Consumer Benefits and Harms: How Best to Distinguish Aggressive, Pro-Consumer Competition From Business Conduct To Attain or Maintain a Monopoly, 17872-17874 [06-3366]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 71, Number 67 (Friday, April 7, 2006)]
[Notices]
[Pages 17872-17874]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3366]


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FEDERAL TRADE COMMISSION


Consumer Benefits and Harms: How Best to Distinguish Aggressive, 
Pro-Consumer Competition From Business Conduct To Attain or Maintain a 
Monopoly

AGENCY: Federal Trade Commission and U.S. Department of Justice, 
Antitrust Division.

ACTION: Notice of Public Hearings and Opportunity for Comment.

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SUMMARY: The Federal Trade Commission (FTC) and the Antitrust Division 
of the U.S. Department of Justice (DOJ) will hold a series of public 
Hearings to explore how best to identify anticompetitive exclusionary 
conduct for purposes of antitrust enforcement under section 2 of the 
Sherman Act, 15 U.S.C. 2. Among other things, the Hearings will examine 
whether and when specific types of conduct that potentially implicate 
section 2 are procompetitive or benign, and when they may harm 
competition and consumer welfare.
    The Agencies expect to focus on legal doctrines and jurisprudence, 
economic research, and business and consumer experiences. To begin, the 
Agencies are soliciting public comment from lawyers, economists, the 
business community, consumer groups, academics (including business 
historians), and other interested parties on two general subjects: (1) 
The legal and economic principles relevant to the application of 
section 2, including the administrability of current or potential 
antitrust rules for section 2, and (2) the types of business practices 
that the Agencies should examine in the upcoming Hearings, including 
examples of real-world conduct that potentially raise issues under 
section 2. With respect to the Agencies' request for examples of real-
world conduct, the Agencies are soliciting discussions of the business 
reasons for, and the actual or likely competitive effects of, such 
conduct, including actual or likely efficiencies and the theoretical 
underpinnings that inform the decision of whether the conduct had or 
has pro-or anticompetitive effects. The Agencies will solicit 
additional submissions about the topics to be covered at the individual 
Hearings at the time that each Hearing is announced.
    The Agencies encourage submissions from business persons from a 
variety of unregulated and regulated markets, recognizing that market 
participants can offer unique insight into how competition works and 
that the implications of various business practices may differ 
depending on the industry context and market structure. The Agencies 
seek this practical input to provide a real-world foundation of 
knowledge from which to draw as the Hearings progress. Respondents are 
encouraged to respond on the basis of their actual experiences.
    The goal of these Hearings is to promote dialogue, learning, and 
consensus building among all interested parties with respect to the 
appropriate legal analysis of conduct under section 2 of the Sherman 
Act, both for purposes

[[Page 17873]]

of law enforcement and to provide practical guidance to businesses on 
antitrust compliance. The FTC and the DOJ plan to hold two to four days 
of Hearings per month between June and December 2006, exclusive of 
August 2006. The Agencies plan to publish a more detailed description 
of the topics to be discussed before each Hearing and to solicit 
additional submissions about each topic. The Hearings will be 
transcribed and placed on the public record. Any written comments 
received also will be placed on the public record. A public report that 
incorporates the results of the Hearings, as well as other research, 
will be prepared after the Hearings.

DATES: Any interested person may submit written comments responsive to 
any of the topics addressed in this Federal Register notice. 
Respondents are encouraged to provide comments as soon as possible, but 
in any event no later than the last session of the Hearings.

ADDRESSES: When in session, the Hearings will be held at either the FTC 
headquarters, 600 Pennsylvania Avenue, NW., or at 601 New Jersey 
Avenue, NW., Washington, DC. All interested parties are welcome to 
attend.
    Written comments should be submitted in both paper and electronic 
form to both the Federal Trade Commission and the Department of 
Justice. All comments received will be publicly posted. The comments 
should be submitted as follows:
    Federal Trade Commission. Two paper copies of each submission 
should be addressed to Donald S. Clark, Office of the Secretary, 
Federal Trade Commission, Room H-135 (Annex Z), 600 Pennsylvania 
Avenue, NW., Washington, DC 20580. Submissions should be captioned 
``Comments Regarding Section 2 Hearings, Project No. P062106'' to 
facilitate the organization of comments. The paper version of each 
comment should include this reference both in the text and on the 
envelope. The FTC is requesting that the paper copies of each comment 
be sent by courier or overnight service, if possible, because U.S. 
postal mail in the Washington area and at the Commission is subject to 
delay due to heightened security precautions. The electronic version of 
each comment should be submitted by clicking on the following Web link: 
https://secure.commentworks.com/ftc-section2hearings and following the 
instructions on the Web-based form.
    Department of Justice. Two paper copies should be addressed to 
Legal Policy Section, Antitrust Division, United States Department of 
Justice, 950 Pennsylvania Ave., NW., Suite 3234, Washington DC 20530. 
The Antitrust Division is requesting that the paper copies of each 
comment be sent by courier or overnight service, if possible, because 
U.S. postal mail in the Washington area and at the Division is subject 
to delay due to heightened security precautions. The electronic version 
of each comment should be submitted by electronic mail to 
singlefirmconduct@usdoj.gov.

