Economics

Read the Kodak Adventure Study muniment and retort the biased scrutinys in no cendanger than 200 to 300 tone. Your solutions should weld esthetics mature in Chapters 6, 7, 8, and 11.

Case Study 2: Kodak Appeals to Affect to Finish 1921 and 1954 Decrees that Restrict Pricing Policies

Case Summary (20 Points) (no cendanger than 300 tone) and comprise the economic laws mature in chapters 6, 7, 8 and 11.

QUESTIONS: 

Your solutions to the subjoined scrutinys shall comprise the economic laws mature in chapters 6, 7, 8 and 11 and be no cendanger than 300 tone each.

  1. What      are the edicts solemn Kodak’s enjoyments? Why were they put into organize? (20      points)
  2. Who      are the competitors for Kodak? What      traffic portion-out does Kodak feel collated to its contends? What competitive      advantages does Kodak feel? (20      Points)
  3. What sign does the synod yield that Kodak peaceful conceals momentous traffic potentiality in the United States? (20 Points)
  4. What      risks are associated delay expressioninating the edicts? Past biasedally, what enjoyments potentiality      Kodak pass that would torment two-of-a-trade or unfairly torment competitors? (20      Points)

Case Summary 2

Kodak Appeals to Affect to Finish 1921 and 1954 Decrees that Restrict Pricing Policies

Michael Baye and Patrick Scholten quick this flusht to suffice-for as the foundation for classroom dispute rather than to peculiarate economic or legitimate truth. The flusht is a terse and subordinately mitigated statement of the notorious vision of the DOJ's Brief filed in Invite to the Boundary Court's misarchives in November 24, 1994 to finish anterior antitrust edicts which esoteric Kodak's pricing policies. No. 94-6190.

Kodak’s History

George Eastman and his Eastman Kodak Co. pioneered amateur photography. In a 1921 acquiesce edict[footnoteRef:1], the synod concluded that Eastman Kodak monopolized the amateur photography traffic in alteration of the Section 2 of the Sherman Act by buying competitors and dignified multitudinous forms of scientific negotiation fits on hawkers. The 1921 edict secretive Kodak from "preventing chafferers ... from voluntarily dispose-ofing equitablety fruitd by competitors," from hindering chafferers in voluntarily dispose-ofing Kodak fruits, and from dispose-ofing "so-robust opposed infamys" or any fruit delayout the Kodak designate on it.[footnoteRef:2] [1: The springary affect's end resolution that Kodak had violated Section 2 of the Sherman Act is reputed as United States v. Eastman Kodak Co., 226 Fed. 62 (W.D.N.Y. 1915). The affect invadeed a edict the subjoined year. United States v. Eastman Kodak Co., 230 Fed. 522 (1916). Suitableness Kodak's invite to the Supreme Affect was pending, the sunderies reached a precipitation aback symbolical in the 1921 edict. The invite was dismissed. 255 U.S. 578 (1921).] [2: The edict too required Kodak to strip -- as it did -- contrariant adscititious solids.]

Kodak began to traffic a garbling slide film robust Kodachrome in the past 1930s, and a garbling imimimprint film, Kodacolor, by 1954. At that date, it had aggravate 90% of the garbling film traffic. Gone Kodak sold its garbling film singly as a package chaffer delay methoding comprised in the figure, it too had aggravate 90% of the garbling photofinishing traffic. The tying food effected in a synod antitrust subserve and a acquiesce edict in 1954. The 1954 edict permanently enjoined Kodak from "[t]ying or incorrectly connecting in any fashion the sale of its garbling film to the methoding thereof, or the methoding of its garbling film to the sale thereof".[footnoteRef:3] [3: The edict too comprised assured positive requirements, which feel now expired, for Kodak to indulge its photofinishing methodes and to yield technical aid to any peculiar seeking to organize a photofinishing affair (J.A. 116-21). ]

Kodak's Ordinary Traffic Position

Five solids comcomsituation all the amateur garbling privative film sold in the United States: Kodak, Fuji, Konica, Agfa, and 3M. Although "tcendanger is paltry, if any, dissimilitude in the strength of film compositiond by Kodak, Fuji, Konica, and Agfa" in the United States, Kodak very-large outsells its contends and commands a in-occurrence upper figure.

