in attempt-to-monopolize cases) makes the U.S. law as applied the same as E.U. law as written (in that Article 101 does not cover single-firm predation and Article 102 covers predation only if it is practiced by a dominant firm or a set of collectively-dominant firms). Unfortunately, this preexisting-power requirement is indefensible:

1. a firm does not have to have power in the market in which it is alleged to be practicing predatory pricing to be able to finance the short-run cost of predation since it can finance that cost from normal profits in that market, from the normal or supernormal profits it is earning in other markets, from its retained earnings, or externally;

2. as I have already indicated, a firm does not have to have preexisting market power in the relevant market to be able to obtain substantial benefits from driving out a particular rival that was particularly competitive with it (a rival that prevented it from having monopoly power over price);

3. a firm does not have to have preexisting market power in a market for the medium-run and long-run benefits from its predation not to be substantially reduced by the prospect of one or more replacement-investments being made by other rivals since the target may have been better-placed--may have faced lower (nD + R) barriers--than any other potential investor in the predator's niche faced, since the predation may raise the L barrier to making a QV investment near the predator's project, since the predator may be able to reduce the loss that the prospect of rival replacement-investments would inflict on it by making (limit) QV investments in its niche, since rival replacement-investments may be less competitive with the predator's projects than the target's QV investments were, and since replacement-investments may take a substantial period of time to execute; and

4. predation can increase its practitioner's profits not only directly but also by enhancing its reputation for engaging in strategic conduct.

In my judgment, the U.S. courts' market-power requirement reflects their mistaken belief that they are authorized to ignore attempts to monopolize that are likely to be unsuccessful, their failure to recognize that firms without power in a given market can still have access to a substantial amount of capital, their ignoring the fact that some pairs of firms in a given market may be more competitive with each other than other pairs of firms in that market are, their failure to develop any conceptual scheme for analyzing QV-investment competition or any theories about the determinants of the likelihood that an existing QV-investment project will be replaced or of the profitability of limit QV investments, and their failure to recognize that predation can increase the predator's profits by affecting the location of rival replacement-investments and enhancing the predator's reputation for engaging in strategic conduct.

The fourth set of law-study points I want to rehearse is that, although the Supreme Court's comments on the possible relevance of price/cost comparisons to the resolution of predatory-pricing cases have been jumbled, insufficiently defined, and ill-considered, the Courts of Appeal--after initially embracing a number of price/cost-comparison-focused decision-rules that academics recommended-- have over time increasingly rejected them.

The fifth and final set of law-study points I want to make at this juncture relates to the E.U. case-law on predatory pricing. The E.U. case-law on predatory pricing resembles the U.S. case-law (1) by assuming that all product-pairs in any market are equally competitive with each other and (2) by assuming that collaborative predation is unlikely to be feasible or profitable (though the E.U. courts' doubts about such collaboration are less strong than the doubts of the U.S. courts). The E.U. case-law also errs by maintaining that prices below average variable cost should be irrebuttably presumed to be predatory and that prices above average avoidable cost but below average total cost should be rebuttably presumed to be not predatory. The E.U. case-law on predatory pricing differs from and is superior to the U.S. case-law in that the E.U. authorities (1) are willing to examine whether pricing was predatory even if the perpetrator did not have "a realistic chance of recovering losses" once its rivals were eliminated, (2) recognize that predation can yield the predator profits by enhancing its reputation for engaging in strategic conduct, (3) pay appropriate attention to the possibility that pricing that may appear to be predatory may actually be promotional, motivated by learning-by-doing interests, rendered nonpredatory by the long-run cost-advantages of keeping a plant or mine in operation, or rendered nonpredatory by the perishability or predicted declining value of nondeteriorating inventory, (4) emphasize that the success of a predation campaign depends in part on the relative amounts of the predator's and its target's capital resources, and (5) reject (correctly) the U.S. courts' conclusion that prices above average total cost should be irrebuttably presumed not to be predatory.

(2) Predatory investments

(a) Predatory QV investments (40). A QV investment is predatory if and only if the QV investor's ex ante perception that it would be profitable was critically affected by its perception that it had a monopolistic QV-investment incentive to make it. This conclusion reflects two facts: (1) the fact that the perceived monopolistic QV-investment incentive was critical implies that, but for it, the QV investment would have been (A) subnormally profitable and therefore (B) economically inefficient in an otherwise-Pareto-perfect economy, and (2) the fact that the states of affairs that give a QV investor a monopolistic QV-investment incentive to make a particular QV investment render that investment more profitable without rendering it more economically efficient. Thus, the fact that the QV investor's investment is less competitive with the QV investor's other projects than the QV investment it deters would have been increases the contribution that the QV investment in question makes to the QV investor's overall organization's supernormal profits without changing the QV investment's economic inefficiency (since the fact that it is further away from the QV investor's other projects implies that it is closer to other QV investors' projects). And the fact that the QV investor's investment will elicit nonretaliatory responses from its other rivals that reduce the QV investor's profits less than those profits would have been reduced by the nonretaliatory responses that the QV investor's other rivals would have made to the rival QV investment the QV investment in question would deter raises the amount by which the QV investment increases the QV investor's total supernormal profits while, if anything, worsening its impact on economic efficiency.

Predatory QV investments must be distinguished from limit QV investments--QV investments whose investor-perceived ex ante profitability was critically affected by the investor's belief that the investment in question would (or might) deter a rival QV investment (in the relevant ARDEPPS). Although some limit QV investments are also predatory, many limit QV investments are not predatory: the fact that a QV investment is a limit QV investment does not guarantee that the investor perceived ex ante that it had a monopolistic QV-investment incentive to make it and a fortiori that it had a critical monopolistic QV-investment to make it. The fact that a QV investment was rendered ex ante profitable by the belief that it would deter a rival QV investment can manifest the fact that the deterred rival's readiness to enter eliminated or critically reduced a monopolistic QV-investment disincentive the investor in question would otherwise have faced, and many QV investments that a QV investor has a monopolistic QV-investment incentive to make will not be predatory because they would have been at least normally profitable even if the investor did not have a monopolistic QV-investment incentive to make them.

