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Digital Cluster Markets, Herbert J. Hovenkamp Apr 2021

Digital Cluster Markets, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

This paper considers the role of “cluster” markets in antitrust litigation, the minimum requirements for recognizing such markets, and the relevance of network effects in identifying them.

One foundational requirement of markets in antitrust cases is that they consist of products that are very close substitutes for one another. Even though markets are nearly always porous, this principle is very robust in antitrust analysis and there are few deviations.

Nevertheless, clustering noncompeting products into a single market for purposes of antitrust analysis can be valuable, provided that its limitations are understood. Clustering contributes to market power when (1) many customers ...


The Looming Crisis In Antitrust Economics, Herbert J. Hovenkamp Jan 2021

The Looming Crisis In Antitrust Economics, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

As in so many areas of law and politics in the United States, antitrust’s center is at bay. It is besieged by a right wing that wants to limit antitrust even more than it has been limited over the last quarter century. On the left, it faces revisionists who propose significantly greater enforcement.

One thing the two extremes share, however, is denigration of the role of economics in antitrust analysis. On the right, the Supreme Court’s two most recent antitrust decisions at this writing reveal that economic analysis no longer occupies the central role that it once had ...


Due Process In Antitrust Enforcement: Normative And Comparative Perspectives, Christopher S. Yoo, Yong Huang, Thomas Fetzer, Shan Jiang Dec 2020

Due Process In Antitrust Enforcement: Normative And Comparative Perspectives, Christopher S. Yoo, Yong Huang, Thomas Fetzer, Shan Jiang

Faculty Scholarship at Penn Law

Due process in antitrust enforcement has significant implications for better professional and accurate enforcement decisions. Not only can due process spur economic growth, raise government credibility, and limit the abuse of powers according to law, it also promotes competitive reforms in monopolized sectors and curbs corruption. Jurisdictions learn from the best practices in the investigation process, decisionmaking process, and the announcement and judicial review of antitrust enforcement decisions. By comparing the enforcement policies of China, the European Union, and the United States, this article calls for better disclosure of evidence, participation of legal counsel, and protection of the procedural and ...


Antitrust And Platform Monopoly, Herbert J. Hovenkamp Nov 2020

Antitrust And Platform Monopoly, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Are large digital platforms that deal directly with consumers “winner take all,” or natural monopoly, firms? That question is surprisingly complex and does not produce the same answer for every platform. The closer one looks at digital platforms the less they seem to be winner-take-all. As a result, competition can be made to work in most of them. Further, antitrust enforcement, with its accommodation of firm variety, is generally superior to any form of statutory regulation that generalizes over large numbers.

Assuming that an antitrust violation is found, what should be the remedy? Breaking up large firms subject to extensive ...


Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp Oct 2020

Competitive Harm From Vertical Mergers, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

The antitrust enforcement Agencies' 2020 Vertical Merger Guidelines introduce a nontechnical application of bargaining theory into the assessment of competitive effects from vertical acquisitions. The economics of such bargaining is complex and can produce skepticism among judges, who might regard its mathematics as overly technical, its game theory as excessively theoretical or speculative, or its assumptions as unrealistic.

However, we have been there before. The introduction of concentration indexes, particularly the HHI, in the Merger Guidelines was initially met with skepticism but gradually they were accepted as judges became more comfortable with them. The same thing very largely happened again ...


House Judiciary Inquiry Into Competition In Digital Markets: Statement, Herbert J. Hovenkamp Apr 2020

House Judiciary Inquiry Into Competition In Digital Markets: Statement, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

This is a response to a query from the Judiciary Committee of the U.S. House of Representatives, requesting my views about the adequacy of existing antitrust policy in digital markets.

The statutory text of the United States antitrust laws is very broad, condemning all anticompetitive restraints on trade, monopolization, and mergers and interbrand contractual exclusion whose effect “may be substantially to lessen competition or tend to create a monopoly.” Federal judicial interpretation is much narrower, however, for several reasons. One is the residue of a reaction against excessive antitrust enforcement in the 1970s and earlier. However, since that time ...


