See, for example, Stout, Hilary and Wartzman, Rick, “WithHealth Care PackageNearing Completion, Clinton Must Now Make Some Tough Decisions,” The Wall Street Journal, May 18,1993, at A18.Google Scholar

See Thomas, Burton, “Blue Cross and Blue Shield Plans Set to Form $4.1 Billion Insurer in 3 States,” The Wall Street Journal, May 27, 1993, at A2 (noting announcement by BC-BS plans in Illinois, Iowa and South Dakota to merge, a move that, according to the article, “could foreshadow more such combinations under the new health-care system envisioned by President Clinton”); see also Kerr, Peter, “The Changing Definition of Health Insurers,” The New York Times, May 10, 1993, at C1 (describing the consolidation that will come to the health insurance industry in the next few years “as the industry shifts its business away from traditional insurance and towards the delivery and management of health care”).Google Scholar

FTC Commissioner Dennis Yao has worried aloud that the Clinton plan could eventually lead to oligopolistic collusion among powerful provider networks formed in response to the plan's empowerment of consumers. 64 Antitrust & Trade Reg. Rptr. 451 (April 22, 1993); and an op-ed piece in The Wall Street Journal speculated that “the majority of health care in the greater Los Angeles area—a region of 13 million people—will soon be delivered by 10 or fewer giant medical networks.” See Sidney Marchasin, “In California, Merger Mania Afflicts Hospitals,” The Wall Street Journal, June 2, 1993, at A14.Google Scholar

See “Insurers Facing Closer Scrutiny In Clinton Plan,” New York Times, June 22, 1993, at p.1.Google Scholar

The Supreme Court's first, and most famous, acknowledgement that professional services might require special antitrust treatment came in Goldfarb v. Virginia State Bar, 421 U.S. 773, 788-89 (1975), fn. 17, where the Court stated that: “(i)t would be unrealistic to view the practice of professions as interchangeable with other business activities, and automatically to apply to the professions antitrust concepts which originated in other areas. The public service aspect, and other features of the professions, may require that a particular practice, which could properly be viewed as a violation of the Sherman Act in another context, be treated differently.” In no case, however, has the Court ever found it appropriate actually to treat professional restraints of trade differently from others.Google Scholar

See, for example, Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975) (lawyers); FTC v. Superior Court Trial Lawyers Association, 493 U.S. 411 (1990) (lawyers); National Society of Professional Engineers v. United States, 435 U.S. 679 (1978) (engineers).Google Scholar

See, in this regard, FTC v. Indiana Federation of Dentists, 476 U.S. 447 (1986) (upholding FTC ruling that group of dentists who refused to submit x-rays to dental insurers for use in benefits determinations engaged in “unfair method of competition”); Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984) (declaring, among other things, that the informational imperfections in the market for the purchase of hospital services were inconsequential to the antitrust analysis of the alleged tying arrangement at issue); and Arizona v. Maricopa County Medical Society, 457U.S. 332 (1982) (treating an agreement by physicians to offer insurance companies and their customers a cap on medical fees—an agreement, in other words, to set maximum prices—as if it held the same prospect of competitive harm as an agreement fixing minimum prices).Google Scholar

See Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982). Price-fixing by competitors, and other collaborative activities that threaten competitive harm, such as tying agreements and group boycotts, are proscribed by Section One of the Sherman Act, 15 U.S.C. sec. 1, which outlaws “(e)very contract, combination…or conspiracy in restraint of trade.” Section One is antitrust's major weapon against multiple actors. Single firm conduct is governed largely by Section Two of the Sherman Act, which makes it unlawful to “monopolize or attempt to monopolize…any part of the trade or commerce” between the states.Google Scholar

See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2 (1984). The United States Supreme Court has defined a tying agreement, also known as a “tie-in,” as “an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier.” Northern Pac. Ry. v. United States, 356 U.S. 1, 5–6 (1958).Google Scholar

See FTC v. Indiana Fed'n. of Dentists, 476 U.S. 447 (1986). “Group boycotts,” also known as “concerted refusals to deal,” generally involve “joint efforts by a firm or firms to disadvantage competitors by ‘either directly denying or persuading or coercing suppliers or customers to deny relationships the competitors need in the competitive struggle.’” Northwest Wholesale Stationers v. Pacific Stationery & Printing Co., 472 U.S. 284, 294 (1985).Google Scholar