The law-study points out that the one article by economists that focuses on predatory QV investments (41) misdefines the concept. According to that article's authors, a QV investment should be deemed predatory if and only if the investor's ex ante perception that the investment was at least normally profitable was critically affected by the investor's belief that it would or might induce a rival to exit. I believe that this definition is both overinclusive and underinclusive. It is overinclusive in that (1) under it, some QV investments would be deemed predatory despite the fact that the individual relevant investors had no monopolistic QV-investment disincentive to make them because, for example, the investors in question had no other QV investments in the relevant area of product-space and (2) it would classify as predatory a QV investment that would increase economic efficiency in an otherwise-Pareto-perfect economy because its creation and use would be more economically efficient than the use of the QV investment whose exit it would induce but would be unprofitable (and economically inefficient) if (contrary to fact) it did not induce the exit of any rival QV investment. The article's definition is underinclusive in that, under it, a QV investment would not be deemed predatory because the investor's ex ante perception that the QV investment in question would be at least nominally profitable was not critically affected by its belief that it would or might influence a rival to exit despite the fact that the relevant investor's ex ante perception that it would be profitable was critically affected by the investor's belief that the investor had a monopolistic QV-investment incentive to make it because the QV investment in question would deter a rival QV investment that would be more damaging than the relevant QV investment would be to the profit-yields of the investor's other QV investments.

Predatory QV investments violate the Sherman Act, are not covered by the Clayton Act, are not covered by Article 101 unless they are made jointly (through an agreement) by two or more firms, are covered by Article 102 if and only if they are made by a dominant firm, and (if covered by Article 102) violate the exclusionary-abuse branch of its test of illegality and possibly lead to a violation of the exploitative-abuse branch of its test of illegality. For reasons of space, I will not discuss here any point the law-study makes about the U.S. or E.U. case-law on predatory QV investments.

(b) Predatory cost-reducing investments (42). Cost-reducing investments are (1) investments in plant-modernization, new-plant construction, or the recruitment and/or training of employees that are designed to reduce the average total cost the investor must incur to use existing technology to produce a relevant quantity of a product it already produces or (2) investments in PPR to discover new production processes that would enable the investor to reduce the average total cost of producing a relevant quantity of a product it already produces. A cost-reducing investment will be predatory if the investor's ex ante perception that the investment would be profitable was critically affected by the investor's belief that it would or might reduce the absolute attractiveness of the offers against which the investor would have to compete and this prospect rendered the investment ex ante profitable despite the fact that it would be ex ante economically inefficient in an otherwise-Pareto-perfect economy. More concretely, a cost-reducing investment will be predatory if (1) the investor believed ex ante that it would increase its profits by driving one or more extant rivals out, deterring one or more entries and/or established rival QV investments, or inducing one or more established rivals or prospective investors to relocate (locate) their QV investments further away from the QV investments of the investor whose cost-reducing investment is being scrutinized by reducing the investor's marginal costs of production, thereby improving its competitive-position array, thereby worsening the competitive-position arrays of its extant rivals on their extant products and the prospective competitive-position arrays of prospective rival QV investors on projects that would be competitive with the cost-reducing-investment investor's QV investments, thereby critically affecting the profitability of the exit/QV-investment/project-location decisions in question and (2) the investor would not have found the cost-reducing investment in question to be at least normally profitable ex ante but for its belief that it would or might increase its profits in one or more of the ways listed in Item (1) in this sentence.

To my knowledge, no scholar has ever recognized the possibility that a cost-reducing investment might be predatory, no nongovernment plaintiff has ever claimed that a cost-reducing-investment was predatory or violated U.S. or E.U. competition law for any other reason, and no U.S. or E.U. antitrust-enforcement authority (or court) has ever recognized the possibility that a cost-reducing investment might violate, respectively, U.S. antitrust law or E.U. competition law.

C. Horizontal Mergers and Acquisitions

The law-study analyzes the determinants of the legality of horizontal mergers under both the specific-anticompetitive-intent test of illegality promulgated by the Sherman Act and Article 101, the lessening-competition test of illegality of the Clayton Act and the EMCR, and the variant of the lessening-competition test of illegality promulgated by Article 101. (43) I will begin this account by summarizing the most important positive points or sets of positive points the law-study makes about analyzing the legality of horizontal mergers under these tests.

The first set of such points relates to the various types of Sherman-Act-licit and Sherman- Act-illicit profits a horizontal merger can generate. Under the specific-anticompetitive-intent-test of illegality, a horizontal merger will be lawful if the merger partners believed ex ante that their merger would be rendered at least normally profitable by the Sherman-Act-licit profits it would yield. The law-study points out (44) that horizontal mergers can generate Sherman-Act-licit profits in at least eight ways:

1. by generating static efficiencies,

2. by creating a merged firm that can increase its profits by changing the merger partners' QV investments and/or PPR projects to make them less jointly-unprofitably-duplicative,

3. by generating "dynamic efficiencies,"

4. by enabling the owner of one merger partner to retire--to satisfy a desire to liquidate his or her assets and escape the burdens of management,

5. by enabling one merger partner (and the merged firm) to take advantage of a tax loss that the other merger partner incurred but could not use,

6. by enabling the merger partners to overcome a collective-good problem that prevented them from spending as much money in electoral and government-decisionmaking processes as would be in their collective interest,

7. by creating a merged firm that is better able than either merger partner would have been to influence the timing of relevant sellers' price-announcements and locking-in behaviors so as to increase the heights of the prices in the HNOP-array for products in their ARDEPPS when the merged firm and its rivals set across-the-board prices, and

8. by creating a merged firm that can obtain more NOMs than the merger partners could have obtained by raising the merged firm's OCAs above the merger partners' and by creating a merged firm that can take better advantage of relevant economies of scale, that has a stronger relevant reputation for estimating its HNOPs accurately than does one of the merger partners, and/or that is better-placed to organize a series of premature price announcements.

The law-study also points out (45) that a horizontal merger can yield profits in a ninth way that may be Sherman-Act-licit--viz., by creating a merged firm that can purchase inputs at lower prices than the merger partners would have had to pay for them after the date of the actual or proposed merger because the merged firm would have more buyer power than the independent merger partners would have had. I have italicized the last clause because the profits that a horizontal merger generates by reducing the costs the merged firm must incur to purchase inputs by enabling it to take advantage of (1) economies of scale or non-scale-related complementarities that relate to a buyer's ability to identify its best-placed supplier, (2) bargaining-and-contracting-related transaction-cost economies of scale in purchasing, and (3) supplier-risk-cost-related economies of scale in purchasing are Sherman-Act-licit: more specifically, the private savings that horizontal mergers generate in these ways are Sherman-Act-licit because they are associated with effects that cause the merged firm's operations to be more economically efficient than the operations of the merger partners would have been (because they will not cause an economically-inefficient merger to be profitable in an otherwise-Pareto-perfect economy). I will discuss below why the profits that a horizontal merger generates by creating a merged firm with more buying power than the merger partners would have had may be Sherman-Act-licit but may also be Sherman-Act-illicit.