FOR FURTHER INFORMATION CONTACT: Susan DeSanti, Deputy General Counsel, 
Policy Studies, 600 Pennsylvania Avenue, NW., Washington, DC 20580; 
telephone (202) 326-2167; e-mail: sdesanti@ftc.gov or Gail Kursh, 
Deputy Chief, Legal Policy Section, Antitrust Division, United States 
Department of Justice, 950 Pennsylvania Ave., NW., Suite 3234, 
Washington DC 20530; telephone (202) 307-5799; e-mail: 
singlefirmconduct@usdoj.gov. Detailed agendas and schedules for the 
Hearings will be available on the FTC Home Page (https://www.ftc.gov) 
and the DOJ single firm conduct Web site, https://www.usdoj.gov/atr/
public/hearings/single_firm/sfchearing.htm.

SUPPLEMENTARY INFORMATION: Section 2 of the Sherman Antitrust Act 
condemns ``every person who shall monopolize, or attempt to monopolize, 
or combine or conspire * * * to monopolize * * * .'' \1\ The law does 
not prohibit monopoly as such, however. Rather, the possession of 
monopoly power will not be found unlawful unless it is accompanied by 
an element of anticompetitive exclusionary conduct. The Supreme Court 
has described the requisite conduct as ``the willful acquisition or 
maintenance of [monopoly] power as distinguished from growth or 
development as a consequence of a superior product, business acumen, or 
historic accident.'' \2\
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    \1\ 15 U.S.C. 2.
    \2\ United States v. Grinnell Corp., 384 U.S. 563, 570-71 
(1966).
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    This description distinguishing when certain types of conduct 
should be of antitrust concern is necessarily general. Caution is 
necessary, because the aggressive, unilateral behavior often at issue 
in section 2 antitrust cases typically resembles the vigorous rivalry 
that the antitrust law seeks to promote.\3\ Sound antitrust policy 
encourages all firms, regardless of size, to compete vigorously. In the 
long run, competition forces firms to become as or more efficient than 
their rivals. Those that do not lose sales and, ultimately, exit the 
market. Antitrust enforcers must strive to avoid ``false positives'' 
(erroneous antitrust condemnation) that would chill procompetitive 
behavior that benefits consumers. On the other hand, allowing firms 
with market power to use any business practice available may result in 
reduced competition, the consolidation and persistence of monopoly 
power, and ultimately, higher prices and reduced output. Under-
enforcement of the antitrust laws may result in ``false negatives'' in 
which firms continue to engage in anticompetitive exclusionary conduct 
that harms consumers.
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    \3\ Verizon Communications Inc. v. Law Offices of Curtis V. 
Trinko, 540 U.S. 398, 414 (2004) (``Under the best of circumstances, 
applying the requirements of Sec.  2 can be difficult because the 
means of illicit exclusion, like the means of legitimate 
competition, are myriad. Mistaken inferences and the resulting false 
condemnations are especially costly, because they chill the very 
conduct the antitrust laws are designed to protect.'') (internal 
quotations and citations omitted).
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    An appropriate antitrust approach, therefore, requires means for 
distinguishing permissible from impermissible conduct in varied 
circumstances. Moreover, those means should provide reasonable guidance 
to businesses attempting to evaluate the legality of proposed conduct 
before undertaking it. The development of clear standards that work to 
the advantage of consumers while enabling businesses to comply with the 
antitrust laws presents some of the most complex issues facing the FTC, 
the DOJ, the courts, and the antitrust bar. Commentators actively 
debate the character of conduct that implicates section 2, and the 
utility of different tests for distinguishing anticompetitive and 
procompetitive business practices.
    Given these circumstances, and because ``[a]ntitrust analysis must 
always be attuned to the particular structure and circumstances of the 
industry at issue,'' \4\ the Agencies encourage commenters to provide 
real-world examples of the types of conduct that the Agencies should 
consider in the context of these Hearings and to discuss the business 
reasons for their use and their actual or likely competitive effects. 
In addition, the Agencies encourage commenters to provide real-world 
examples from their own experience that illustrate the types of conduct 
listed below, the business reasons for the use of such conduct, the 
conduct's actual or likely competitive effects, what types of analyses 
the firm performed in deciding whether to adopt and how to implement 
the practice, alternative practices that were considered and why they 
were rejected, and how implementation of the

[[Page 17874]]

practice affected the firm's costs, prices, risks, sales, shares, and 
profits. Participants in markets where other firms use such practices 
are invited to respond with real-world examples of the practice's 
effect on competition in the market as a whole, including what market 
conditions changed when the practice was instituted or ended and 
whether buyers perceive specific benefits or disadvantages from the use 
of the practice and, if so, what they are.
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    \4\ Id. at 411.
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    The following lists particular types of conduct that commenters may 
wish to address, followed by sample questions that commenters may wish 
to consider with respect to each or all of the types of conduct they 
discuss.