Antitrust Harm And Causation, Herbert J. Hovenkamp Jan 2020

Antitrust Harm And Causation, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

How should plaintiffs show harm from antitrust violations? The inquiry naturally breaks into two issues: first, what is the nature of the harm? and second, what does proof of causation require? The best criterion for assessing harm is likely or reasonably anticipated output effects. Antitrust’s goal should be output as high as is consistent with sustainable competition.

The standard for proof of causation then depends on two things: the identity of the enforcer and the remedy that the plaintiff is seeking. It does not necessarily depend on which antitrust statute the plaintiff is seeking to enforce. For public agencies ...


On The Meaning Of Antitrust's Consumer Welfare Principle, Herbert J. Hovenkamp Jan 2020

On The Meaning Of Antitrust's Consumer Welfare Principle, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

This brief essay addresses the ambiguities in the meaning of “consumer welfare” in antitrust, exploring the differences between the Williamson, Bork, and current understanding of that term. After weighing the alternatives it argues that the consumer welfare principle in antitrust should seek out that state of affairs in which output is maximized, consistent with sustainable competition


Justice Department's New Position On Patents, Standard Setting, And Injunctions, Herbert J. Hovenkamp Jan 2020

Justice Department's New Position On Patents, Standard Setting, And Injunctions, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

A deep split in American innovation policy has arisen between new economy and old economy innovation. In a recent policy statement, the Antitrust Division of the Justice Department takes a position that tilts more toward the old economy. Its December, 2019, policy statement on remedies for Standard Essential Patents issued jointly with the U.S. Patent and Trademark Office and the National Institute of Standards and Technology reflects this movement.

The policy statement as a whole contains two noteworthy problems: one is a glaring omission, and the other is a mischaracterization of the scope of antitrust liability. Both positions are ...


What’S In Your Wallet (And What Should The Law Do About It?), Natasha Sarin Jan 2020

What’S In Your Wallet (And What Should The Law Do About It?), Natasha Sarin

Faculty Scholarship at Penn Law

In traditional markets, firms can charge prices that are significantly elevated relative to their costs only if there is a market failure. However, this is not true in a two-sided market (like Amazon, Uber, and Mastercard), where firms often subsidize one side of the market and generate revenue from the other. This means consideration of one side of the market in isolation is problematic. The Court embraced this view in Ohio v. American Express, requiring that anticompetitive harm on one side of a two-sided market be weighed against benefits on the other side.

Legal scholars denounce this decision, which, practically ...


Frand And Antitrust, Herbert J. Hovenkamp Jan 2020

Frand And Antitrust, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

This paper considers when a patentee’s violation of a FRAND commitment also violates the antitrust laws. It warns against two extremes. First, is thinking that any violation of a FRAND obligation is an antitrust violation as well. FRAND obligations are contractual, and most breaches of contract do not violate antitrust law. The other extreme is thinking that, because a FRAND violation is a breach of contract, it cannot also be an antitrust violation.

Every antitrust case must consider the market environment in which conduct is to be evaluated. SSOs operated by multiple firms are joint ventures. Antitrust’s role ...


Competition Policy For Labour Markets, Herbert J. Hovenkamp May 2019

Competition Policy For Labour Markets, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Competition law in many jurisdictions defines its consumer welfare goal in terms of low consumer prices. For example, mergers are challenged when they threaten to cause a price increase from reduced competition in the post-merger market. While the consumer welfare principle is under attack in some circles, it remains the most widely expressed goal of antitrust policy.

We would do better, however, to define consumer welfare in terms of output rather than price. Competition policy should strive to facilitate the highest output in any market that is consistent with sustainable competition. That goal is in most ways the same as ...