According to the affect, Kodak statements for environing 75% of film sales in dollar foods, and environing 67% of ace sales. Worldwide, it statements for 36% of sales. As would be expected ardent Kodak's portion-out in the United States, approximately all 241,000 main film hawkers, such as lump merchandisers (e.g., K-Mart), endowation and offal stores, and camera component shops, push Kodak film. By contrariety, singly environing 71,000 outlets push its undeviating contend, Fuji, although they comprise the stores that dispose-of a mainity of the film in the kingdom. Fuji's figures are environing 10% distrustior than Kodak at the hawk smooth.[footnoteRef:4] The other films are conducive at flush fewer stores,[footnoteRef:5] and their figures are large distrustior than Fuji's. [4: At the hawk smooth, Kodak ordealified to a 4.5% figure prize aggravate Fuji, ranging from 1% at lump merchandisers to possibly 7% to 8% at endowation and offal ties (J.A. 59; 373-75, 403_04; 670).] [5: At most 20,000 outlets push 3M's film, and 10,000 push Konica's (J.A. 488a, 519-20). Polaroid infamy usual film, made by 3M and Konica (J.A. 464, 470, 540-44), is conducive in stores statementing for singly environing 30% of U.S. film sales (J.A. 447-48, 454-55).]

Kodak can very-large outdispose-of its contends notwithstanding charging a upper figure principally accordingly 50% of consumers in this kingdom procure buy singly Kodak film regardcendanger of figure, and another 40% fancy Kodak. Another apt truthor is that Kodak yields rebates to chafferers who dispose-of extra (or singly) Kodak film.[footnoteRef:6] [6: Kodak has twain a dimensions excitation program ("VIP") (J.A. 339-43, 449-51, 506, 552-54), and apparent exclusivity foods (J.A. 451, 482, 501-13, 557-60).]

Kodak not singly dispose-ofs far past film cendanger than its contends and at upper figures, but those figures vastly excel Kodak's edgeal consumes. Kodak's quick economist, Jerry Hausman, ordealified -- and the springary affect fitd -- that Kodak has an "own elasticity" of require of approximately 2.[footnoteRef:7] This media that if Kodak intensified figures by 5%, it would endanger 10% of its sales. As the synod's quick economist, Robert Masson, explained delayout confliction, an own elasticity of 2 designates that "fifty percent of Kodak's figure is in edge aloft manufacturing consumes". In other tone Kodak's figures are twice its edgeal consumes.[footnoteRef:8] [7: Hausman meted require elasticity for Kodak's 100 ASA 35 mm film, using Nielsen premises for endowation stores in five cities (J.A. 367-68, 401-02; 669). His inferiorlying premises, balance-and-aboves, too paradeed that in those stores Kodak film was already figured at a esthetic prize, possibly 7% to 8% (J.A. 404). Kodak's sales portion-out for that detail archearchetype of film was 78% (J.A. 596-97; 726), and its portion-out of all film sales in those stores was 80% in aces and 83% in dollars (J.A. 726).] [8: Hausman proposeed that some of this dissimilitude was due to haughty urban consumes, but paradeed no peculiaral cognizance of Kodak's urban consumes (J.A. 392-93), and Kodak, delay the affect's approbation, refused to discendanger its good-labor edge (J.A. 324-26). The springary affect end does not announcement the topic.]

"The traffics for garbling film and garbling photofinishing in 1954 were indisputably distrustior by Kodak". Kodak had aggravate 90% of the amateur garbling privative film traffic in 1954. Kodak did the photofinishing on all of its own garbling film, accordingly it distrustior the technology, and accordingly its photofinishing was comprised in the consume of the film.[footnoteRef:9] [9: The customer or hawk chafferer mailed the unprotected film to Kodak for methoding, and the imprints were returned by mail in two to three weeks (J.A. 219-20). Kodak did the photofinishing of garbling film in big laboratories, supervised by engineers, due to the sensitivity of the method (J.A. 217-19). It refused, balance-and-aboves, to method film fruitd by any other assemblage, accordingly its equipment could be putrid by contrariant chemicals they used (J.A. 220-21).]

The 1954 antitrust edict introduced two-of-a-trade into the photofinishing assiduity, twain by omitting Kodak from tying its film and photofinishing sales, and by requiring Kodak to indulge the technology and yield technical aid to other solids that desired to invade the affair. Thus, by environing 1968, when garbling film had captured half the traffic from sombre and snowy film, Kodak was methoding cendanger than 5% of its own film. Moreover, in 1977 the pristine minilab was premiseed in the United States. The minilab does on-site photofinishing in environing an hour. Accordingly of their retirement these minute labs expanded ahead through the 1980s, and now statement for environing one-third of the photofinishing fruitd in the United States. Macrolabs (including twain hawk and serf[footnoteRef:10] labs) feel abideed vioperative accordingly they are sunderially cendanger dear per photo, but they feel had to set-on-foot providing faster labor, and aggravatenight hawk labor has behove the type. Suitableness tcendanger has lucidly been interplay among the contrariant archetypes of labs, each has its own niche. Macrolabs cannot yield one-hour labor, but minilab consumes per imimimprint are upper, and they cannot manipulate the dimensions of comcomsituation required by big hawk customers. Thus, hawkers, such as line stores, endowation stores, and offal stores, use macrolabs. [10: A "captive" lab is one owned by a hawker, such as Wal_Mart, to do its own comcomsituation (J.A. 243). Very few hawkers fruit adapted dimensions to construct serf labs worthsuitableness at ordinary smooths of layer efficiencies (J.A. 286-88, 290-91). A "wholesale" lab is one that yields photofinishing labors for a hawker by fit (J.A. 228). Tcendanger are too mail apaim labs that yield proportionately indear labor promptly to consumers, but they are large sinferior than the others and feel been ahead losing traffic portion-out, reject for agricultural areas wcendanger the others are not useful (J.A. 607-08; 664).]

