Academic journal article Journal of Corporation Law

Cross-Market Balancing of Competitive Effects: What Is the Law, and What Should It Be?

Academic journal article Journal of Corporation Law

Cross-Market Balancing of Competitive Effects: What Is the Law, and What Should It Be?

Article excerpt

I.Introduction

It is has been said that "antitrust cases have always rejected the premise that a procompetitive effect in one market will excuse an anticompetitive effect in another."1 Philadelphia National Bank2 and Topco3 are cited as authority for this proposition recently dubbed the "market-specificity rule."4 But the text of the Sherman Act contains nothing suggesting the rule, and the Supreme Court has never directly addressed cross-market balancing under the rule of reason. In this article, I assemble what clues the Court has left and formulate a policy on cross-market balancing in rule-of-reason cases.

I begin, however, with Section 7 of the Clayton Act, which the Supreme Court interpreted in Philadelphia National Bank. Section 7 declares a merger unlawful if it lessens competition substantially in any relevant market.5 This "any-market rule" implies a market-specificity rule for merger cases, but I explain that Philadelphia National Bank relied on neither rule.

I then review Topco and the other Supreme Court Sherman Act decisions that have been cited as authority on cross-market balancing and find them unedifying. In contrast, I find the Court's rule-of-reason jurisprudence irreconcilable with the any-market rule. Finally, I detail how cross-market balancing fits into the burden-shifting process courts employ in rule-of-reason cases. I conclude that the any-market rule applies to the plaintiff's initial burden, but in exceptional cases, cross-market balancing can save a restraint harming competition in a relevant market.

II. Cross-Market Balancing in Merger Cases

A. The Any-Market Rule

The any-market rule is the generally accepted plain meaning of the text of Section 7, as the Supreme Court declared in Brown Shoe:

Because 7 of the Clayton Act prohibits any merger which may substantially lessen competition "in any line of commerce" (emphasis supplied), it is necessary to examine the effects of a merger in each such economically significant submarket to determine if there is a reasonable probability that the merger will substantially lessen competition. If such a probability is found to exist, the merger is proscribed.6

The legislative history of the 1950 amendment to Section 7 unequivocally states the intention to impose the any-market rule: "It is intended that acquisitions which substantially lessen competition . . . will be unlawful if they have the specified effect in any line of commerce, whether or not that line of commerce is a large part of the business of any of the corporations involved in the acquisition."7

The Areeda-Hovenkamp treatise finds the any-market rule in Section 7's text8 and also supports the rule on administrability grounds. The treatise notes that, when the rule has bite, a merger's "illegality often can be avoided, and the benefits obtained, by partial merger or by disposal of one of the firm's assets in the suspect market to an independent purchaser."9 But the treatise acknowledges that it can be "impossible or impractical" to fix an anticompetitive merger.10

The any-market rule is the general policy of the U.S. merger enforcement agencies.11 Since 1997, however, the Horizontal Merger Guidelines have asserted the inextricably linked exception.12 As stated by the 2010 Guidelines, the agencies sometimes "consider efficiencies not strictly in the relevant market, but so inextricably linked with it that a partial divestiture or other remedy could not feasibly eliminate the anticompetitive effect in the relevant market without sacrificing the efficiencies in the other market(s)."13 The Guidelines presented this exception to the general rule as an exercise of prosecutorial discretion because of the rule's statutory basis.14

Market delineation under the Guidelines gives the any-market rule greater impact than could have been anticipated by the Congress in 1950 or the Supreme Court in 1962. One reason is that the Guidelines do not place products in the same relevant market on the basis that they are substitutes in supply:

Market definition focuses solely on demand substitution factors, i. …

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