The Warren Campaign’S Antitrust Proposals, Herbert J. Hovenkamp Mar 2019

The Warren Campaign’S Antitrust Proposals, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Antitrust policy promises to be an important issue in the 2020 presidential election, and for good reason. Market power measured by price-cost margins has been on the rise since the 1980s. Presidential candidate Senator Elizabeth Warren has two proposals directed at large tech platforms. One would designate large platform markets such as Amazon “platform utilities,” and prohibit them from selling their own merchandise on the platform in competition with other retailers. The other proposes more aggressive enforcement against large platform acquisitions of smaller companies.

This paper concludes that the first proposal is anticompetitive, leading to reduced output and higher prices ...


Intellectual Property And Competition, Herbert J. Hovenkamp Jan 2019

Intellectual Property And Competition, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

A legal system that relies on private property rights to promote economic development must consider that profits can come from two different sources. First, both competition under constant technology and innovation promote economic growth by granting many of the returns to the successful developer. Competition and innovation both increase output, whether measured by quantity or quality. Second, however, profits can come from practices that reduce output, in some cases by reducing quantity, or in others by reducing innovation.

IP rights and competition policy were traditionally regarded as in conflict. IP rights create monopoly, which was thought to be inimical to ...


Product Differentiation, Christopher S. Yoo Jan 2019

Product Differentiation, Christopher S. Yoo

Faculty Scholarship at Penn Law

The literature applying the economics of product differentiation to intellectual property has been called the most important development in the economic analysis of IP in years. Relaxing the assumption that products are homogeneous yields new insights by explaining persistent features of IP markets that the traditional approaches cannot, challenging the extent to which IP allows rightsholders to earn monopoly profits, allowing for sources of welfare outside of price-quantity space, which in turn opens up new dimensions along which intellectual property can compete. It also allows for equilibria with different welfare characteristics, making the tendency towards systematic underproduction more contingent and ...


Anticompetitive Mergers In Labor Markets, Ioana Marinescu, Herbert J. Hovenkamp Jan 2019

Anticompetitive Mergers In Labor Markets, Ioana Marinescu, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Mergers of competitors are conventionally challenged under the federal antitrust laws when they threaten to lessen competition in some product or service market in which the merging firms sell. Mergers can also injure competition in markets where the firms purchase. Although that principle is widely recognized, very few litigated cases have applied merger law to buyers. This article concerns an even more rarefied subset, and one that has barely been mentioned. Nevertheless, its implications are staggering. Some mergers may be unlawful because they injure competition in the labor market by enabling the post-merger firm anticompetitively to suppress wages or salaries ...


Is Antitrust's Consumer Welfare Principle Imperiled?, Herbert J. Hovenkamp Jan 2019

Is Antitrust's Consumer Welfare Principle Imperiled?, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Antitrust’s consumer welfare principle stands for the proposition that antitrust policy should encourage markets to produce output as high as is consistent with sustainable competition, and prices that are accordingly as low. Such a policy does not protect every interest group. For example, it opposes the interests of cartels or other competition-limiting associations who profit from lower output and higher prices. It also runs counter to the interest of less competitive firms that need higher prices in order to survive. Market structure is relevant to antitrust policy, but its importance is contingent rather than absolute – that is, market structure ...


Prophylactic Merger Policy, Herbert J. Hovenkamp Dec 2018

Prophylactic Merger Policy, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

An important purpose of the antitrust merger law is to arrest certain anticompetitive practices or outcomes in their “incipiency.” Many Clayton Act decisions involving both mergers and other practices had recognized the idea as early as the 1920s. In Brown Shoe the Supreme Court doubled down on the idea, attributing to Congress a concern about a “rising tide of economic concentration” that must be halted “at its outset and before it gathered momentum.” The Supreme Court did not explain why an incipiency test was needed to address this particular problem. Once structural thresholds for identifying problematic mergers are identified there ...


