Questions—Part One 1. a. The Harvard Law Review argued, “In the New Economy (information technology) . . . there will inevitably be an increasing number of markets with only a few dominant players.” 9 Why would that be so? b. Are we mistaken in pursuing Microsoft and other “new economy” giants with “old economy” antitrust principles? Explain. 2. Worldwide Basketball Sports Tours promoted early-season, NCAA-certified basketball tournaments. The National Collegiate Athletic Association’s Two in Four Rule limited college basketball teams to “not more than one certified basketball event in one academic year, and not more than two certified basketball events every four years.” The promoters sued the NCAA on antitrust grounds, claiming the Two in Four rule hampered their ability to make money. The NCAA argued that the limit on games was academically motivated. a. Does antitrust law apply to Division I collegiate basketball? Explain. b. Define the product market in this case. See Worldwide Basketball & Sports Tours, Inc. v. NCAA , 388 F.3d 955 (6th Cir. 2004). 3. a. A traditional concern about monopolies is that a lack of competition discourages efficiency and innovation. Argue that monopolies may actually encourage innovation. b. Even if monopolies do not discourage invention, we have firm economic grounds for opposing monopolies. Explain. 4. Real estate developer Ernest Coleman built an apartment complex in Stilwell, Oklahoma (population 2,700), and ordered electric service from an out-of-town utility, Ozark Electric. Stilwell officials said they would deny him city water and sewer service if he did not buy his electricity from the city-owned utility service. Because he could not buy water or sewer service elsewhere, Coleman decided to switch to Stilwell’s utility. In 1996, the federal Justice Department sued Stilwell. Explain the federal government’s complaint and decide the case. See Bryan Gruley, “Little Town Becomes First Municipality Sued by U.S. for Antitrust,” The Wall Street Journal, June 3, 1996, p. A1. 5. Historically, perhaps the most important interpretation of the Sherman Act’s proscription of monopolization was Judge Learned Hand’s opinion in the Alcoa case. After finding that Alcoa controlled 90 percent of the aluminum ingot market, Hand had to determine whether Alcoa possessed a general intent to monopolize. Hand concluded that Alcoa’s market dominance could have resulted only from a “persistent determination” to maintain control: It was not inevitable that it should always anticipate increases in the demand for ingots and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization. 10 Comment on Judge Hand’s remarks. 6. Several smaller airlines sued two giants, United and American, claiming that the two violated the Sherman Act through their computerized reservation systems (CRSs). The heart of the plaintiffs’ position was that United and American were monopolists who violated the law by denying other airlines reasonable access to their CRSs. American and United had the largest CRSs, but other airlines also maintained CRSs. Neither had blocked any other airline’s access to its CRS, but they had charged fees (in American’s case, $1.75 per booking to the airline that secured a passenger through American’s CRS). United and American each controlled about 12 to 14 percent of the total air transportation market. According to the court, the plaintiffs were “unhappy” about United and American’s ability to extract booking fees from them for the use of the CRSs. The U.S. Ninth Circuit Court of Appeals ruled for the defendants, and the Supreme Court declined to review this case. a. Explain why the plaintiffs felt wronged by American and United. b. Explain the defendants’s argument that they could not successfully charge “excessive” prices for the use of the CRSs. See Alaska Airlines v. United Airlines, 948 F.2d 536 (9th Cir. 1991), cert. den. 112 S.Ct. 1603 (1992).
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