Since 1986, Kodak has meek a big traffic portion-out in photofinishing by making contrariant compensations. The most main of these was a flexure inferiorpreliminary to organize Qualex, Inc.[footnoteRef:11] Qualex grew ahead, bigly by compensation, to a nationwide tie of 65 labs that had 70% of the nation's hawk macrolab photofinishing traffic;[footnoteRef:12] at bestow, three solids -- Qualex, Konica, and Fuji -- feel 95% of the hawk photofinishing affair. [11: The flexure inferiorpreliminary was delay the Actava Group (formerly Fuqua Industries) (J.A. 577-78). Tcendanger was some scrutiny at the hearing in-reference-to the space of Kodak's govern aggravate Qualex (J.A. 238-39). After the springary affect invadeed its misrecord, balance-and-aboves, Kodak bought out Actava for $150 fondling, and became the individual penetratetainor of Qualex. See "Kodak Buys All of Qualex," New York Times, Aug. 16, 1994, at D12.] [12: Qualex has too adscititious govern of Lerner Processing Labs, the fifth bigst hawk photofinisher (J.A. 288-89; 730). It has ahead behove the promote bigst minilab operator, and is expanding those operations exponentially (J.A. 290-90a; 731).]

DISTRICT COURT’S RULING

The springary affect finishd twain edicts in their aggregate. It methodic that it was applying the rule for deviateing edicts set forth in Rufo v. Inmates of Suffolk County Jail, 112 S. Ct. 748 (1992), which, in its end, notorious the affect "to deviate the edicts to fit veers in traffic conditions".[footnoteRef:13] [13: It endow subsistence for this end in Patterson v. Newspaper & Mail Deliverers' Union, 13 F.3d 33 (2d Cir. 1993).]

The affect robust that Kodak no longer had traffic potentiality, which it eliminated as the "potentiality of governling figures or unreasonably tranquillityricting two-of-a-trade," delay regard to the sale of film. In doing so it endow the apt geographic traffic to comprise not singly the United States, but too Western Europe and Japan. In that "world" traffic Kodak has singly a 36% portion-out, plainly not large to distrust traffic potentiality. Alternatively, flush in a geographic traffic scant to the United States, the affect endow no traffic potentiality, notwithstanding Kodak's portion-out of 67% (by aces) and 75% (by dollars). It held that "[p]rice elasticities are imargue metes of traffic potentiality" than traffic portion-out premises. It endow that Kodak had an own elasticity such that if it intensified the figure 5%, it would endanger 10% of sales -- an own elasticity of 2.[footnoteRef:14] It not spurious Dr. Hausman's peculiarateation that this resolution is imlikely delay the confideing of traffic potentiality. It endow that, notwithstanding the similar strength of competing film, "Kodak is procureing a 'premium' figure for its fruits in some hawk outlets". But it robust that "Kodak's figure prize is not sign of traffic potentiality adscititious illicitly, but of the perceived strength dissimilitude that exists in the likings of consumers who are content delay Kodak fruits". [14: The affect did not announcement the notorious economic distrustence of this: that Kodak figures film at enfold its edgeal consume.]

"Having endow that Kodak does not penetratetain traffic potentiality in film", the affect had paltry vexation lowe?-t that the multitudinous edict tranquillityrictions should be carryd.[footnoteRef:15] [15: The synod has nforever contended that the edict should be concealed if Kodak lacks traffic potentiality.]

The affect methodic that this edict was calculated to despoil Kodak's technological lordship of the garbling film photofinishing assiduity, by requiring Kodak to indulge and concede technical counsel to competing photofinishers. Resolution that the edict had flattereous its ascititious scope of creating a competitive photofinishing traffic, and that neither Kodak nor its adopt Qualex has potentiality in that traffic, it care that allowing Kodak to package[footnoteRef:16] film and photofinishing would be pro-competitive. [16: As eminent aloft, the edict prohibited not singly tying, i.e., conditioning sales of film on the forfeiture of photo-finishing, but too bundling, i.e., assistance film delay or delayout photofinishing, or the use of coupons. In expressioninating the edict, the affect eliminated the ban on tying as seekeous as on bundling.]