The law-study indicates five ways in which horizontal mergers can generate Sherman-Act-illicit profits (46):

1. by freeing the merger partners' from each other's price competition, thereby increasing their OCAs and derivatively their NOMs;

2. by freeing the merger partners' from each other's QV investment competition, thereby enabling them to profit by not making QV investments that were against their collective interest;

3. possibly (though I would not say probably (47)) by enabling the merged firm to profit more by practicing contrived oligopolistic pricing than the merger partners could have profited by doing so after the date of the actual or proposed merger;

4. by creating a merged firm that can profit more than the merger partners would have been able to profit after the date on which the merger took place or would take place by threatening to retaliate against rival QV investors; and

5. by creating a merged firm that can profit more from engaging in predation than the merger partners would have been able to do after the date of the actual or proposed merger 48

However, the fact that a horizontal merger will generate or did generate profits in these Sherman-Act-illicit ways is irrelevant to its legality under the specific-anticompetitive-intent test if the merger partners believed ex ante that it would yield normal profits in licit ways. Of course, if the licit profitability of a horizontal merger is contestable, the fact that it would yield illicit profits might be deemed to have some probative value.

I will restrict myself here to elaborating on five items in these lists. The first set of points I will make relates to the amount by which a horizontal merger that generates no static efficiencies will yield profits by freeing the mergers partners from each other's price competition. For simplicity, I will assume that (1) the merger partners and merged firm practice individualized pricing, (2) the merger will not affect the merged firm's OCAs by affecting the CMCs its rivals must incur to match the HNOP-containing offers of the merged firm, and (3) the merger will not cause the NOMs and COMs the merged firm would earn after the date on which the merger was or would be consummated to differ from the NOMs and COMs the merger partners would have earned after that date. On these assumptions, the amount by which a horizontal merger that yields no static efficiencies and does not affect equilibrium QV investment in the relevant ARDEPPS would yield profits by raising the merged firm's OCAs above the OCAs the merger partners would have had equals (1) the number of sales the merger partners were respectively uniquely-best-placed and uniquely-second-placed to make times the average amount by which in the above cases the second-placed merger partner was better placed than the third-placed supplier of the buyer in question plus (2) the number of sales that both merger partners and no other seller were equal-best-placed to make times the average amount by which in those cases the merger partners were better-placed than the third-placed supplier of the buyer in question. (49)

The second set of horizontal-merger-related law-study points I will rehearse at this juncture relates to the contribution that the static efficiencies a horizontal merger generates would make to the merged firm's profits if the merger would not affect equilibrium QV investment in the ARDEPPS in question. For simplicity, I will assume that the static efficiencies in question are efficiencies that lower by a given amount the marginal cost the merged firm must incur to produce each unit of the product in question and ignore any effects such efficiencies have on the NOMs the merged firm obtains (for example, by increasing the frequency with which it can obtain NOMs relative to the frequency with which the merger partners could have done so by increasing its OCAs in its relations with buyers a merger partner would have been best-placed to supply) and on the COMs the merged firm obtains (in various ways that I suspect, on balance, will reduce the COMs the merged firm obtains below those the merger partners would have obtained). On these assumptions, the profits a horizontal merger will generate by reducing by $X per unit the marginal costs the merged firm must incur to produce each unit of its products equals (the number of buyers the merger partners were best-placed or uniquely-equal-best-placed to supply times [$X]) plus ([the number of buyers the merger partners were worse-than-best-placed-to supply by less than $X] times [the difference between $X and the average amount by which the merger partner that was in the better position was worse-than-best-placed to supply those buyers]). (50)

The third set of horizontal-merger-related law-study points I want to summarize at this juncture relates to the detenninants of the profits that any dynamic efficiencies a horizontal merger yields will enable the merger partners (and merged firm) to earn. Those profits will depend not only on the size of the dynamic efficiencies generated (on the merger-generated reduction in the relevant [[[PI].sub.D] + R] barriers) but also inter alia on (1) whether one or both of the merger partners would have made the QV investments the merged firm made, in which case the profit-yield would equal (the merger-generated reduction in the [[[PI].sub.D] + R] barriers the merged firm faced on the QV investments in question) times (the total private cost of creating those QV investments), (2) whether the merger-generated reduction in the ([[PI].sub.D] + R) barriers the merged firm faced caused the merged firm to make one or more QV investments that increased the relevant ARDEPPS' equilibrium QV-investment quantity and that would not have been profitable for the merger partners by raising those QV investments' rates-of-return from a subnonnal to a normal or supernormal rate, in which case the supernonnal profits the dynamic efficiencies would enable the merged firm to earn would equal (the associated average reduction in [[[PI].sub.D] + R] minus the average difference between the nonnal profit-rate for the QV investments] in question and the subnonnal profit-rate the merger partners would have realized on the least-unprofitable QV investments of the same magnitude they could have made had they not merged) times (the dollar cost to the merged firm of creating the QV investments that the dynamic efficiencies the horizontal merger generated induced them to make), (3) whether the merger-generated reductions in the ([[PI].sub.D] + R) barriers the merged firm faced caused a merged-firm rival to make a QV investment the rival would not otherwise have made by critically reducing or eliminating what would have been the critical monopolistic QV-investment disincentives the rival would have faced absent the merger or converting a situation in which, absent the merger, the rival would have faced critical monopolistic QV-investment disincentives into one in which it faced monopolistic QV-investment incentives by changing a situation in which no-one would invest if the rival did not into one in which the merged firm would invest if the rival did not, in which case the dynamic efficiencies the merger generated would reduce the merged firm's profits by the amount by which the rival's induced QV investment(s) reduced the profits yielded by the merger partners' projects, and (least important empirically) (4) whether the merger-generated reduction in the ([[PI].sub.D] + R) barriers the merged firm faced deterred a merged-firm rival from making a QV investment it would otherwise have made by creating a situation in which the rival's QV investment would induce the merged firm to execute a QV investment when (absent the merger) the rival's QV investment would not have induced a merger partner or anyone else to make a QV investment, in which case the dynamic efficiency would increase the merged firm's profits by the loss that the deterred rival QV investment would have inflicted on the merger partners. (51)

I do not have space to discuss in any detail the fourth set of points that the law-study makes about horizontal mergers that I want to reference at this juncture--viz., the points it makes about the detenninants of the impact that a horizontal merger has on (1) the COMs the merged firm will secure relative to the COMs the merger partners would have secured absent the merger after the date of the merger and (2) the COMs the merged firm's rivals will obtain. However, I will make three points about those detenninants. First, all of them relate to the impact that a horizontal merger will have on the various determinants of the profitability of contrived oligopolistic pricing listed in the text that follows note 26 supra. Second, the tendency of horizontal mergers to increase the merged firm's OCAs and NOMs above those the merger partners would have obtained favors the conclusion that such mergers will reduce the COMs the merged firm obtains below those the merger partners would have obtained by increasing the safe profits the merged firm must put at risk to contrive an oligopolistic margin above the safe profits the merger partners would have had to put at risk to do so. And third, although a horizontal merger will affect the COMs that the merged firm's rivals obtain in other important ways as well, it will tend to increase the rivals' COMs inter alia (1) by enabling a rival that has excess reciprocatory power in its relations with one merger partner and not enough reciprocatory power to secure the cooperation of the other merger partner to make use of what would have been excess reciprocatory power absent the merger and (2) by enabling the rival to retaliate more-cost-effectively against the merged firm than it could have done against the merger partners both by raising the merged firm's (OCA + NOM)s above the merger partners' and by spreading the merged firm's defenses--i.e., by enabling the rival to retaliate against the merged firm by engaging in more retaliation by undercutting the merged firm's offers to customers of one merger partner and less retaliation by undercutting the merged firm's offers to customers of the other merger partner when the harm-inflicted to loss-incurred ratio for the last act of retaliation necessary against the former merger partner was higher than its counterpart for the latter merger partner. (52)

