VI. Should the Agencies Adopt Market Share Safe Harbors for Joint Ventures Based on Merger Analysis?
Some observers believe that joint ventures should be presumptively lawful if a merger between the collaborators would be permissible in the joint venture market. Because mergers end all competition between the parties, many commentators assume that joint ventures will result in fewer anticompetitive effects since the parties remain independent entities that may compete against each other in the present or the future. Because some mergers enjoy safe harbors under the Merger Guidelines, some observers have advocated similar market share safe harbors for legitimate joint ventures.(169) Although it may be true as a general matter that joint ventures are less likely to result in anticompetitive effects than mergers, there are several factors that should be considered in assessing whether to extend a market power safe harbor to certain joint ventures based on merger analysis. What are the advantages and disadvantages of creating market share safe harbors for competitor collaborations?(170)
Proponents of market share safe harbors believe that firms that lack market power are not capable of harming consumers through horizontal agreements. According to these analysts, when firms lack the ability to harm consumers, it is probable that their agreements are intended to enhance efficiency and competitiveness rather than to raise or maintain prices above competitive levels.(171) Advocates of market share safe harbors therefore contend that courts and agencies should use the market power inquiry to avoid a more detailed analysis of the actual or likely effects and efficiencies of horizontal agreements.(172) Moreover, courts and agencies are accustomed to defining markets and calculating market shares; they are purportedly less adept at measuring efficiencies or competitive effects. Not only would market share safe harbors allegedly enhance the accuracy of antitrust decisionmaking, but they would also reduce the cost and complexity of antitrust investigation.
Although these arguments may seem appealing, there are several obstacles to extending market share safe harbors to all competitor collaborations. First, some joint venture restraints may be per se illegal under certain circumstances. The continued presence of the per se rule in the Supreme Court's antitrust jurisprudence cautions against a merger-based safe harbor that would not permit analysis of individual joint venture restraints.(173) Second, the Court's opinion in NCAA makes clear that certain types of joint venture restraints -- even in markets where cooperation is essential to make the product available -- require some competitive justification even in the absence of proof of market power.(174) As NCAA reflects, courts and agencies traditionally have focused on market power, but they have also examined whether joint ventures and their individual restraints will enhance efficiency. Moreover, certain types of joint venture activities raise different economic questions that may be unanswerable through inquiry into market power. For example, market share safe harbors may not be appropriate in cases that involve the denial of either joint venture membership or access to an input controlled by the venture; there are economic theories indicating that consumer harm may result from such denials even if the joint venture does not possess market power.
Practical considerations also may caution against the creation of safe harbors. The first practical concern is that antitrust review may require the collection of available information about the actual competitive effects of the venture. Thus, a market power filter may not save resources in either agency investigations or antitrust litigation. The second consideration is that market share safe harbors typically require complex inquiries into product and geographic market definition. Those inquiries may still be necessary to determine if a market power safe harbor applied. A third practical consideration is that market-power based safe harbors may influence businesses to construct joint ventures that fall into those safe harbors, rather than joint ventures that would better serve business purposes and still pass antitrust muster. Counsel for businesses have sometimes reported that their clients may forego collaborations which could be structured to avoid any potential anticompetitive effects. The parties might also limit the growth of the joint venture to ensure that safe harbors remain applicable. A fourth practical consideration is that market share calculations may be difficult when the joint venture will produce and sell a new product.(175) Fifth, competitor collaborations take many different forms, so that a uniform threshold may be of limited utility. Finally, an ideal safe harbor would incorporate the impact and likelihood of insider competition into the market power inquiry. These are extremely complex questions without clear economic answers.
The inquiry into "classical" market power has come to play an important role in contemporary antitrust analysis. The diversity and complexity of competitor collaborations have made the market power inquiry particularly difficult in joint venture cases. When competitors combine all of their independent assets through the formation of a joint venture, their collaboration could result in the same anticompetitive effects as a merger, and "single-share" analysis (along with other factors) generally will produce accurate results. If, however, collaborators retain the ability and incentive to compete against each other and their collaboration, the joint venture may result in fewer anticompetitive effects than a merger between the parties. Single-share analysis may tend to overstate the anticompetitive effects of joint ventures when "insider competition" will occur.
This paper has described factors that will help courts and agencies to predict whether insider competition is likely to reduce the anticompetitive effects of particular joint ventures. While it may be difficult for courts and agencies to incorporate the probability or magnitude of insider competition in a quantitative fashion, insider competition may have a significant impact in the qualitative assessment of market power in joint venture cases.
169. See, e.g., Easterbrook, supra note 13, at 20-21 (advocating market power screen to structure rule of reason inquiry because "firms that lack market power cannot injure competition no matter how hard they try."); Piraino, supra note 104, at 41-42 (market power threshold for integrated marketing joint ventures and unintegrated buying joint ventures should be 35%; other forms of integrated joint ventures should be legal absent evidence of anticompetitive intent);Thomas M. Jorde and David J. Teece, Rule of Reason Analysis of Horizontal Arrangements: Agreements Designed to Advance Innovation and Commercialize Technology, 61 Antitrust L.J. 579, 607 (1993) (safe harbors for innovative joint ventures with less than 20 to 25% of redefined relevant market). Cf. Azcuenaga, supra note 15, at 944 (noting that market power screen, whether fine or coarse, would reduce the danger of indiscriminate application of the "quick look" rule of reason).
170. The agencies have already created market share safe harbors for certain collaborations in the health care and intellectual property contexts. See Health Care Statements 7.A (collective buying arrangements with less than 35% of purchases in relevant market for product comprising less than 20% of overall costs); Health Care Statement 8.A (exclusive physician networks comprising fewer than 20% of physicians in relevant specialty; nonexclusive networks with fewer than 30% of physicians in relevant specialty); Intellectual Property Guidelines § 4.3 (less than 20% of each relevant market).
171. See, e.g., Easterbrook, supra note 13, at 21 ("When the collaborators possess no market power, either their cooperation is beneficial, in which event it will flourish, or it is not, in which event it will die as rivals take the sales. When the collaborators have no market power, monopoly cannot be their objective, and we must consider the more likely possibility that the arrangements create efficiency.").
172. See, e.g., Hay, supra note 2, at 811 n.21 ("A related question is whether proof of actual anticompetitive effect can substitute for a showing of market power . . . . The approach carries risks because it can subvert the whole point of using a market power screen, i.e., to avoid a detailed examination of the conduct.").
173. See, e.g., Federal Trade Commission v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990); Palmer v. BRG of Ga., Inc., 498 U.S. 46 (1990) (per curiam).
174. NCAA, 468 U.S. at 110 n.42 ("where the anticompetitive effects of conduct can be ascertained through means short of extensive market analysis, and where no countervailing competitive virtues are evident, a lengthy analysis of market power is not necessary."). See also Indiana Federation of Dentists, 476 U.S. at 460-61.
175. See Piraino, supra note 104, at 25 (noting difficulty of calculating market shares of joint venture at the time of formation); Brodley, supra note 117, at 1542 ("In assessing the market power of the joint venture, a court cannot use the market share/entry barriers test, because the joint venture will have no market share at the time of its formation.").