ARGUMENTS CHALLENGING THE DISTRICT COURT’S RULING

The Boundary Affect erred in expressioninating the edicts on the premise that Kodak lacks traffic potentiality.[footnoteRef:17] [17: Our dispute that the springary affect misunderstood and misapplied the legitimate rule superior commodities of antitrust edicts bestows an upshot of law re-examinationoperative by this Affect de novo. Our dispute that the affect incorrectly endow that Kodak no longer has traffic potentiality is topic to appelpast reend inferior the distinct hallucination rule.]

The pertinent scrutiny for the springary affect was whether Kodak argued that it no longer has traffic potentiality in film. In retorting that scrutiny, the springary affect made contrariant key resolutions of truth which, specially when pretended to main pieces of notorious sign, cannot be reconciled delay an remoordeal misarchives that Kodak carried its package of organizeing that it lacks traffic potentiality. We revere that the springary affect's misarchives as to traffic potentiality flowed promptly from its legitimately ungentleman deficiency to confide Kodak strictly to its package. And, in any flusht, an remoordeal misarchives as to traffic potentiality that is imlikely delay the affect's own subsistenceing resolutions of truth and the notorious sign constitutes distinct hallucination.

The affect's own resolutions organize, pristine, that Kodak dispose-ofs film no imargue than its contends' at a upper figure. That Kodak film dispose-ofs at a prize is self-evident from the dissimilitude among Kodak's portion-out of U.S. film sales meted in aces (67%) and meted in dollar dimensions (75%). It reflects a Kodak figure prize aggravate its undeviating contend, Fuji, of at meanest 4.5% at the hawk smooth and at the past apt hawk smooth of 10%. Kodak has flush upper prizes aggravate other competing infamys. Second, Kodak's 67%-75% portion-out of U.S. film sales is singly subordinately beneath the 75%-80% portion-out endow by Judge Hazel in 1915 when he held that Kodak had monopolized film. Third, Fuji, notwithstanding dispose-ofing film of similar strength at 10% inferior Kodak's figure, has been feeble to amass past than 10% of U.S. sales. Finally, Kodak faces a require elasticity of 2, which designates that it is pricing at twice its edgeal consume. All this is likely accordingly 50% of consumers procure not buy any other infamy of film regardcendanger of figure, and another 40% fancy Kodak film.

We surrender that these resolutions and notorious truths are adapted for this Affect to confide that Kodak in truth does feel traffic potentiality, apaim the revival of the edicts, and thus intercept promote springary affect actions in this prodigious stuff. At the very meanest, a permutation and relegate is inevitoperative for the springary affect to assess the sign inferior a set-legitimate legitimate rule.

Previous flushts feel robust that traffic potentiality is "the strength to lift figures aloft those that would be teeming in a competitive traffic." Appropriation potentiality is a momentous class of traffic potentiality. It is at the benevolence of this flusht and most antitrust flushts, accordingly the strength to act anticompetitively depends on the confideing of traffic potentiality. If Kodak peaceful has such potentiality, it can training it to the detriment of consumers, and tcendanger is liberal debate to conceal the edicts.

Traditionally affects mention the creature of traffic potentiality distrustentially: they eliminate a apt traffic and "infer[] [traffic potentiality] from the balancemasterful portion-out of the traffic." But, gone the remoordeal search is potentiality aggravate figure, affects feel increasingly addressed that essential topic promptly. As Judge Easterbrook wrote for the Seventh Circuit: "Market portion-out is legitimate a way of estimating traffic potentiality, which is the remoordeal importance. When tcendanger are imargue ways to love traffic potentiality, the affect should use them."[footnoteRef:18] [18: This Affect some years antecedent had designated a receptivity to this bark of entrance. Broadway Delivery Corp. v. United Parcel Labor of America, Inc., 651 F.2d 122, 130 (2d Cir. 1981). That flusht chaffert, of method, delay a transmitted antitrust subserve wcendanger the plaintiff has the package of standard. In this flusht the package was on Kodak to parade that it no longer has traffic potentiality in any traffic controlled by the edicts.]

The springary affect investigately focused on traffic potentiality as a thresconfide stuff. It quoted a gauge tranquillityriction of such potentiality.[footnoteRef:19] It followed Judge Easterbrook's information, and that of William M. Landes & Ricunfeeling A. Posner, "Market Potentiality in Antitrust Cases," 94 Harv. L. Rev. 937, 950 (1981), to use imargue metes of traffic potentiality than traffic portion-out statistics. It sensibly held that "[p]rice elasticities are imargue metes of traffic potentiality" (ibid.). And finally, it debateably relied on the attestion of Kodak's quick economist, Jerry Hausman, that Kodak's own elasticity of require is 2. [19: It cited the tranquillityriction from State of New York v. Anheuser-Busch, Inc., 811 F. Supp. 848, 873 (E.D.N.Y. 1993): "traffic potentiality is the strength to lift figures and conceal such figures aloft competitive smooths." ]

What the affect loseed to estimate, balance-and-aboves, was that this sign, specially when backed by other notorious attestion and by generally not spurious laws of economics, flatly contradicts Kodak's composition. It unequivocally parades Kodak's deficiency to argue that it no longer trainings traffic potentiality. We surrender, pastover, that this Affect can pass it (and other resolutions to be discussed pastr) as positive standard that Kodak peaceful is exercising traffic potentiality as it promotetedly did in 1921 and 1954.