The fifth and final set of law-study points I want to reference at this juncture relates to the Sherman-Act-licitness of any profits a horizontal merger yields the merger partners by creating a merged firm that has more buying power than the merger partners would have had. A straightforward and plausible textual agreement can be made for the conclusion that such profits are illicit both under the Sherman Act and under the object-branch of Article 101(1) (which should be read to cover horizontal mergers and acquisitions as "agreements between undertakings," even though European antitrust officials and scholars seem to disagree with this conclusion). This textual argument is based on two facts: (1) horizontal mergers are agreements that (A) enable the merger partners to avoid competing against each other as buyers (are agreements in restraint of trade) and (B) are motivated in part by the merger partners' desire to limit or restrict the competition in which they engage as buyers and (2) neither the Shennan Act nor Article 101(1) draws an explicit distinction between reducing the competition in which firms engage as sellers and reducing the competition in which firms engage as buyers. (I would not make much of the fact that Section 2 of the Sherman Act contains the words "monopolizes" and "attempts to monopolize" but not the words "monopsonizes" or "attempts to monopsonize.") This textual argument could be reinforced by a moral argument that, just as it is wrongful for sellers to benefit themselves at their customers' expense by agreeing not to compete against each other or merging to enable themselves not to compete against each other as sellers when the decisions in question manifest the sellers' specific anticompetitive intent, it is wrongful for buyers to benefit themselves at their suppliers' expense by agreeing not to compete against each other as buyers or merging to enable themselves not to compete against each other as buyers when the decisions in question manifest their specific anticompetitive intent. (53) However, to my knowledge, only one U.S. case, decided in 1948, has made this textual/moral argument against buyer price-fixing (and, by implication, against horizontal mergers that enable the merger partners to avoid competing against each other as buyers). (54) The more-recent U.S. judicial opinion (written by Judge Richard Posner), (55) the Guidelines promulgated by the U.S. DOJ and FTC, (56) and the academic scholarship (57) that has addressed the Sherman-Act-licitness of the profits that horizontal mergers generate by creating a merged firm that has more buying power than the merger partners would have had make a different, economic argument for their conclusion that such profits are not Sherman-Act-licit.

More specifically, all these antitrust officials and academic commentators have tried to justify their conclusion that any profits a horizontal merger generates for the merger partners by creating a merged firm that has more buying power than the merger partners would have had are Sherman-Act-illicit by arguing that increases in monopsony power disserve the interest of final consumers and that that fact implies that any profits a merger generates for the merger partners by increasing their monopsony power are Sherman-Act-illicit. I have three comments about the above economics conclusion. First, if the merged firm for which mergers generated monoposony power acted as a nondiscriminating monopsonist that faced an upward-sloping supply curve and purchased the relevant input without bargaining (in an anonymous, auction-type setting), the merger might well on this buyer-power account increase the prices the merged firm charged for its products above the prices the merger partners would have charged for theirs by increasing the cost the merged firm had to incur to purchase the marginal unit of the monopsonized input above the costs that the merger partners would have had to pay for the marginal unit in question by raising the cost the merged firm had to pay for that unit above the unit's price by an amount equal to the additional payments it had to make for the intra-marginal units of the input it purchased in order to buy the marginal unit (at the same time that it reduced the average cost the merged firm had to pay for the monopsonized input below the average cost that the merger partners would have had to incur to buy it). Second, if the merged firm that had merger-generated buyer power purchased the monopsonized input through bargaining (found itself in a bilateral-monopoly situation), the fact that the merger created a merged firm that had more monopsony power than the merger partners would have had would probably tend to cause the merged firm to charge ultimate consumers lower prices than the merger partners would have charged them because the merged firm would probably have to incur lower costs to purchase the marginal unit of the monopsonized input than the merger partners would have had to incur to do so, given that the merged firm would probably strike a deal with the relevant suppliers under which it could buy as much of their product as it wanted for a lower per-unit price than the merger partners would have had to pay for it. Third, I think that monopsonists usually operate in bilateral-monopoly situations and hence that horizontal-merger-generated increases in buyer power usually benefit ultimate consumers. My conclusion, therefore, is that, if the Sherman- Act-licitness of the profits that a horizontal merger yields the merger partners by creating a merged firm that has more buying power than the merger partners would have had depends on whether ultimate buyers are benefited or harmed by the merger-generated increase in the merger partners' buying power, those profits will be Sherman-Act-licit. However, although I am confident about the economics premises of my conclusion, I admit that the textual (and moral) argument for the opposite conclusion has real force. No similar textual argument disfavors the related conclusion that the fact that a horizontal merger creates a merged firm with more buying power than the merger partners would have had favors its legality under a lessening-competition test of illegality because that fact favors the conclusion that the merger will benefit relevant buyers on this account. 1 should add the EC's Guidelines on the Assessment of Horizontal Mergers take a position on the legal relevance of any tendency of a horizontal merger to create a merged firm that has more buying power than the merger partners would have had that is much closer to my position than it is to the position of U.S. authorities and scholars: although the EC Guidelines state that any tendency of a horizontal merger to increase the merged firm's buying power above the buying power that the merger partners would have had will injure relevant buyers if it leads the merged firm to foreclose its rivals, the Guidelines also state that any "increase[] [in the] buying power [of the merged firm] may be beneficial for competition ... [because] a proportion of [the associated input-] cost reductions ... is likely to be passed on to consumers in the form of lower prices." (58)

The law-study's positive analysis of the legality of horizontal mergers under the lessening-competition test that I believe the Clayton Act and the EMCR promulgate points out (59) that many of the effects of such mergers that are associated with Sherman-Act-illicit profits--viz., any merger-generated-increases in the merged firm's OCAs, NOMs, and COMs and any increase in the merged firm's profits that the merger generates by facilitating the merged firm's erection of retaliation barriers to rival QV investments and practice of predation--will be associated with losses for relevant buyers that disfavor the merger's legality under a lessening-competition test of illegality (though it is not clear that COM-related, L-barrier-related, and predation-related effects are relevant under the Clayton Act since the postmerger conduct that increases the COMs and Ls and the postmerger predation are independently illegal). (Article 101(l)'s list of the ways in which covered conduct can violate one or more of its tests of illegality includes items--in clause (a)--whose inclusion makes it clear that it should be interpreted to be a fence law--that the fact that covered conduct will tend to generate subsequent conduct that independently harms relevant buyers counts against the initial conduct's legality.)

