The Strategic Abuse Of The Antitrust Laws

Slide 1

The Strategic Abuse
of the
Antitrust Laws

R. Preston McAfee
Dec 6, 2006

Slide 2

• Official registrar of .com and .net
• Sep 2003: redirects mistyped addresses to its own advertising site (sitefinder.com)
• ISPs object, ask ICANN to stop.
• VeriSign sued, contending ICANN’s decision was an illegal conspiracy
• Judge: so deficient not to merit a trial

Slide 3

• Popular Enterprises buys expired domains and redirects them to its own advertising site
• Popular sued alleging the existence of sitefinder.com violated the antitrust laws
• Suit is continuing

Slide 4

• Examples
• Purposes
• Incentives to sue
• Government as strategic player

Slide 5

• Sent 30 hospitals requests for privileges
  • Threat of lawsuit
• Nine did not admit CCCN
• These hospitals sued for restraint of trade
• Judge: “Completely without merit…completely lacking substance as the basis of an antitrust claim.”

Slide 6

• Entrant in Iowa real estateEntrant in Iowa real estate
• Sought commission--sharing from incumbent Iowa Realty
  • But Next Gen itself did not share
• Iowa Realty refused as not reciprocal
• Next Gen filed antitrust suit
• Iowa Supreme Court: “without merit”

Slide 7

• Outnumber government suits nine to one
• Both Sherman Act (1890, sec 7) and Clayton Act (1914, sec 4) permit private antitrust suits
  • Treble damages
• Canada’s 1889 Combines Investigation Acts didn’t permit private litigation until 1976
  • Single damages
  • Rare

Slide 8

• Incentives for private antitrust litigation are not guided by consumer welfare
• What are the motives of firms engaged in private antitrust litigation?
• How can law be used strategically?
• How can the antitrust laws be crafted to minimize damage?

Slide 9

• Antitrust can be used to
  • Harass
  • Harm
  • Extort
• Harassment and harm can be used to induce cooperation
  • Often cheaper to sue than to defend
• Extortion reduces returns to investment

Slide 10

• Extort funds from a successful rival
  • Walmart vs MC, Visa,
  • Microsoft
• Change the terms of the contract
  • Texaco & price discrimination
• Punish non--cooperative behavior

Slide 11

• Respond to an existing lawsuit
• Prevent a hostile takeover
  • Service Corp v. Loewen
• Discourage the entry of a rival
  • Utah Pie
• Prevent a successful firm from competing vigorously
  • ISOs

Slide 12

• Digital Alpha versus Intel Pentium
• Market dominance of Pentium
• Digital threatened litigation, labeling Intel a monopoly
• FTC starts inquiry
• Intel purchases Digital facilities, provides advantageous terms for Pentium

Slide 13

• Actions can be either
  • pro--competitive (cost reducing) or
  • anti--competitive (rival’s cost raising)
• Examine incentive to sue in an economic model

Slide 11

• Gain from preventing a pro--competitive action is larger than preventing an anti--competitive actions if
  • Firm has a smaller share
  • Market is dispersed
• Loss from pro--competitive rival action is increasing in number of firms
• Loss from anti--competitive action is decreasing in number of firms

Slide 11

• Antitrust laws often distorted to reduce competition
  • Very undesirable side effect
• Outright ban on private antitrust litigation would solve that problem
  • At cost of stopping some legitimate suits
  • Encouraging more anti--competitive behavior

Slide 11

• Alternative models may provide best of both worlds
• Agency “gate--keeper” for private litigation
• Agency amicus curiae for private litigation
• Private financial support for agency litigation
• Decoupling damages and awards
• Providing experts to courts to reduce uncertainty