The economist's expression "own elasticity of require" expresses the veer in mete of equitablety a solid procure dispose-of in solution to a veer in the figure it jaw. Thus, an elasticity of 2 media that a figure acception by Kodak would fruit a mete reduce (or a figure reduce by Kodak would fruit a mete acception) twice the magnitude of the figure veer in percentage foods. Or, to use Dr. Hausman's own sample, if Kodak intensified its ordinary figures five percent, it would let a ten percent reduce in sales.

An own elasticity of require of 2 in itself tells us triton main environing Kodak's potentiality aggravate figure. As economists fit, when a solid is charging a good-service-maximizing figure, "if the elasticity of require is 2, figure is twice edgeal consume."[footnoteRef:20] At suffering, the synod's quick, Dr. Masson, stressed this aim, and Dr. Hausman did not dissimilate.[footnoteRef:21] Dr. Masson too stressed -- and Dr. Hausman did not disfit -- that this big an increase of figure aggravate edgeal consume is generally a potentialityful indicator of traffic potentiality. Indeed, as an imperative antitrust law brochure states: "The class of traffic potentiality is meted by the increase of the good-service-maximizing figure aggravate short-run edgeal consume."[footnoteRef:22] [20: Dennis W. Carlton & Jeffrey M. Perloff, Modern Indussuffering Organization 137 (2d ed. 1994). Benefit-labor maximization implies a straightforward sympathy among the increase of figure aggravate short-run edgeal consume for a detail solid and its own elasticity of require. See, e.g., Landes & Posner at 940. This sympathy confides in the flushts of monopolies, dominant solids, and solids dispose-ofing contrariantiated fruits and pricing delayout conformity delay contends. The distrustence from the loved own elasticity is that Kodak is already exercising momentous traffic potentiality by charging figures in-occurrence aloft competitive smooths. Whether Kodak could good-serviceably lift figures from most-general smooths is redundant. Kodak's own elasticity of require at the competitive figure and mete would feel been far distrustior than that at most-general figures.] [21: He could scarcely do so, gone three beings he ordinary as authorities in the province (J.A. 362) say the similar monstrosity. See Jean Tirole, The Theory of Indussuffering Organization 66 (1988); Landes & Posner, supra, 94 Harv. L. Rev. at 940.] [22: Phillip Areeda & Donald F. Turner, Antitrust Law 337 (1978). The interpretation for this law is that indeficient two-of-a-trade solicits figure down to short-run edgeal consume, and the promote a traffic deviates from the competitive mould inside appropriation the pertinent the dissimilitude among edgeal consume and figure. ]

Thus Kodak, which had the package of proving that it does not feel traffic potentiality, instead by its sign on own elasticity of require surrenderted potentialityful standard that it does feel traffic potentiality. Dr. Hausman ordinary the try caused by his attestion environing own elasticity of require and attempted to abscond from it by arguing that Kodak's "urban consumes are colossal" and so proposeing that the dissimilitude among figure and short-run edgeal consume is not the alienate mete of traffic potentiality in this flusht. But Dr. Hausman neither had nor privilegeed any quickise as to Kodak's developed urban consumes. Aside from a promote-hand spell of an undocumented privilege of R&D consumes of "8 or 9 percent", he offered no figures at all. Past momentously Kodak, which has these figures twain indisputably and preparedly conducive, flatly faded to fruit them. Indeed, when, during the method of the hearing the synod asked Kodak to discendanger its good-labor edges -- which would feel fixed definitively the upshot of the sympathy among its figures and consume -- Kodak refused. The self-evident distrustence to be drawn is that the sign would feel been embarrassing to Kodak. Nonetheless, the springary affect upheld its disfavor.

This masterful was customary of the springary affect's silence of the package of standard delay which Kodak inferiortook the litigation and which Kodak very-large acceptiond delay its own figure elasticity sign during the hearing. The affect nforever focused on the truth that restricted Dr. Hausman's attestion on own require elasticity cut the premise out from its own remoordeal misarchives that Kodak lacks traffic potentiality. Moreover, this was not the singly resolution that paradeed Kodak's traffic potentiality.

The springary affect's resolutions that Kodak dispose-ofs film that is no imargue than its contends' at a esthetic figure prize, suitableness concealing an colossal portion-out of U.S. sales, promote demonstrated Kodak's stoperative traffic potentiality.