The law-study also points out several differences between the specific-anticompetitive-intent and lessening-competition analysis. I will limit myself here to referencing three such differences. First, the determinants of the impact of any static efficiencies a horizontal merger generates on Clayton-Act-relevant-buyers are different from the determinants of the impact of such efficiencies on merger-partner profits. Thus, although the effects that are relevant under the lessening-competition test will also vary according to the premerger position of the better-placed merger partner and the size of the static efficiency (say, as before, $X per unit), the impacts on Clayton-Act-relevant-buyers are different from the impacts on merger-partner profits. For example, a marginal-cost-reducing static efficiency will clearly not benefit those buyers a merger partner was best-placed to supply premerger and may even harm such buyers by creating a merged firm that can obtain an NOM when the best-placed merger partner could not have done so because the merged firm's OCA is higher than the OCA the best-placed merger partner would have enjoyed. A highly-simplified variant of the more complicated, accurate conclusion would be that any marginal-cost-reducing static efficiencies that a horizontal merger generates will benefit those buyers the merged firm is best-placed to supply but the better-placed merger partner would have been worse-than-best-placed to supply by (1) the difference between the static efficiency in question and the amount by which the merged-firm rival that would have been best-placed to supply the relevant buyer absent the merger would have been better-placed than the merger partner that would have been better-placed to secure the relevant buyer's patronage than its partner would have been pre-merger plus (minus) (2) the amount by which the merger decreased (increased) the NOMs these buyers had to pay (because the merged firm's OCAs were lower [higher] than the OCAs that the firm that would have been those buyers' best-placed supplier absent the merger). (60)

Second, dynamic efficiencies that increase the supernormal profits that a merged firm earns on a QV investment that a merger partner would have made in any event will not benefit Clayton-Act-relevant-buyers if they are fixed-cost efficiencies but will benefit Clayton-Act-relevant-buyers if the efficiencies are marginal-cost efficiencies; dynamic efficiencies that cause the merged firm to make a QV investment that raises equilibrium QV investment in the relevant ARDEPPS above what it would have been absent the merger will benefit Clayton-Act-relevant-buyers by the sum of the buyer surplus generated by the use of the extra QV investment and the gains relevant buyers obtain when the extra QV investment causes the prices charged for the preexisting QV investments in the ARDEPPS in question to be lowered; dynamic efficiencies that cause a merged-firm rival to make a QV investment that raises the equilibrium QV-investment quantity in the relevant ARDEPPS (by critically reducing or eliminating what would have been the critical monopolistic QV-investment disincentives the actual investor would have faced absent the merger or giving it monopolistic QV-investment incentives to make the QV investment it made by creating a situation in which the merged firm would invest if the actual investor did not in circumstances in which, absent the merger, no-one would have invested if the actual investor did not) will benefit Clayton-Act-relevant-buyers in the same two ways as they would be benefited by a dynamic-efficiency-induced merged-firm QV investment that raises equilibrium QV investment in the ARDEPPS in question (though the efficiencies in question will reduce merger-partner profits in such cases); and, least importantly empirically, dynamic efficiencies that reduce equilibrium QV investment in the ARDEPPS in question by deterring a merged-firm rival from making a QV investment it would otherwise have made by creating a situation in which (1) the merged Finn would expand if its expansion would not induce a rival to make a QV investment when neither merger partner would have done so absent the merger and (2) the merged firm and the relevant rival confront each other with critical natural oligopolistic QV-investment disincentives--a result that will inflict a loss on Clayton-Act-relevant-buyers while conferring a benefit on the merger partners.

Third, horizontal mergers can generate effects that impose losses on relevant buyers (in particular, on customers of the merged firm's rivals) either without conferring Sherman-Act-illicit gains on the merger partners or as a secondary consequence of its generating licit or illicit gains for the merger partners. For example, the fact that a horizontal merger creates a merged firm that is more vulnerable to retaliation by its rivals than the merger partners would have been (by increasing the merged firm's OCAs above the merger partners', by freeing the merger partners from each other's price competition, by generating static efficiencies, and/or by creating a merged firm all of whose products [regardless of the merger partner that produced them premerger] can be targeted for retaliation or reciprocation) will not be associated with any gains to the merger partners but may result in customers' of the merged firm's rivals having to pay higher COMs than they would otherwise have had to pay. Or the fact that a horizontal merger increases the prices the merged firm charges the merger partners' customers by freeing the merger partners from each other's competition and/or by creating a merged firm that can profit by improving the goods and services the merger partners offered so as to increase its OCAs and HNOPs above theirs will result in customers' of the merged firm's rivals sustaining a loss if the associated rise in the merged firm's prices to the merger partners' customers increases the contextual marginal costs the merged firm would have to incur to match the premerger HNOP-containing offer of one or more rivals to their customers above the contextual marginal costs the merger partners would have had to incur to do so in cases in which a merger partner would have been a uniquely-second-placed supplier of the buyer in question.

In addition to executing positive analyses of economic issues that relate to the legality of horizontal mergers under specific-anticompetitive-intent and lessening-competition tests of illegality, the law-study also contains critiques of the approach U.S. courts traditionally took to horizontal merger cases, (61) the 1992 U.S. Horizontal Merger Guidelines, (62) the EC Guidelines (which resemble the U.S. 1992 Guidelines), (63) and the 2010 U.S. Horizontal Merger Guidelines. (64) Considerations of space limit me to repeating only a few of the law-study's criticisms.