Whatever Did Happen To The Antitrust Movement?, Herbert J. Hovenkamp Dec 2018

Whatever Did Happen To The Antitrust Movement?, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Antitrust in the United States today is caught between its pursuit of technical rules designed to define and implement defensible economic goals, and increasing calls for a new antitrust “movement.” The goals of this movement have been variously defined as combating industrial concentration, limiting the economic or political power of large firms, correcting the maldistribution of wealth, control of high profits, increasing wages, or protection of small business. High output and low consumer prices are typically unmentioned.

In the 1960s the great policy historian Richard Hofstadter lamented the passing of the antitrust “movement” as one of the “faded passions of ...


Reasonable Patent Exhaustion, Herbert J. Hovenkamp Jan 2018

Reasonable Patent Exhaustion, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

A lengthy tug of war between the Supreme Court and the Federal Circuit Court of Appeals may have ended when the Supreme Court held that the sale of a patented article exhausts the patentee seller’s rights to enforce restrictions on that article through patent infringement suits. Further, reversing the Federal Circuit, the parties cannot bargain around this rule through the seller’s specification of conditions stated at the time of sale, no matter how clear. No inquiry need be made into the patentee’s market power, anticompetitive effects, or other types of harms, whether enforcement of the condition is ...


Progressive Antitrust, Herbert J. Hovenkamp Jan 2018

Progressive Antitrust, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Several American political candidates and administrations have both run and served under the “progressive” banner for more than a century, right through the 2016 election season. For the most part these have pursued interventionist antitrust policies, reflecting a belief that markets are fragile and in need of repair, that certain interest groups require greater protection, or in some cases that antitrust policy is an extended arm of regulation. This paper argues that most of this progressive antitrust policy was misconceived, including that reflected in the 2016 antitrust plank of the Democratic Party. The progressive state is best served by a ...


Horizontal Shareholding And Antitrust Policy, Fiona M. Scott Morton, Herbert J. Hovenkamp Jan 2018

Horizontal Shareholding And Antitrust Policy, Fiona M. Scott Morton, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

“Horizontal shareholding” occurs when one or more equity funds own shares of competitors operating in a concentrated product market. For example, the four largest mutual fund companies might be large shareholders of all the major United States air carriers. A growing body of empirical literature concludes that under these conditions market output in the product market is lower and prices higher than they would otherwise be.

Here we consider how the antitrust laws might be applied to this practice, identifying the issues that courts are likely to encounter and attempting to anticipate litigation problems. We assume that neither the mutual ...


The Rule Of Reason, Herbert J. Hovenkamp Jan 2018

The Rule Of Reason, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Antitrust’s rule of reason was born out of a thirty-year (1897-1927) division among Supreme Court Justices about the proper way to assess multi-firm restraints on competition. By the late 1920s the basic contours of the rule for restraints among competitors was roughly established. Antitrust policy toward vertical restraints remained much more unstable, however, largely because their effects were so poorly understood.

This article provides a litigation field guide for antitrust claims under the rule of reason – or more precisely, for situations when application of the rule of reason is likely. At the time pleadings are drafted and even up ...


Horizontal Mergers, Market Structure, And Burdens Of Proof, Herbert J. Hovenkamp, Carl Shapiro Jan 2018

Horizontal Mergers, Market Structure, And Burdens Of Proof, Herbert J. Hovenkamp, Carl Shapiro

Faculty Scholarship at Penn Law

Since the Supreme Court’s landmark 1963 decision in Philadelphia National Bank, antitrust challengers have mounted prima facie cases against horizontal mergers that rested on the level and increase in market concentration caused by the merger, with proponents of the merger then permitted to rebut by providing evidence that the merger will not have the feared anticompetitive effects. Although the way that concentration is measured and the triggering levels have changed over the last half century, the basic approach has remained intact. This longstanding structural presumption, which is well supported by economic theory and evidence, has been critical to effective ...