See, for example, United States v. Rockford Memorial Corp., 898 F.2d 1278 (7th Cir. 1990); Hospital Corporation of America v. FTC, 807 F.2d 1381 (7th Cir. 1986); United States v. Carilion Health System, 707 F.Supp. 840 (W.D.Va., 1989). The legality of mergers is governed generally by Section One of the Sherman Act quoted above, and specifically by Section Seven of the Clayton Act, 15 U.S.C. sec. 18, which prohibits one company from acquiring the stock or assets of another, where the effect of that acquisition “may be substantially to lessen competition, or to tend to create a monopoly.”Google Scholar

See, for example, Greaney, Thomas, “Quality of Care and Market Failure Defenses in Antitrust Health Care Litigation,” 21 Conn. L. Rev. 605 (1989).Google Scholar

See, e.g., Sherman Act, 15 U.S.C. sec. 1,2 (1988) (declaring combinations or conspiracies in restraint of trade illegal and making it a felony to monopolize or attempt to monopolize trade); Clayton Act sec. 3, 7, 15 U.S.C. sec. 14, 18 (making it unlawful to sell goods on the condition that the buyer refrain from dealing with a competitor, where the effect would substantially lessen competition or tend to create a monopoly, or refrain from buying the stock or assets of a competitor where that would have the same effect); FTC Act, sec. 5, 15 U.S.C. sec. 45 (1988) (declaring unfair methods of competition unlawful).Google Scholar

See, for example, United States v. Continental Can Co., 378 U.S. 441, 461 (1964) (evaluating legality of a proposed merger by reference to post-merger market power).Google Scholar

See Otter Tail Power Co. v. United States, 410 U.S. 366, 377–80 (1973) (holding that the refusal to permit a municipality access to an electric power grid when such access was necessary for independent power generation was a violation of the Sherman Act).Google Scholar

See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 600–05 (1985) (holding that a monopolist's decision to terminate its participation in a multi-area lift ticket, solely for exclusionary reasons, violated the Sherman Act).Google Scholar

Since the early days of antitrust law, courts have taken two separate approaches to allegations of anticompetitive behavior under Section One of the Sherman Act—the rule of reason and the per se rule. Because most business conduct could be deemed to be in restraint of trade—contracts restrain the signatories, partnerships restrain the partners—the Sherman Act has been interpreted to make illegal only those restraints that are unreasonable. See Chicago Board of Trade v. United States, 246 U.S. 231 (1918); Piraino, Thomas A. Jr., “Reconciling the Per Se and Rule of Reason Approaches to Antitrust Analysis,” 64 S. CAL. L. Rev. 685, 689 (1991). Under the “rule of reason” standard, courts engage in a factual inquiry into the “competitive circumstances and justifications of business conduct” to determine the reasonableness of any alleged restraint. Id. The per se rule of illegality developed in response to the burdensome, often unnecessary, and sometimes fruitless factual inquiry required by the “rule of reason” standard. Under the per se rule, “[p]ractices clearly having a ‘pernicious effect on competition’ and lacking ‘any redeeming virtue’ could be conclusively presumed to be illegal without inquiry into competitive purpose or market effect.” Id. at 691. This categorical and absolutist approach has the weakness of occasional overbreadth, but it reduces the time and expense of litigation and provides clear guidelines for courts and businesses. Id. at 691–92.Google Scholar

See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 13–14 (1984).Google Scholar

According to the Supreme Court, “market power” is a necessary, but not sufficient, precondition to the possession of “monopoly power.” Traditionally, firms have converted market power to monopoly power by willfully acquiring or maintaining the former, or by engaging in some type of impermissible exclusionary conduct. See, e.g., United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966) (possession of 87 percent of the relevant market share and “willfully” maintaining that share constituted monopolization).Google Scholar

See Landes, William M. and Posner, Richard A., “Market Power in Antitrust Cases,” 94 Harv. L. Rev. 937, 939–52 (1981); Schmalensee, Richard, Comment, “Another Look at Market Power,” 95 Harv. L. Rev. 1789 (1982); Hay, George, “Market Power in Antitrust,” 60 Antitrust L.J. 807 (1992); Denis, Paul T., “Market Power in Antitrust Merger Analysis: Refining the Collusion Hypothesis,” 60 Antitrust L.J. 829 (1992).Google Scholar

See 2 Areeda, Phillip E. & Turner, Donald F., Antitrust Law, Para. 507 (1978); for a full discussion of the shortcomings of market share as a proxy for market power, see generally Schmalensee, supra note 20.Google Scholar