Traditionally, the U.S. courts at least claimed to base their conclusions on the legality of horizontal mergers primarily on the merger partners' shares of the markets in which they were deemed to be operating and the four-firm or eight-firm concentration ratios of those markets. I will restrict myself to repeating six of the law-study's criticisms of this traditional U.S. judicial approach. First, when using this approach to analyze the legality of horizontal mergers, the U.S. courts did not identify or distinguish the Sherman Act's specific-anticompetitive-intent test of illegality and the Clayton Act's possibly-natural-monopoly- type-organizational-allocative-efficiency-defense-qualified lessening-competition test of illegality. Second, the U.S. courts never questioned their merger-partner-market-share/seller-side market-concentration approach's implicit assumption that markets can be defined non-arbitrarily. Third, even if markets could be defined nonarbitrarily, there would be little or no correlation between the merger partners' market shares and a fortiori the defined market's four-firm or eight-firm seller-concentration ratio and the amount of Sherman-Act-illicit profits and Clayton-Act-relevant-buyer losses a horizontal merger generated or would generate by freeing the merger partners from each other's price competition. This claim reflects the following three facts: (1) the ratio of the percentage of buyers in any ARDEPPS a firm is uniquely-best-placed to supply (which correlates strongly and positively with its market share) to the percentage of the ARDEPPS' buyers the firm is uniquely-second-placed to supply (which would correlate strongly and positively with the two legally-relevant effects of a horizontal merger delineated above if all firms in an ARDEPPS were uniquely-second-placed to supply the same percentage of each of its in-ARDEPPS rivals' customers) differs substantially from seller to seller in virtually all ARDEPPSes; (2) the sellers in any ARDEPPS are virtually never uniquely-second-placed to supply the same percentage of the buyers that each of their rivals in that ARDEPPS is uniquely-best-placed to supply; and (3) there is no correlation between either (A) the frequency with which two firms are respectively best-placed and second-placed to secure a buyer's patronage and the average amount by which the second-placed firm is better-placed than the third-placed supplier of the relevant buyers or (B) the frequency with which two firms are uniquely-equal-best-placed to secure a buyer's patronage and the average amount by which the two uniquely-equal-best-placed firms are better-placed than the third-placed supplier of the buyer in question. Fourth, even if markets could be defined nonarbitrarily, the correlation between (say) two rivals' market shares and the amount by which their horizontal merger would increase their COMs would be extremely weak. For example, the market shares of the merger partners (and a fortiori the relevant market's seller-concentration ratio) would tell you little about (1) their merger's impact on the number of potential undercutters the merged firm would face relative to the number that the merger partners would have faced, (2) the extent to which the merger would increase the ability of the merged firm relative to that of the merger partners to detect undercutting by an inferior from circumstantial (sales) evidence (on the one hand, the larger each merger partner's market share, the greater the additional amount of such evidence the merger would place at the disposal of the merged firm; on the other hand, the larger each merger partner's market share, the less need each merger partner would have for additional evidence of this kind; and, in any case, since total sales vary from ARDEPPS to ARDEPPS, the correlation between the merger partners' market shares and the amount of sales-data each has is quite low), (3) whether and the extent to which the merger would enable the merged firm to take advantage of any excess reciprocatory power one merger partner has vis-a-vis a non-merger-partner potential undercutter, (4) whether and the extent to which the merger would increase the merged firm's harm-inflicted to loss-incurred ratio for a relevant amount of harm inflicted on an undercutter by its retaliatory pricing above that for the merger partners because the marginal ratios for the last act of retaliation each merger partner would have found necessary to direct at a particular relevant rival are different, (5) the extent to which the merger will increase the contribution that contrivance in the ARDEPPS in which the merger would take place would increase the profits the merged firm can earn by engaging in strategic behavior in other ARDEPPSes by enhancing its reputation for engaging in such conduct (since the merger partners' shares of the sales of the ARDEPPS in which the merger did or would take place have little bearing on the amount of sales they make in other ARDEPPSes), and (6) the likelihood that the merged firm would engage in (illegal) contrived oligopolistic pricing even if it were profitable for the firm to do so, etc. Fifth, even if the relevant market could be defined nonarbitrarily, the merger partners' market shares and a fortiori the relevant market's seller-concentration ratio would have little bearing on the benefits that any static efficiencies it generated would confer on Clayton-Act-relevant-buyers since it would have little bearing on either (1) the magnitudes of those efficiencies or the frequency with which a merger partner was second-placed or (2)(A) the frequency with which the amount by which a merger partner that was worse-than-second-placed was lower than the static efficiency that was generated and (B) the average difference between the two amounts referenced after (2)(A) in this sentence. Sixth, even if the relevant market could be defined nonarbitrarily, the merger partners' market shares and a fortiori the relevant market's seller-concentration ratio would have little bearing on either the Sherman-Act-licit profits or Clayton-Act-relevant-buyer gains generated by any dynamic efficiencies a horizontal merger generated both because the merger partners' market shares and the relevant market's seller concentration have no bearing on either (1) the size of the dynamic efficiencies their merger did or would generate or (2) the other factors that determine whether such dynamic efficiencies will yield the merger partners profits or Clayton-Act-relevant-buyers gains.