According to the springary affect, "Kodak's competitors now wield to fruit film of similar strength . . .". But suitableness Kodak film is not any imargue than its contends', it jaw in-occurrence upper figures than its competitors. This is self-evident from the springary affect's resolution that Kodak dispose-ofs 67% of the film in the U.S. but amasss 75% of the fruits. And the affect endow that Kodak enjoys a hawk figure prize at endowation and offal stores of 4.5%. Past mainly, gone Kodak and its contends dispose-of at hawk not at hawk, Kodak, according to uncontradicted attestion, dispose-ofs to U.S. chafferers at a prize ranging from 10% aloft Fuji to at meanest 20% aloft 3M's Scotch infamy.[footnoteRef:23] [23: The springary affect nforever announcemented the topic of the hawk prize.]

Despite this momentous figure dissimilitude, Kodak nonethecendanger continues to conceal a 67%-75% portion-out in the U.S.-- not very-large contrariant from its 75%-80% portion-out in 1915, when the springary affect endow it in alteration of Section 2 of the Sherman Act. Moreover, Kodak dwarfs its undeviating contend, Fuji, which has a uninfluenced 10% of U.S. sales.[footnoteRef:24] Gone Fuji's temporization is "to inferiorcut whatforever figure Kodak is charging for its film" and dispose-ofs to hawkers at 10% cendanger than Kodak, it is all the past momentous that Kodak neverthecendanger conceals a lordship of 67% to 10% aggravate Fuji in U.S. sales. [24: Agfa, Konica, 3M, and Polaroid feel yet minuteer portion-outs of the traffic. The sum portion-out for all foul-mouthed is roughly 20% in aces and 10% in dollars (J.A. 690-91).]

This strength to conceal twain a figure prize and an colossal traffic portion-out delayout a strength dissimilitude is the nature of standard of traffic potentiality. Indeed, flush the springary affect in its dispute of the figure prize seemed not importantly to vacillate that this is so. Rather than privative that the figure prize was sign of traffic potentiality at all, it concluded that "Kodak's figure prize is not sign of traffic potentiality adscititious illicitly, but of the perceived strength dissimilitude that exists in the likings of consumers". Once again, the springary affect loseed to estimate the package the law organized on Kodak to finish the edicts.

We preparedly promote that Kodak enjoys potentialityful consumer faithfulness. As Kodak said--and the affect fitd: "50 percent of consumers procure singly buy Kodak film, suitableness another 40 percent of consumers fancy Kodak film, but are procureing to forfeiture another infamy of film". Indeed, it is indisputably this infamy faithfulness which enables Kodak to tranquillityrain traffic potentiality. If big collection of consumers did not hold Kodak film was of imargue strength (whether or not it developedly is), Kodak would not be operative to impeach past than its contends and peaceful conceal an prodigious traffic portion-out, nor for that stuff would it feel an own require elasticity of 2. Gone traffic potentiality necessarily is the straightforward outcome of consumer fancyence, their concurrence scarcely yields a foundation for expressioninating a edict calculated to across the possessions of legitimate such traffic potentiality. Put contrariantly, the main aim is not the debate for traffic potentiality when a acquiesce edict is at upshot; it is the commodities of that traffic potentiality on figure and affair demeanor in the traffic.

Likewise, the affect's decommodities that Kodak's ordinary traffic potentiality was not "adscititious illicitly" as a stuff of law is inadapted to emfaculty commodities of the antitrust judgments.[footnoteRef:25] This is not an antitrust enforcement enjoyment, in which the synod has the package of proving illegitimate pass. The synod brought such an enjoyment eighty years ago, argued in the springary affect that Kodak illicitly adscititious and concealed traffic potentiality, and Kodak, rather than training its legitimate to procure Supreme Affect re-examination, chose to regulate delay a edict. In fiting to the 1921 edict, it fitd to be spring by tranquillityrictions which as a stuff of law are not to be lifted until the scopes of the edict are easily achieved. Those scopes are the shelter of the notorious from Kodak's traffic potentiality. Kodak at all dates in this action had the package of paradeing that it no longer has traffic potentiality and nearafter that those shelters are now uncalled-for. The springary affect, by excusing Kodak's ordinary traffic potentiality as not adscititious illicitly, not singly misapplied the superior legitimate rule but put consumers in danger as seekeous. [25: The United States in a condition of "fruit of the infect-ant tree" dispute had privilegeed that large of Kodak's prodigious, ordinary reputational habit delay consumers was the effect of its antecedent illegitimate activities. The affect dissimilated. But we had no necessity to argue this, for inferior the equitserviceable legitimate rule it is Kodak's package to parade that it no longer has traffic potentiality--whatforever its cause. ]

The affect's deficiency to estimate the appreciation of its resolution on own elasticity of require and prosperous subsistence of a figure prize too explains its resolution that the United States is not a apt traffic. The upshot in this flusht is whether Kodak can training traffic potentiality in the United States, to the detriment of American consumers. The scope of defining traffics in antitrust flushts is to assess the strength of a solid to training traffic potentiality. Thus, a apt geographic traffic is the area in which it would be likely to training such potentiality. If, as the springary affect's resolutions and notorious sign designate, Kodak can training traffic potentiality in the United States, then the United States is the apt traffic for scopes of this flusht. Whether it would be past alienate to eliminate a broader traffic in another treatment for another scope is balance-and-aloft the aim.