United States v. Aluminum Co. of Am., 148 F.2d 416, 424 (2d Cir. 1945) (holding that a firm with more than a 90 percent share of the relevant market has a monopoly, a firm with less than 33 percent does not, and a firm with 60 or 64 percent “doubtful”). Although the United States Supreme Court has never expressly ratified the market share test adopted by Judge Hand in Alcoa, in no case prior to Eastman Kodak Co. v. Image Technical Services, 112 S. Ct. 2072 (1992), discussed infra, had the Court found “market power” in a firm with a market share of less than 50 percent.Google Scholar

Landes, and Posner, , supra note 20, at 938.1Google Scholar

United States v. Grinnell Corp., 384 U.S. 563, 571 (1966).Google Scholar

112 S. Ct. 2072 (1992).Google Scholar

112 S. Ct. 2072, 2077.Google Scholar

Id.Google Scholar

In particular, the independent service organizations alleged that Kodak had violated Section One of the Sherman Act by unlawfully tying the sale of service for Kodak machines to the sale of parts and that Kodak had violated Section Two of the Act by unlawfully monopolizing and attempting to monopolize the service market for Kodak copying and micrographic machinery. 112 S.Ct. at 2078.Google Scholar

See Image Technical Servs. v. Eastman Kodak Co., 903 F.2d 612, 616 (9th Cir. 1990); Eastman Kodak Co. v. Image Technical Servs., 112 S. Ct. 2072, 2081–82.Google Scholar

See Image Technical Servs. v. Eastman Kodak Co., 903 F.2d 612, 616 n.3 (“Appellants do not dispute Kodak's assertion that it lacks market power in the interbrand markets”).Google Scholar

For a broad introduction to neo-classical economic theory, see Stigler, George J., The Theory of Price (3d. ed. 1966).Google Scholar

112 S.Ct. 2072, 2085.Google Scholar

Id. at 2087.Google Scholar

Id. at 2085. According to the Court, the lifecycle price of a piece of equipment is the total cost to the buyer of owning that equipment over its useful life: the purchase price plus the lifetime costs of replacement parts and service. In order to estimate accurately the lifetime cost of owning Kodak equipment, for example, the buyer would need to know “data on price, quality, and availability of products needed to operate, upgrade or enhance the initial equipment, as well as service and repair costs, including estimates of breakdown frequency, nature of repairs, price of service and parts, length of ‘down-time’ and losses incurred from ‘down-time.’” Id.Google Scholar

Id. at 2087.Google Scholar

Id. at 2087–88.Google Scholar

For a more complete discussion of the analytical and practical problems raised by the Kodak decision, see Jacobs, Michael S., “Market Power through Imperfect Information: The Staggering Implications of Eastman Kodak v. Image Technical Services and a Modest Proposal for Limiting Them,” 52 Md. L. Rev. 336 (1993).Google Scholar

Kodak, , 112 S. Ct. at 2085.Google Scholar

Kodak, , 112 S.Ct. at 2077.Google Scholar

A report published in 1990 by a bipartisan federal commission studying the state of health care in America estimated that only 10 to 20 percent of all medical procedures used today have undergone randomized clinical trials, the most conclusive method of testing the efficacy of a particular procedure. U.S. Bipartisan Commission on Comprehensive Health Care (The Pepper Commission), A Call for Action: Final report (1990).Google Scholar

On June 23, 1993, the New York Times reported that the head of the federal agency that rates the quality of the care provided by hospitals to their Medicare patients had held up the release of this year's rating on the ground that the methodology behind the rating system was “flawed.” New York Times, June 23, 1993, at p. A9 (National Ed.). See also e.g., David Eddy & Billings, “The Quality of Medical Evidence: Implications for Quality of Care,” Health Aff., Spring 1988, 19, 20 (“for at least some important practices, the existing evidence is of such poor quality that it is virtually impossible to determine even what effect the practice has on patients, much less whether it is preferable to the outcomes that would have occurred with other options”).Google Scholar

See Ronald, Goldman, “The Reliability of Peer Assessments of Quality of Care,” 267 J.A.M.A. 958 (1992) (the level of agreement between doctor-reviewers asked to review the quality of particular episodes of health care “is only slightly better than [that] expected by chance”).Google Scholar

See, for example, United States v. Philadelphia National Bank, 374 U.S. 321 (1963); see also 1984 U.S. Department of Justice Merger Guidelines.Google Scholar