I will restrict myself to repeating eight of the criticisms the law-study makes of the U.S. 1992 Horizontal Merger Guidelines. First, the law-study points out that the 1992 Guidelines' abstract (SSNIP [small but significant nontransitory increase in price]-oriented) definition of the antitrust markets into which the Agencies state they will place the merger partners' respective products (a market for each merger-partner product that contains that product and the smallest set of rival products whose [hypothetical] combination with the merger-partner product would create an entity that could profit most by raising the relevant products' prices by a significant weighted-average percentage [say, 5%] for a nontransitory period of time if the producers of no other product made any response to the price-increases in question) (1) is badly drafted and (2) serves no useful purpose in that no protocol for analyzing the competitive impact of a horizontal merger that bases its conclusions even in part on postmerger HHI figures and merger-induced increase-in-HHI figures that are derived from the associated market definitions can possibly be justifiable. Second, the law-study points out that the protocol that the 1992 Guidelines claim will enable the Agencies to identify the products whose placement in the market in which a merger-partner product is placed will satisfy its abstract market definition--viz., add to the merger-partner product its successive next-best "substitutes" (actually, "competitors" should be substituted for "substitutes") until the resulting (hypothetical) combination satisfies the Guidelines' abstract market-definition (in particular, is an entity that would find it most profitable to increase the prices of the products under its control by a weighted average of at least 5% if no rival would respond to its price-increases) is misguided in that it ignores the nontransitivity of competitiveness-relationships (i.e., the fact that a product that is a relatively-distant competitor of the merger-partner product may be the closest competitor of the merger-partner product's closest competitor so that the relevant smallest set of products might consist of the merger-partner product, the closest competitor of the merger-partner product, and the seventh-closest competitor of the merger-partner product [which is the closest competitor of the merger-partner product's closest competitor]). Third, the law-study explains why the 1992 Guidelines' assertion that a horizontal merger between firms with market shares of X% and Y% will increase the relevant market's HHI by 2XY is incorrect. Fourth, the law-study explains and illustrates the indefensibility of the irrebuttable presumption of legality and the rebuttable presumptions of illegality that the 1992 Guidelines establish, all of which are based exclusively on estimates of the defined market's postmerger HHI and merger-induced increase in that HHI. Fifth, the law-study criticizes the 1992 Guidelines' Qualifying Factor analysis: (A) perhaps most importantly, explains why the appropriate response to the relevance of those "qualifying factors" that reveal the inaccuracy of competitive-impact predictions based exclusively on the magnitudes of the defined market's postmerger HHI figure and the merger's impact on the defined market's HHI figure is not (1) to generate an initial prediction from the magnitudes of those market-aggregated parameters and then adjust that prediction to take the qualifying factors into account but (2) to abandon the HHI-focused approach altogether and derive the relevant prediction through a nonmarket-focused approach in which the qualifying factors play a substantial role, (B) explains why the prospect of merged-firm rivals' relocating their QV investments in the defined market does not reduce the loss that a horizontal merger will impose on Clayton-Act-relevant-buyers by freeing the merger partners from each other's competition--viz., because the relocation will increase the prices that buyers of products in the relocated investment's original location must pay for those goods and services at the same time as it reduces the prices that buyers of the merger partners' products and those products' close rivals must pay for the latter two sets of goods, (C) points out that the Qualifying Factor section contains virtually no analysis of the determinants of the profitability of contrived oligopolistic pricing, makes the incorrect claim that product heterogeneity (they should have said "product heterogeneity in which the relevant products have different marginal costs of production and prices") disfavors the profitability of contrived oligopolistic pricing on balance, and provides an impoverished analysis of the determinants of the impact of a horizontal merger on the profitability of contrived oligopolistic pricing, (D) notes that the 1992 Guidelines totally ignore natural oligopolistic pricing and the possible impact of horizontal mergers on NOMs, (E) explains that the 1992 Guidelines contain no analysis of the determinants of the intensity of QV-investment competition in any "market" or of the determinants of the impact of a horizontal merger on the intensity of QV-investment competition and ignore the fact that merger-generated increases in the QV-investment quantity in a "market" in which a horizontal merger takes place will benefit Clayton-Act-relevant consumers not only because they will lower the prices of the goods that would otherwise have been supplied in that market but also because buyer surplus will be generated by the sale of the products and services created by the additional QV investments, (F) indicates that the 1992 Guidelines fail to point out the consequences of any static or dynamic efficiencies a horizontal merger generates that are relevant for the merger's legality (an omission that the 1997 Revision of the 1992 Guidelines remedies) and fails as well to analyze the determinants of the magnitudes of those consequences that are legally relevant (an omission that the 1997 Revision and 2010 Guidelines do not remedy), and (G) shows that the failing-company defense that the 1992 Guidelines recognize requires the failing company to demonstrate not just that its proposed merger would not lessen competition relative to the state of the world that would prevail if the failing company did nothing but that the failing company had made unsuccessful good-faith efforts to elicit reasonable alternative "offers of acquisition of ... [its] assets ... that would both keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger" (65)--a requirement that I think is incorrect as a matter of U.S. law in that it shifts the baseline for competitive-impact calculation from the standard do-nothing baseline to the most-procompetitive-move-a-defendant-could-have-made baseline.

Although the EC's approach to market definition and horizontal-merger Guidelines are modeled on the 1992 U.S. Guidelines, the EC Guidelines do differ from the U.S. 1992 counterparts in several respects. The law-study examines the relevant resemblances and differences in considerable detail. I will limit myself here to pointing out (1) the seven most-salient ways or related sets of ways in which the EC Horizontal Merger Guidelines resemble the U.S. 1992 Guidelines and (2) the six most-salient differences between the EC Horizontal Merger Guidelines and the U.S. 1992 Guidelines.

The first important set of resemblances is that the EC adopts both (1) the 1992 U.S. Guidelines' SSNIP (hypothetical monopolist) abstract definition of an antitrust market and (2) the 1992 U.S. Guidelines' protocol for identifying the products that should be placed in any antitrust market in which a merger-partner product is placed. The second important resemblance is that, like the 1992 U.S. Guidelines, the EC Guidelines place considerable emphasis on the relevant markets' postmerger HHIs and the merger-generated increase in those markets' HHIs, although they do not contain any HHI-focused irrebuttable presumption of legality and state that, more generally, the EC will use estimates of the relevant post-merger HHI figures and merger-generated increase-in-HHI figures solely as "initial indicators." Third, and relatedly, like the U.S. 1992 Guidelines, the EC Guidelines take account of the qualifying factors whose relevance they recognize not by substituting a qualifying-factor-oriented analysis for an HHI-oriented analysis but by using estimates of the magnitudes of the qualifying factors to adjust predictions generated from estimates of HHI-focused parameters. Fourth, like their U.S. 1992 counterparts, the EC Guidelines recognize that the unilateral effect of a horizontal merger on prices depends on the frequency with which the merger partners are respectively uniquely-best-placed and uniquely-second-placed to supply given buyers and, in those cases in which the merger partners occupy such positions, the average amount by which the second-placed merger partner is better-placed than the third-placed supplier of the buyers in question. Fifth, like the 1992 U.S. Guidelines, the EC Guidelines (1) ignore natural oligopolistic pricing, (2) contain inadequate analyses of both the determinants of the profitability of contrived oligopolistic pricing and the determinants of the impact of a horizontal merger on the profitability of contrived oligopolistic pricing, (3) fail to recognize that horizontal mergers can generate increases in the prices charged to customers of the merger partners' rivals, and (4) do not develop a satisfactory analysis of the determinants of the impact of a horizontal merger on QV-investment competition. The sixth important resemblance between the EC Guidelines and the 1992 U.S. Guidelines is that neither contains any analysis of the determinants of the impact that any static or dynamic efficiencies of given size will have on relevant buyers. The seventh and final important resemblance between the EC Guidelines and the 1992 U.S. Guidelines I will identify here is that both make virtually the same failing-company defense available to defendants (though [unlike its U.S. counterpart] the EC Guidelines' rejection of the do-nothing baseline for analyzing the competitive impact of horizontal failing-company mergers may be correct as a matter of the applicable law).