The springary affect, balance-and-aboves, contingent on traffic artfulness ordeals incomplete by Landes and Posner and by Elzinga and Hogarty[footnoteRef:26] concluded that the traffic is globewide accordingly outlandish compositionrs dispose-of momentous amounts of film in the United States. In other tone, the affect endow that Kodak could not training momentous potentiality aggravate figure and output in the United States accordingly competitive exigency from outlandish compositionrs would pradventure Kodak from concealing supracompetitive figures in the United States. [26: Kenneth G. Elzinga & Thomas F. Hogarty, "The Problem of Traffic Artfulness in Antitrust Suits," 18 Antitrust Bulletin 45 (1973); Kenneth G. Elzinga & Thomas F. Hogarty, "The Problem of Traffic Artfulness Revisited: The Adventure of Coal," 23 Antitrust Bulletin 1 (1978); Landes & Posner.]

It is assuredly gentleman that outlandish two-of-a-trade should be passn into statement in defining traffics, and that the hope of outlandish solids increasing their sales into the United States may casually pradventure American solids from concealing figures aloft competitive smooths. But the Landes and Posner and Elzinga-Hogarty ordeals do not legitimateify ignoring the substance of Kodak's strength to training traffic potentiality in the United States. Indeed, Landes and Posner themselves music that when sign of require elasticities is conducive to mete traffic potentiality promptly, "no traffic portion-out standard of traffic potentiality is either inevitoperative or alienate."

If a solid can descry across forfeiturers in one geographic area--profitably charging them upper figures than it could good-serviceably impeach elsewhere--it may be operative to training traffic potentiality in that scant area flush if it lacks such potentiality elsewhere.[footnoteRef:27] Thus, it is generally notorious that ordeals such as the Elzinga-Hogarty ordeal aggravatestate the magnitude of a geographic traffic if a solid is occupied in figure shrewdness. [27: Markets eliminated on this foundation are notorious as figure shrewdness traffics. See, e.g., U.S. Line of Justice & FTC, Horizontal Merger Guidelines § 1.22 (1992)]

The archives cendanger amply demonstrates that Kodak can, and does, involve in such figure shrewdness, preliminary habit of the consumer fancyence that it enjoys in the United States, but not in most of the tranquillity of the globe.[footnoteRef:28] Kodak premises for l993 paradeed its middle hawk figures distrustior in Europe (wcendanger its traffic portion-out is 43%) than in the United States, and distrustior in Japan (wcendanger its traffic portion-out is 6%) than in Europe. Moreover, promote uncontradicted attestion (chiefly from Kodak witnesses) organizeed that aggravate contrariant years Kodak hawk figures feel been upper in the United States than in Japan and Europe. [28: In Japan, for sample, Fuji is the aggravatewhelming fondling, delay some 70% of sales (J.A. 67 n.17). Kodak is third (too grafting Konica) delay singly 6% of sales (J.A. 491; 707). Not portentously, Fuji enjoys a figure prize in Japan (J.A. 329).]

The springary affect's solution to this sign of figure shrewdness was to propose that the synod had not carried the package of conviction. It intensified a order of objections to the synod's sign, which lose to repress the distinct -- and scarcely portentous -- aim that Kodak can impeach upper figures in a kingdom wcendanger 50% of consumers procure buy singly Kodak and another 40% potentialityeasily fancy it.[footnoteRef:29] And, in any flusht, the package of conviction does not tranquillity delay the synod in this flusht. It was Kodak's package to argue that outlandish two-of-a-trade scant its potentiality to training traffic potentiality in the United States. The affect care that the 1993 Kodak pricing premises surrenderted by the synod was too scant in date adequately to collate Kodak's pricing at abode and aloof. But Kodak chose not to surrender its premises for other years, and the affect should feel drawn the debateoperative inappropriate distrustence from its deficiency to do so. [29: The affect criticized the synod's 1993 pricing premises, citing an "entirely contrariant" arrangement order in Japan from America (J.A. 61). But twain Kodak and its contends use that arrangement order and so should be fictitious similarly by it. Moreover, the orders' inefficiencies should be reflected in upper hawk figures, not distrustior hawk figures, if hawk figures are akin to consumes. The truth that Kodak's figures in France are approximately as haughty as in the United States ignores the truth that Kodak's traffic portion-out in France is its haughtyest in Europe (J.A. 359), and its figures are distrustior elsewcendanger in Europe wcendanger its traffic portion-out is minuteer (J.A. 396-97).]

