1. Transactions costs have become an important issue in industrial organization and antitrust.

Note the citation to this issue on page 215, line 7, regarding the ASCAP case and the general issue of the "reasonableness" of price restraints.

2. Price fixing has traditionally been considered a per se violation of Sherman Section 1.

Despite some concern by economists that this is too restrictive, or tends to waste valuable

enforcement resources on "trivial" examples of explicit price fixing while failing to inhibit more subtle forms of tacit price fixing, collusion to fix price or share markets has been considered illegal

despite any possible "justifications."

Nevertheless, note on page 215, that there has been some weakening of that strict

standard where it can be shown that there is some "necessity," i.e. where it can be shown that

(line 4), "in joint ventures and other cooperative arrangements, price agreements might be necessary to the provision of the product." A second issue noted above is the possibility that price agreements might actually enhance efficiency, for example, if they reduce transactions (and other) costs.

Importantly, the NCAA case further clarified the treatment of horizontal restraints

by concluding that if the case fails to demonstrate that the restraint is (1) necessary, or

(2) promotes consumer welfare by reducing costs, then it is illegal even if there is no demonstration

of market power. As indicated on page 215, the courts still referred to the adverse impact such an arrangement without market power would have on price, but failed to clarify how such an adverse impact could occur without market power. Thus, this case essentially reconfirmed the per se

treatment of most price fixing - if you coordinate activity, you are guilty regardless of the consequences

(unless you can somehow justify the restraints by using the 2 defenses listed above, and they have rarely been allowed). For further discussion, see "Price Fixing" section pages 222-223; note especially the point that a defendant strategy of falling back on a "rule of reason" defense is normally ineffective in price fixing cases, which are almost always handled as "per se" violations. Thus, few defendants have said, "OK, I did it, but it had no detrimental economic effects." The usual best defense is to say, "I didn't do it." Page 235 at the end of the case further clarifies this issue.

3. Page 221, third paragraph - summary of the basic plaintiff argument that the NCAA-ABC agreement had anticompetitive effects that worsened the performance of the market for televised collegiate football.

The next paragraph continues the argument by noting that not only would the agreement reduce the number of games televised but also reduce the quality of the games by ignoring consumer preferences.

4. Also, group boycotts have traditionally been illegal under the antitrust laws and page 222 discusses the role of such boycotts in this case. Note that it is not illegal for a firm to unilaterally choose not to deal with another firm (although it is sometimes difficult for the accused firm to prove that there was no coordination with other firms). Such "unilateral refusals to deal" are normally legal as long as they do not violate any other laws (against discrimination, for example), especially if the defendant firm can demonstrate that it was following its usual explicit guidelines for dealing with all firms.

5. Notice on page 223 that it is common in antitrust (and most other legal proceedings) to have more than one law cited in the complaint against the defendant. Here, there is both a monopolization charge

under Sherman Section 2 and a horizontal restraint of trade charge, including a group boycott charge, under Sherman Section 1. Be alert to the discussion about the applicability of the rule of reason vs. per se status of the case, pp. 223 (bottom) and 224. Where a group boycott or other restraint takes the form

of an "exclusive dealing" arrangement that increases the competitive status of one type of product already in sufficient competition with other products, it would not be per se illegal but would be evaluated on the merits, looking at the pros and cons (i.e. rule of reason). If, however, it is viewed as a straightforward attempt to "cartelize" (price fix), it would be a simple per se offense.

6. Question - Is the difference clear to you between a "horizontal boycott" and

a "vertical boycott?" Re-read the boycott discussions on page 222 (top) and 224

(second full paragraph) and be sure you can distinguish between horizontal and vertical in this case.

7. Page 225. See the application of the textbook concept of "derived demand" related to advertising, i.e. broadcasters demand for college games was derived from sponsors' demand for commercial spots during large audience TV events.

8. The product market debate in this case is classic -- the plaintiffs trying to establish a "narrow" market, i.e. "college football television," while the defendants argue for a broader market, i.e. "all television programming." Can you easily explain the logic of these positions?

9. What is the importance of "cross price elasticity of demand" in this case?

Exactly what factors do you think would have to be examined to determine such cross price elasticities. How would they be used if one could estimate their magnitude?