I turn now to the six most salient differences between the EC Guidelines and the 1992 U.S. Guidelines. First, as 1 have already indicated, the EC Guidelines seem to place less weight on post-merger-HHI figures and merger-generated increase-in-HHI figures than do the U.S. 1992 Guidelines--in particular, use such figures as only "initial indicators." Thus, the EC Guidelines do not create a safe harbor for horizontal mergers for which the relevant-market postmerger-HHI figure is under 1,000--state only that such mergers will normally not require extensive analysis. The second important difference is somewhat inconsistent with the first: the EC Guidelines contain several statements that have no direct counterparts in the 1992 U.S. Guidelines that reveal the EC's beliefs that (1) a merger partner's premerger market share has a substantial impact on its merger's effect on the difference between the merged firm's OCAs and the merger partners' OCAs and (2) one can infer a firm's market power from its market share. Third, the EC Guidelines indicate that the EC will be less likely than the 1992 U.S. Guidelines indicate the DOJ and FTC would be to challenge horizontal mergers when the postmerger HHI figure for the relevant market is over 1,000: I should add that the DOJ/FTC practice between 1992 and 2010 was more in line with the EC Guidelines than with the U.S. Agencies' own 1992 Guidelines. Fourth, the EC Guidelines contain more information about how the EC will determine the frequency with which and amount by which merger partners are each other's closest competitors than the U.S. 1992 Guidelines provide about how the DOJ and FTC will investigate these issues. Fifth, although still far from adequate, the EC Guidelines' discussions of the determinants of the profitability of contrived oligopolistic pricing and of the character of the various barriers to entry contain more useful information than the U.S. 1992 Guidelines' treatments of these issues contain. And sixth, the EC Guidelines manifest the fact that, like most European antitrust-scholars, the EC believes in limit-pricing "theory"--i.e., endorse the claim that, in all situations or in a wide variety of identifiable situations (for example, when a market's best-placed potential entrant faces moderate-to-substantial barriers to entry), established firms will respond to the presence of an effective potential competitor (to the "threat" of entry) by charging lower prices than they would otherwise find profitable to deter the entry (to "limit" entry). I have already explained why this "theory" is unpersuasive.

The final element of the law-study's analysis of horizontal mergers I want to discuss at this juncture is its account of the U.S. 2010 Horizontal Merger Guidelines. I will restrict myself here to the five most important differences between the 2010 and 1992 U.S. Guidelines that the law-study points out.

First, the 2010 Guidelines change the 1992 Guidelines' abstract definition of a relevant antitrust market by substituting for the 1992 Guidelines' requirement that the hypothetical combination render it most profitable for the hypothetical combinant to raise the prices of all products it would produce in the relevant market by a weighted average of at least 5% for a requirement that the hypothetical combination render it most profitable for the hypothetical combinant to raise by at least 5% the price of "at least one product in the market, including at least one product sold by one of the merging firms." (66) As the law-study indicates, the 2010 Guidelines make no attempt to justify this change, and I have no idea why the Guidelines' authors considered it to be an improvement.

Second, the 2010 Guidelines appear to reject the 1992 Guidelines' "add to each merger-partner product its closest and successively-next-closest substitute [read: competitor]" protocol for identifying the products that would be in the market whose definition conforms with the Guidelines' abstract-market definition. At least as an analytic matter, this step is an improvement. (I had explained why the 1992 Guidelines' protocol was wrong to some economists and lawyers who work at the Antitrust Division in a colloquium I gave there some years before, but at that time they were far from convinced--indeed, said that my argument was incomprehensible.)

Third, unlike the 1992 Guidelines, the 2010 Guidelines create no safe harbors.

Fourth, the postmerger relevant-market-HHI figures and merger-generated increases-in-HHI figures that the 2010 Guidelines state (1) "raise significant competitive concerns" and "warrant scrutiny" of the competitive impact of a horizontal merger or (2) create a rebuttable presumption that the associated merger will lessen competition (will "enhance market power") are much higher than their counterparts in the 1992 Guidelines' General Standards--are more in line with the DOJ's and FTC's 1992-2010 practice (and their EC Guideline counterparts).

Fifth, although DOJ and FTC officials insist that the 2010 Guidelines manifest the Agencies' continuing commitment to market-oriented analysis (a conclusion that is consistent with the preceding items in this list), the 2010 Guidelines contain many provisions that favor the conclusion that, in fact, the analytic protocol they promulgate is not really market-oriented (that, although the Guidelines suggest that the Agencies will continue to explain their conclusions in market-oriented terms, they will not actually derive their conclusions from market-oriented analyses). Thus, at Section 4.1.1 [paragraph] [5, the 2010 Guidelines state that the Agencies will "usually" [emphasis added] employ the hypothetical-monopolist test for market definition; at Section 4.1.2, they indicate that the Agencies will sometimes operationalize the SSNIP (which usually refers to a price-increase of 5%) to refer to "a price increase that is larger or smaller than 5%"; at Section 4.1.1. [paragraph] 5, they state that the Agencies will "usually" (i.e., not always) define the relevant antitrust market to be the smallest market that satisfies the SSNIP (hypothetical-monopolist) test; respectively at Sections 5.2 [paragraph] 5 and 5.2 [paragraph] 6, the 2010 Guidelines state that the Agencies will base their attribution of a market share to a particular firm not on its share of existing sales made in the defined market but on its "capacity or reserves" or its sales to "a broader group of customers" if doing so will generate HHI figures that better reflect the firm's contribution to competition (that yield competitive-impact predictions that are more accurate); at Sections 5.1 [paragraph] 1 and 5.2 [paragraph] 1, the Guidelines state that, in order to increase the accuracy of the Guidelines' HHI-oriented competitive-impact predictions, the Agencies will place a firm in the Guidelines' defined relevant market and attribute to the firm a market share despite the fact that the Guidelines' hypothetical-monopolist test would not result in the firm's being placed in the market in question; at [paragraph] 8 of Section 5.3 (the last paragraph of that section), the Guidelines state that "[t]he purpose of ... [their HHI-oriented] thresholds is not to provide a rigid screen to separate competitively benign mergers from anticompetitive ones"; the 2010 Guidelines' General Standards, articulated in Section 5.3 [paragraph] 7 and quoted in the text that follows, manifest this reality by using such language as "ordinarily [emphasis added] require no further analysis," "often [emphasis added] warranted scrutiny," "will be presumed to be likely [emphasis added] to enhance market power," and "[t]he presumptions may be rebutted by persuasive evidence"; at Section 4.1.1 [paragraph] 5, the Guidelines refer to "the overarching principle that the purpose of defining the market and measuring market shares is to illuminate the evaluation of competitive effects"; at Section 1 [paragraph] 4, the Guidelines state that "[t]hese Guidelines should be read with the awareness that merger analysis does not consist of uniform application of a single methodology"; at Section 2.1.2 [paragraph] 1, the Guidelines indicate that the Agencies will sometimes base their competitive-impact predictions (at least in part) on "natural experiments"--a methodology that in practice has usually not been market-oriented; in Section 6.1, the Guidelines state that the Agencies will sometimes "construct economic models" or rely on "merger simulation methods," both of which need not rely on market definition; and in Section 4 [paragraph] 4, the Guidelines state that "[w]here analysis suggests alternative and reasonably plausible candidate markets, and where the resulting market shares lead to very different inferences regarding competitive effects, it is particularly valuable to examine more direct forms of evidence concerning those effects."
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Title Annotation:Abstract through C. Horizontal Mergers and Acquisitions, p. 3-52; Symposium: Economics and the Interpretation and Application of U.S. and E.U. Antitrust Law
Author:Markovits, Richard S.
Publication:Antitrust Bulletin
Date:Mar 1, 2016
Words:31045
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