Judicial Theory and the 'Price-Effect'

[charles mueller <cmueller@metrolink.net>]

        I neglected to mention in my earlier post here the parallel between
the 'tying' approved by the U.S. appeals court in Chicago on October 3,
1997, and that involved in the pending Microsoft case.  In the former--the
Stadium case (below)--a monopoly over the exhibition of sporting events
(comparable to Microsoft's 85% monopoly of operating-system computer
software) was used to also monopolize a secondary market, food concessions
in and around the stadium (a la Microsoft's exclusion of competing
browsers).  That tying was legal, said the Chicago appeals court, because it
is harmless to consumers, i.e., the monopolist can't raise the price of the
'tied' secondary product without a comparable LOWERING of its primary
monopoly's price (below), leaving the public unaffected.

        Was this fanciful judicial 'economic' theory disposed of in the
Supreme Court's 1992 Kodak case?  (Eastman Kodak v. Image Technical Services
et al, 112 S. Ct. 2072, June 8, 1992.)  Obviously the Chicago appeals court
doesn't think so, as evidenced by the dates of the two decisions--one is
nearly 6 years old, the other only 4 MONTHS old.  Did the Chicago judges, in
1997, just ignore the Supreme Court's 1992 decision in Kodak?  No, the
latter case is treated as being factually unique and therefore inapplicable
in the general run of tying cases.  In Kodak, the private plaintiffs--some
18 small servicers of high-speed copying machines who were forced out of
business when Kodak began 'tying' its own in-house servicing to the PARTS
required to repair and service the Kodak machines--had been able to show
that service PRICES had been roughly DOUBLED by Kodak as a result of the
firm's secondary-monopoly 'tie.'

        This was of course contrary to the 'harmless' theory offered by the
defense, as the Supreme Court pointed out in remanding the case back to the
lower courts for trial.  (It should be noted that the Justice Department, in
that 1992 Kodak case--manned then by Bush appointees--had filed in the
Supreme Court an amicus brief supporting the defending MONOPOLIST, not the
plaintiffs.  See my Antitrust Law & Economics Review, Vol. 23, No. 4, pp. 13
et seq.)  

        A fair summary of U.S. policy on the building of a 2nd monopoly by
'tying' it into an existing 1st one would therefore go something like this:
The practice is generally approved on the fixed-sum (harmless) 'economic'
theory articulated by the Chicago appeals court in 1997 (below), subject to
an EXCEPTION where the plaintiff is able to allege and PROVE that PRICES to
the public have in FACT been substantially raised by that secondary monopoly
power.  In that 1997 Chicago stadium case, there was no such evidence (the
plaintiffs were denied the right to conduct discovery) and the victims were
accordingly thrown out of court.

        What about the Microsoft case?  So far as I'm aware, the Justice
Department has not made a 'price-effect' argument--no contention that, as a
result of Microsoft's 'tying' of its Internet browser to its
operating-system monopoly--the consuming public has been required to pay a
higher price for EITHER (1) its OS OR (2) its browser.  (The latter is of
course given away, free, zero cost.)

        How, then, is it going to satisfy the 'theory' test applied by the
U.S. appeals courts?

        And how has Bill Gates been doing during the recent week when he
'blinked' and agreed to let the computer manufacturers omit his browser, IF
they like?  According to the New York Times (1/25/98, Sec. 3, p. 2),
Microsoft's "stock rose $4 on the WEEK, enough to make Bill Gates $1.08
BILLION richer."

        A tough week, right:)?

        Charles Mueller, Editor
        ANTITRUST LAW & ECONOMICS REVIEW
        http://webpages.metrolink.net/~cmueller

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                 Ralph Nader has recently begun a small effort to improve
U.S. antimonopoly enforcement.  And that raises an interesting question:  Is
there something he could do that might make a substantial difference in the
nation's overall policy here?  Consider his principal resource, his ability
to get serious media attention directed to problems of real national
importance.  The key antitrust problem--the one that lies at the root of the
others--is the U.S. judiciary's systematic indoctrination, since 1976 and
continuing to date, in pseudo-economic theory.  

