Rationalizing Antitrust Cluster Markets

Abstract

t I would like thank Peter Ezersky, Al Klevorick and Richard Schmalensee for helpful comments. Special thanks go Thomas Welch for piquing my interest in this subject and Walter Vandaele for encouraging my research. 1. The courts' objective in defining the relevant line of commerce for antitrust purposes has been to recognize competition where, in fact, competition exists. Brown Shoe Co. v. United States, 370 U.S. 294, 326 (1962). Because substitutes compete, substitutability in demand or supply has been the prime criterion for setting the boundaries of a market. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956) (goods that are reasonably interchangeable by consumers should be placed in the same market); Brown Shoe Co., 370 U.S. at 325 n.42 (cross-elasticity of production facilities may also be an important factor in defining a product market). By this substitutability criterion, if an antitrust defendant produced several goods (that is, was a multiproduct firm), a separate market would be defined for each of the defendant's consisting of each product's respective substitutes. See U.S. Dep't of Justice, Merger Guidelines, 49 Fed. Reg. 26,823, 26,828 (1984) [hereinafter cited as Guidelines] (The Department will first determine the relevant product market with respect each of the of each of the merging firms.). For a general discussion of antitrust market definition, see R. POSNER & F. EASTERBROOK, ANTITRUST 347-85 (2d ed. 1981). 2. Tied products are those which sellers require be purchased together. In cluster cases, defendant firms offer sell a number of untied products, but do require that they be purchased together. See R. POSNER & F. EASTERBROOK, supra note 1, at 802 (discussing tying arrangements). 3. This point was explicitly made by the court in JBL Enter. v. Jhirmack Enter., 509 F. Supp. 357, 368-69 (N.D. Cal. 1981), affd, 698 F.2d 1011 (9th Cir. 1983) (full-line cluster of beauty held be relevant market even though individual were not interchangeable for the end user and there was no production flexibility). See also United States v. A.T.&T., 524 F. Supp. 1336, 1375 (D.D.C. 1981) ([uIn United States v. Grinnell [384 U.S. 563 (1966)] the Supreme Court aggregated central fire alarm and burglar alarm systems without suggesting that these services are economic substitutes extent.). Some courts, however, seem have clustered on the basis of supply substitutability. For example, in United States v. Hughes Tool Co., 415 F. Supp. 637 (C.D. Cal. 1976) (clustering specialized surface rotary drilling products), while the court did explicitly define the market on the basis of supply substitutability, it found that any large heavy machinery manufacturer would have plant facilities, personnel and at least basic equipment go into production on of these . . .within a relatively short period of time. Id. at 642. This description fits the classic definition of supply substitutability. See R. POSNER & F. EASTERBROOK, supra note 1, at 352. See also FTC v.