Particular Types of Conduct for Possible Discussion

    Bundled Loyalty Discounts and Market Share Discounts. Sellers 
sometimes offer discounts contingent upon a buyer's purchase of two or 
more different products--for example, restaurants may offer a choice 
between a la carte items and complete meals (priced at a discount). 
Sellers also may offer a discount on all units sold to the buyer, if 
the buyer meets a target (e.g., volume or market share) for purchases 
of a single item.
    Product Tying and Bundling. Tying occurs when a firm conditions the 
sale of one product on the customer's agreement to buy or to take a 
second product. Tying often involves separate prices for components 
that purchasers can use in different proportions, and a contractual or 
technological requirement that if users purchase the tying product, 
they must also purchase the tied product from the same seller. When a 
firm charges a single price for a specified bundle of tied goods, the 
practice has been called ``bundling.'' If the components are also sold 
separately, with a discount for purchasing the bundle, the practice is 
called ``mixed bundling.''
    Exclusive Dealing. Exclusive dealing includes arrangements in which 
a seller agrees to sell its product to only a single distributor, a 
seller precludes its customer from purchasing some product from another 
supplier, or a buyer requires its supplier to sell some product only to 
the buyer.
    Predatory Pricing. Predatory pricing involves pricing below ``an 
appropriate measure'' of a firm's costs, combined with a dangerous 
probability that the firm can later raise its prices to recoup its 
prior investment in below-cost prices.
    Refusals to Deal. Refusals to deal occur when a firm chooses not to 
make a product or service available to another firm.
    Most-Favored-Nation Clauses. A most-favored-nation clause is a 
contractual agreement between a buyer and a seller that requires the 
seller to sell to the buyer on pricing terms that are at least as 
favorable as, and sometimes more favorable than, the pricing terms on 
which the seller sells to any other buyer.
    Product Design. Claims may arise under section 2 that a firm has 
modified its product design to exclude a competitor in a product-
related market (e.g., a market for an attachment that must fit with the 
product design), rather than to improve product design.
    Misleading or Deceptive Statements or Conduct. Misleading or 
deceptive statements or conduct by a firm may potentially implicate 
section 2.

Sample Questions for Consideration With Respect to Each or All of the 
Types of Conduct That the Commenter Discusses

    1. How should the structure of the market and the market shares of 
participants be taken into account in analyzing such conduct?
    2. What are the likely procompetitive and antitcompetitive effects 
of the conduct in the short run? In the long run?
    3. What specific types of cost savings, risk reduction, or other 
efficiencies (e.g., elimination of free riding or otherwise protecting 
investments in services and reputation, product improvement or 
innovation) could be generated by such conduct? Would these 
efficiencies depend to any extent on the seller maintaining a certain 
scale or scope of operation?
    4. Would a business typically analyze or estimate the likely cost 
savings from this type of conduct before engaging in it? After engaging 
in it? Why or why not? What other business practices, if any, could be 
used to achieve similar or greater efficiencies? What factors would 
influence the practical or economic feasibility of such alternative 
conduct?
    5. How might competitors respond to counteract a loss of sales to 
the firm engaging in such conduct? If implemented by a firm with a very 
large market share, could such conduct raise the costs of the firm's 
rivals? If such conduct could raise the costs of the firm's rivals, 
could that lead to consumer harm? If so, how and under what 
circumstances?
    6. Would you expect such conduct to affect the likelihood of entry 
into the market? If so, how and under what circumstances?
    7. How widespread in your industry are the types of conduct that 
you have discussed? What features of the conduct may vary and why? What 
are the typical business contexts in which such types of conduct occur? 
How frequently do firms that lack market power undertake such conduct 
and why?
    8. What tests and standards should courts and enforcement agencies 
use in assessing whether such conduct violates section 2?
    9. If any scenario that you have discussed could result in 
liability under section 2, what remedy or remedies would you propose 
for consideration? What tests and standards should courts and 
enforcement agencies use in assessing which remedy to apply in a 
section 2 case? Should section 2 remedies address conduct or market 
structure, and why should one be preferred over the other? Would your 
preferred remedy require ongoing oversight by a court or agency--e.g., 
oversight of prices, conduct between competitors (e.g., licensing), or 
costs? If so, please describe how such oversight could be conducted.
    10. In what circumstances, if any, should an agency decline to 
pursue a section 2 case due to an absence of a practical, judicially 
manageable, and economically feasible remedy?

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 06-3366 Filed 4-6-06; 8:45 am]
BILLING CODE 6750-01-P