10. The word "fungible" is often used in antitrust discussions. Note that it essentially means "substitutable." If various products are perfectly fungible, no individual product has unique features that would limit their substitutability for each other. But note the sometimes subtle ways this is applied to the real world - page 226 in the discussion of advertisers putting together a "portfolio" of programs, trading off more popular ones that cost more per advertising minute for less popular ones that cost less.

(Do you buy the argument that billboard advertising is a sufficient substitute for network college football advertising)?

11. Carefully read the section on "The NCAA's Defense." Note especially the "three pronged"

argument:

a. Even though the NCAA had suggested how ABC might compensate the schools as part of its

$29 million contract with the NCAA, that was a "minimum" price; ABC could have paid more to individual schools if it wanted, thus any "price fixing" was not really the fault of the NCAA, and besides,

the upcoming contracts had been modified so that the NCAA would no longer make pricing recommendations (so that problem was already "solved").

b. There was no direct evidence of "output restriction" since, for example, 60 games a year was a lot of games, and since the network and the sponsors had every incentive to broadcast the highest quality games, there was no diminution of the "quality" of the output.

c. The "uniqueness defense" - the NCAA is a nonprofit organization just trying to find ways to implement certain "good goals" unique to college athletics - preserve competitive balance,

keep college football from becoming another big money business, and protect the health and well-being of young athletes. Besides, as a technicality, it was not obvious that the plaintiffs, the Board of Regents of the University of Oklahoma and the Athletic Association of the University of Georgia actually suffered any antitrust injury, i.e. had not been competitively harmed in any way.

What do you think of these arguments?

12. At the District Court level, jury trials are possible but not required. Sometimes, as here, a judge not only oversees the trial, but actually renders the verdict. It was tried by a judge not a jury.

13. The Circuit Court of Appeals verdict was another classic example of how the process works: (a) the primary verdict was upheld, although the vote was not unanimous (2 to 1), and (b) not every aspect of the initial verdict was upheld - note the overturning by the Appeals court of the District Court verdict on the boycott theories. Be sure you can explain why both the vertical and the horizontal boycott theories were overturned by the Appeals Court.

14. Footnote 27 makes an interesting point about what performance criteria to use in evaluating business behavior. Consumer welfare is not identical to societal welfare, which in turn is not identical to the economists' efficiency welfare criterion.

15. The discussion of the Supreme Court decision, pp. 229-232, is excellent but complex.

This is why legal analysis is not easy. A decision can be upheld (or overturned) for reasons that are not identical to those identified in the lower courts, thus establishing a precedent that may be more (or less)

sweeping than it appears. For example, page 230 discussed the "companion" case of ASCAP, where the Second Circuit Court of Appeals found the copyright licensing agreement in ASCAP to be a "per se illegal form of price fixing." When the Supreme Court overturned this ruling, it did not necessarily say the licensing agreement was legal; it said that the Second Circuit Court was wrong to consider it per se illegal, and so it had to go back to be tried as a rule of reason case. This kind of subtle distinction is why it takes three year of law school and many more years of practice to make a good attorney.

16. In the NCAA case, note the discussion on page 231, where the Supreme Court argued that when a particular business practice is a restraint that "lacks a plausible efficiency justification," complex market analysis is not necessary - it can be held to be per se illegal. But note the two clarifications of this position:

a. Lower courts, the attorneys for the plaintiff and defendant and the expert witnesses cannot just ignore such market analysis, since it would be part of the trial record being evaluated by the Supreme Court if it ever was appealed (and accepted for appeal) at that level. The Supreme Court can make that judgment, but not the lower courts.

b. Even the Supreme Court in reality did rely upon the market analysis done by the District Court, so the Supreme Court clearly did not itself ignore such issues in making its decision in this case.

Finally, note the importance of output restriction. If there is good evidence of output restriction, there is a good chance a practice will be found to violate the antitrust laws. See bottom of page 231.

17. Re-read the very good synopsis of the Supreme Court reasoning starting last paragraph on page 231 to the end of that section.

18. Determining the wisdom of a particular court decision often requires waiting for some of the

evidence to "come-in" over time. Are you convinced by the "Aftermath" discussion of the benefits of the antitrust enforcement in this case?