Law 552 - Antitrust - Instructor: Dwight Drake

Hospital Corp of America v. FTC (7th Cir. 1987)

Basic Facts: Hospital Corp, owner of one hospital in Chattanooga, acquired two more hospitals in market, which had contracts to manage two more. Thus, deal gave them control of 5 of 11 hospitals in market and 26% market share. Four largest had 91% market. FTC ordered divestiture under Clayton 7. 7th Cir. (Posner opinion) affirmed.

- Ultimate question is whether acquisition facilitates collusion – enables competing firms to better cooperate to limit output and increase prices.

- Here fewer competitors makes cooperative pricing easier; new entries difficult under Tennessee certificate-of-need law; hospital services have inelastic demand (prices can be raised with little demand impact); there is tradition among competing hospitals in market; merger will facilitate resistance to cost cutting pressures by joint hospital efforts to negotiate with insurers. All these consideration support FTC conclusion.

- Need not prove higher prices or specific consumer harm, just likelihood of collusive effects that will be harmful to consumers.

Law 552 - Antitrust - Instructor: Dwight Drake

United States v. Baker Hughes Inc. (D.C. Cir. 1990)

Basic Facts: Tamrock Ag, with 40% U.S. market share for hydraulic underground drilling rigs, acquired Secoma, competitor with 17.5% market share. HHI went from 2878 to 4303. U.S. challenged under Clayton 7, claiming HHI made prima facie case. Dist. Ct. found unique factors would result in not substantial lessening of competition. D.C. Circuit affirmed. Prima facie case rebutted by following:

- Minuscule sales – only 40 units a year in all U.S. Every unit sold could impact market share 3-5%.

- Buyers sophisticated. Units cost 100ks. No fear of consumer price increases.

- Other competitors in wings, in Canada and elsewhere. Won’t enter U.S. market now because demand so thin. But could if needed.

- Prima facie case rebutted to show no substantial threat of lessened competition.

Law 552 - Antitrust - Instructor: Dwight Drake

FTC v. Staples (D.D.C. 1997)

Basic Facts: Staples and Office Depot proposed to merge. FTC showed Stables prices 5-15% higher in markets where it didn’t compete with other office supply superstore. Ct. enjoined merger:

- Relevant market was office supply superstores, not all office supply stores. Appearance, size, format, variety, customer type and public recognition all justified.

- HHI in some markets 10,000 (complete monopoly) and average was 2715.

- Evidence of efficiencies not enough to counter threats of less competition, lower output and higher prices.

Law 552 - Antitrust - Instructor: Dwight Drake

FTC v. H.J. Heinz (D.D.C. 2000, D.C. Cir. 2001)

Basic Facts: Heinz, 17.4% baby food market share in U.S., desired to merge with Beech-Nut, 15.4% market share. Giant in U.S. was Gerber, with 65% market share. Heinz, small in US, largest in world. Dist. Ct denied FTC request for injunction, finding merged entity would be able to compete more effectively with giant Gerber. Court of Appeals reversed, enjoining merger. HHI was 4775 before merger; 5285 after; increase of 510. How did two courts evaluate following factors:

- Lack of price competition in industry.

- Lack of any collusion in industry.

- Merger would increase competition for giant Gerber.

- Merger would increase innovation,

- Merger would promote efficiencies and save big resources.