Antitrust Policy And Inequality Of Wealth, Herbert J. Hovenkamp Oct 2017

Antitrust Policy And Inequality Of Wealth, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Why would anyone want to use antitrust law as a wealth distribution device when far more explicit statutory tools are available for that purpose? One feature of antitrust is its open-textured, nonspecific statutes that are interpreted by judges. As a result, using antitrust to redistribute wealth may be a way of invoking the judicial process without having to go to Congress or a state legislature that is likely to be unsympathetic. Of course, a corollary is that someone attempting to use antitrust law to redistribute wealth will have to rely on the existing antitrust statutes rather than obtaining a new ...


The Ncaa And The Rule Of Reason, Herbert J. Hovenkamp Jul 2017

The Ncaa And The Rule Of Reason, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

This brief essay considers the use of antitrust’s rule of reason in assessing challenges to rule making by the NCAA. In particular, it looks at the O’Bannon case, which involved challenges to NCAA rules limiting the compensation of student athletes under the NCAA rubric that protects the “amateur” status of collegiate athletes. Within that rubric, the Ninth Circuit got the right answer.

That outcome leads to a broader question, however: should the NCAA’s long held goal, frequently supported by the courts, of preserving athletic amateurism be jettisoned? Given the dual role that colleges play, that is a ...


Patent Pools And Related Technology Sharing, Erik Hovenkamp, Herbert J. Hovenkamp Jan 2017

Patent Pools And Related Technology Sharing, Erik Hovenkamp, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

A patent "pool" is an arrangement under which patent holders in a common technology commit their patents to a single holder, who then licenses them out to the original patentees and perhaps also to outsiders. The payoffs include both revenue earned as a licensor, and technology acquired by pool members as licensees. Public effects can also be significant. For example, technology sharing of complementary patents can improve product quality and variety. In some information technology markets pools can prevent patents from becoming a costly obstacle to innovation by clearing channels of technology transfer. By contrast, a pool's aggregate output ...


Buying Monopoly: Antitrust Limits On Damages For Externally Acquired Patents, Erik N. Hovenkamp, Herbert J. Hovenkamp Jan 2017

Buying Monopoly: Antitrust Limits On Damages For Externally Acquired Patents, Erik N. Hovenkamp, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

The “monopoly” authorized by the Patent Act refers to the exclusionary power of individual patents. That is not the same thing as the acquisition of individual patent rights into portfolios that dominate a market, something that the Patent Act never justifies and that the antitrust laws rightfully prohibit.

Most patent assignments are procompetitive and serve to promote the efficient commercialization of patented inventions. However, patent acquisitions may also be used to combine substitute patents from external patentees, giving the acquirer an unearned monopoly position in the relevant technology market. A producer requires only one of the substitutes, but by acquiring ...


Appraising Merger Efficiencies, Herbert J. Hovenkamp Jan 2017

Appraising Merger Efficiencies, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Mergers of business firms violate the antitrust laws when they threaten to lessen competition, which generally refers to a price increase resulting from a reduction in output. However, a merger that threatens competition may also enable the post-merger firm to reduce its costs or improve its product. Attitudes toward mergers are heavily driven by assumptions about efficiency gains. If mergers of competitors never produced efficiency gains but simply reduced the number of competitors, a strong presumption against them would be warranted. We tolerate most mergers because of a background, highly generalized belief that most or at least many produce cost ...


Antitrust Balancing, Herbert J. Hovenkamp Apr 2016

Antitrust Balancing, Herbert J. Hovenkamp

Faculty Scholarship at Penn Law

Antitrust litigation often confronts situations where effects point in both directions. Judges sometimes describe the process of evaluating these factors as “balancing.” In its e-Books decision the Second Circuit believed that the need to balance is what justifies application of the rule of reason. In Microsoft the D.C. Circuit stated that “courts routinely apply a…balancing approach” under which “the plaintiff must demonstrate that the anticompetitive harm…outweighs the procompetitive benefit.” But then it decided the case without balancing anything.

The term “balancing” is a very poor label for what courts actually do in these cases. Balancing requires that ...