Not, of course, because these mergers will necessarily create a large enough entity but rather because they will focus attention on the merging parties and their markets and give enforcement agencies the opportunity to check those for the kind of information gaps found by Kodak to have the potential for conferring market power.Google Scholar

See F.T.C. v. R.R. Donnelly & Sons (U.S. D.C. Dist. of Col., 1990, U.S. Dist. LEXIS 11361; 1990 Trade Cas. (CCH) P69,239); U.S. v. Country Lake Foods, Inc., 745 F. Supp. 669 (D. Minn. 1990); U.S. v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990); F.T.C. v. University Health, Inc., 938 F.2d 1206 (11th Cir. 1991).Google Scholar

They could, for example, anticipate a merger and protect themselves from supra-competitive pricing by entering into long-term contracts; or they could confront merged entities with the prospect of their own entry into the sellers' market, either through internal expansion or merger. See, e.g., Hovenkamp, Herbert, “Mergers and Buyers,” 77 U. Va. L. Rev. 1369 (1991).Google Scholar

See cases cited supra at note 45.Google Scholar

In F.T.C. v. University Health, Inc., 938 F.2d 1206, 1213 (11th Cir. 1991), the Court of Appeals rejected the sophisticated consumer defense, stating that the insurance companies who would purchase hospital services from the hospital formed by the merger at issue are not “truly large buyers,” and arguing that since the insurers would be likely to pass along to their consumers any price increases by the hospital, collusion by the remaining hospitals in the market would “likely go unchecked.” It is arguably unlikely that the “pass-along” scenario envisioned in this case by the Court of Appeals would occur after the implementation of the Clinton plan, and thus more likely that the sophisticated consumer defense would be more useful to firms desirous of merging.Google Scholar

Bear in mind that buyers who have perfect information, or something approaching it, will know before purchasing a particular product how much it will cost for them to switch to a compeitive model, should the product in question prove more expensive to operate than anticipated. One who buys a product, fully cognizant of possible switching costs, presumably considers that factor in making its initial purchase decision, and cannot reasonably be said to have fallen prey to market power. In this sense, switching costs are just a subspecies of the larger category of informational costs.Google Scholar

See, for a fuller discussion of monopsony, Blair, Roger and Harrison, Jeffrey, “Antitrust Policy and Monopsony,” 76 Cornell L. Rev. 297 (1991).Google Scholar

493 U.S. 411 (1990).Google Scholar

Section One of the Sherman Act.Google Scholar

White, Barbara Ann, “Countervailing Power—Different Rules for Different Markets? Conduct and Context in Antitrust Law and Economics,” 41 Duke L.J. 1045 (1992).Google Scholar

Alternative health care providers are also known as non-physician personnel, and as “allied” providers. By some counts there are more than 200 separate occupations in the highly labor-intensive health services market, only a few of which are strictly medical in nature. See Havighurst, Clark, Health Care Law and Policy 444–45 (Foundation Press 1988).Google Scholar

The justifiably famous case of Wilk v. A.M.A., 719 F.2d 207 (7th Cir. 1983) details the bizarre lengths to which organized medicine has gone to exclude chiropractors from respectable medical circles; but other cases testify to similar efforts undertaken by physicians' groups against other types of alternative providers. See, for example, Idaho Ass'n. of Naturopathic Physicians v. FDA, 582 F.2d 849 (4th Cir. 1978) (naturopaths); Maguire v. Thompson, 957 F.2d 374 (7th Cir. 1992) (naprapaths); Guess v. North Carolina, 393 S.E.2d 833 (N.C. 1990) (homeopaths); Andrews v. Ballard, 498 F.Supp. 1038 (S.D.Tex. 1980) (acupuncturists)Google Scholar

Section One of the Sherman Act, in particular, prevents this type of conduct. See Wilk v. A.M.A., supra note 55.Google Scholar

See Eastern Railroad Presidents Conference v. Noerr Motor Freight, 363 U.S. 127 (1961) (“the Sherman Act does not prohibit two or more persons from associating together in an attempt to persuade the legislature or the executive to take particular action with respect to a law that would produce a restraint or a monopoly”).Google Scholar

486 U.S. 492 (1988).Google Scholar

Noerr immunity was extended to activities aimed at administrative agencies in United Mine Workers v. Pennington, 381 U.S. 657 (1965) and to the filing of bona fide judicial actions in California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508 (1972).Google Scholar

486 U.S. 492, 495–97 (1988).Google Scholar

Id. at 499.Google Scholar

Id. at 502.Google Scholar