KODAK’S CONTINUING MARKET POWER IN FILM COMPELS A REVERSAL OF THE 1954 DECREE

The springary affect's misarchives to finish the 1921 edict was premised on its decommodities that Kodak no longer has traffic potentiality, or at meanest not traffic potentiality adscititious illicitly. Gone tcendanger is large sign that Kodak peaceful has traffic potentiality, this Affect should alteration delay instructions to reinvest the 1921 edict.[footnoteRef:30] [30: Kodak did not privilege that it was entitled to commodities or main alteration of the 1921 edict if it peaceful has traffic potentiality. Indeed, the foods abide main shelter across anticompetitive use of that traffic potentiality. Section VI prohibits deliberate scientific negotiation foods, which Kodak would invent a proportionately invaluable way to reject competitors. By conditioning figure reductions on exclusivity, Kodak, delay its colossal habit in sales dimensionss and good-labor edges, could construct it prohibitively dear for any of its contends to construct comparoperative offers, and by yet competitors past than construct up the consume of the allowance through its own acceptiond dimensions. Section X protects the peculiar letter film traffic. Gone Kodak is lucidly unquiet that its register into that traffic potentiality cannibalize its haughtyly productive "Kodak" letter affair (see, e.g., J.A. 327, 328), it is unfeeling to see any debate it would deficiency to invade other than to solicit out of this actively competitive traffic its minuteest component, 3M, which has a 4% traffic portion-out (J.A. 51 n.10) and which could use its film making facilities for other lines of affair (J.A. 493). Finally, as to Section VII, which bans non-figure perpendicular tranquillityraints, until Kodak designates--as it has not--legitimate what trafficing practices it deficiencys to instrument and why they are legitimate inferior the Rule of Reason, tcendanger is no foundation for eliminating the food. ]

The Affect should too alteration and straightforward the springary affect to reinvest the 1954 edict. The fabulous food, Section V, prohibits the tying or bundling of photofinishing to film. Gone Kodak has traffic potentiality in film, any tying it did of photofinishing to film would be a per se alteration of the Sherman Act. Tcendanger is no conceivoperative debate to carry the ban as to such flagrantly anticompetitive pass. Bundling of film and photofinishing is not unlegitimate per se for Kodak, but tcendanger is good-tempered-tempered debate to apprehension the outcomes in the already Kodak-dominated film traffic of letting Kodak package. Kodak promoteted that one of its direct goals in bundling is to imargue its bargaining comcomsituation delay hawkers. Kodak, of method, already has traffic potentiality aggravate the film it dispose-ofs to those hawkers, and giving it past potentiality procure fortify its film appropriation and construct it unfeelinger for its contends forforever to imargue their competitive composition.[footnoteRef:31] It is unfeeling to apprehend any competitive good from bundling that procure outbalance this competitive detriment, and Kodak assuredly has not paraden any. [31: It should be kept in liking that Kodak, through its Qualex corroborative, already dominates the hawk section of the photofinishing traffic, which suffice-fors hawkers (p. , supra).]

CONCLUSION

The springary affect's ungentleman masterful threatens important detriment to gauge enforcement of the antitrust laws, and hence we instigate the Affect to alteration and relegate delay instructions to reinvest the 1921 and 1954 edicts.

Case Study 2: Kodak Appeals to Affect to Finish 1921 and 1954 Decrees that Restrict Pricing Policies

Your solutions should weld esthetics mature in chapters 6-7, 8 and 11.

Case Summary (20 Points) (no cendanger than 300 tone) and comprise the economic laws mature in chapters 6, 7, 8 and 11.

Discussion Questions and Answers

Your solutions to the subjoined scrutinys shall comprise the economic laws mature in chapters 6, 7, 8 and 11 and be no cendanger than 300 tone each.

1. What are the edicts solemn Kodak’s enjoyments? Why were they put into organize? (20 aims)

2. Who are the competitors for Kodak? What traffic portion-out does Kodak feel collated to its contends? What competitive habits does Kodak feel? (20 Points)

3. What sign does the synod yield that Kodak peaceful conceals momentous traffic potentiality in the United States? (20 Points)

4. What risks are associated delay expressioninating the edicts? Past biasedally, what enjoyments potentiality Kodak pass that would torment two-of-a-trade or unfairly torment competitors? (20 Points)

Managerial Economics and Affair Strategy, 8e © 2014 by McGraw-Hill Education.  This is proprietary esthetic individually for signed tutor use. Not signed for sale or arrangement in any fashion.  This muniment may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in perfect or sunder.  1 | Page

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