        A small example will illustrate the point.  A bastion of
Chicago-school 'economic' thinking is of course the 7th Circuit appeals
court in Chicago.  On January 21, 1997, it heard an interesting
monopoly/tying case.  (See my Antitrust Law & Economics Review, Vol. 27, No.
3, pp. 97-110.)  The city recently got a new sports stadium (the United
Center)--which replaced the former Chicago Stadium-- and with it a new
policy on snack concessions:  No food of any kind can be brought into the
stadium.  (Security personnel check patrons at the gate and confiscate any
food items.)  A group of licensed peanut vendors who had been essentially
put out of business (previous annual sales of some $500,000 per year) filed
suit in the federal district court in Chicago alleging that the stadium (1)
had a monopoly in the live presentation of NHL hockey and NBA basketball
games in Chicago and (2) used that primary monopoly to monopolize a
secondary market, food concessions in and around the stadium.  

        A 3-judge panel (Coffey, Manion, and Wood) of the 7th Circuit
affirmed the district judge's pretrial dismisal of the case, without
allowing discovery (or trial).  Thornton Elliott et al. v. United Center,
October 3, 1997.  Noting plaintiffs' argument that "the fewer the
[competing] food concessions, the higher the price the United Center can
charge for food its patrons consume, and the more consumers will suffer,"
the 3 judges had an answer:  "But people do not go to the United Center to
buy food; they go to watch a basketball game, a hockey game, or some other
special event.  The United Center can recoup the cost of putting on the
event in any number of ways.  It can charge very high ticket prices, and
allow unlimited numbers of food concessions in and around the stadium, OR it
can charge somewhat LOWER ticket prices and restrict the number of
concessions (thereby earning some of its profits from the food sales)."  

        The latter sentence embodies, of course, the familiar Chicago-school
fixed-sum or one-monopoly-profit economic theory--which holds that tying is
unobjectionable because, no matter how many 'secondary' markets are
captured, the sum of their profits (primary plus secondary) cannot exceed
the maximum profits of the primary (monopoly) market itself.  No additional
profits can be gained by the tying, so the public can't be injured by it.
But is that true?  

        The entire body of U.S. antitrust jurisprudence in 1998 is of
exactly of this sort.  (See my 'Dirty Dozen' U.S. Antitrust Cases, in my Web
site, below.)  

        The judges believe it because it's what they've been taught at all
those 2-week 'economic seminars' in sunny Florida (and are still being
taught there) sponsored by the corporate foundations (Olin, Schaife, et al)
and put on by Henry Manne's pro-monopoly propaganda mill housed at the
George Mason University in Virginia.

        I believe Ralph Nader could stop this pro-monopoly indoctrination of
our U.S. judges if he put his considerable talents to the task.  He could
rally knowledgeable, distinguished antitrust/economic scholars to point out
the errors in what the country's judiciary has been and is being taught.  He
might even be able to persuade the heads of FTC/Justice and the better of
our 50 state attorneys general to speak up against this wholesale delivery
of ex parte pro-monopoly advocacy to the federal bench.  With the focusing
of publicity on it, that judicial propaganda mill would ultimately have to
close up shop, give equal time to economists of opposing views (which would
dry up its right-wing financing), OR see its judicial 'students' shamed into
abandoning it.      

        By destroying that 'intellectual' underpinning of the judges'
pro-monopoly rulings, Ralph could open up America's courts once again to the
complaints of those 1,500 plaintiffs who were once able to get a fair
hearing before a jury of their peers --rather than before 3 indoctrinated
judges wielding fanciful, ex parte 'economic' theories.  With the
restoration of those PRIVATE antitrust cases--the kind that cost the
monopolists real dollars and thus serve as genuine deterrents to
anticompetitive corporate behavior--the law becomes effectively
SELF-ENFORCING.  Even sidewalk peanut vendors can win their cases before
fair judges who're prepared to honor the 7th amendment and allow unbiased
juries to hear their evidence.  

        Again, Ralph's prodding on selected cases helps.  But it is
essentially an attempt to bail out the ocean with a teaspoon.  He should
aim, instead, for the vulnerable nerve center of the pro-monopoly movement
in America, its Achilles heel--the patently unfair propaganda mill that
keeps our 1,000 judges busy killing antitrust cases before they have a
chance to reach a jury.  That ex parte machine, in my view, couldn't survive
serious public scrutiny.  Allowing an entire branch of our national
government--our 1,000 U.S. judges--to be intellectually bought with a few
million dollars worth of right-wing 'education' at Florida resorts in the
dead of winter is a national disgrace.  And bringing nationwide, systematic
injustice under the floodlight of sharp public examination is Ralph's forte.

        Charles Mueller, Editor
        ANTITRUST LAW & ECONOMICS REVIEW
        http://webpages.metrolink.net/~cmueller

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