Final Exam

Antitrust
Spring 2002
Prof Hwang


This exam consists of 2 questions. Question 1 is worth two-thirds and Question 2 is worth one-third for grading purposes. The exam is open book and three hours long. You may use any materials except other people or electronic sources (e.g. Lexis, Westlaw, or the Internet).

 Answer essay questions in blue books; please write every other line, on only one side of the page. Be sure to write your exam number on your blue books and on the exam question. Turn in all questions, scratch paper and blue books after the conclusion of the exam.

 Thoughtful analysis and application of doctrine are the most valuable attributes of your answers. If you believe you must make assumptions or that you need more information to answer a question, feel free to state what assumptions and additional facts are necessary and discuss how they would affect your analysis.

Good luck.

 

 

Question 1


The Republic of Ames is a tropical island nation in the Caribbean whose main industry is tourism. The total daily consumption of gasoline in the state is 100,000 barrels and has been stable historically. The island has two refineries, owned by Chell Corp. and Mexxon Corp., respectively. The Chell refinery is capable of producing 65,000 barrels per day of gasoline. The Mexxon refinery is capable of producing 40,000 barrels per day of gasoline. In addition to Cliell and Mexxon, there are four other wholesalers of gasoline in Ames: Texgas, United, Total, and Irie. All are U.S.-based corporations. Chell, Mexxon, Texgas, United and Total sell gasoline to retail stations under franchise contracts requiring the station to buy all of its gas from the contracting wholesaler. Irie sells gasoline to independent retail stations who are not under any franchise contracts. The market shares for the six are: Chell (40 percent); Mexxon (20 percent); Texgas (10 percent); United (10 percent), Total (10 percent) and Irie (10 percent).

 The wholesalers without a refinery have historically purchased their gasoline from either Chell or Mexxon and have not imported gasoline from elsewhere. Under long-term contracts. Chell supplied the gasoline sold by Texgas and Irie, and Mexxon supplied the gasoline sold by United and Total. Irie had a five-year contract with Chell for purchase of gasoline. Under this contract, Chell sold to Irie 10,000 barrels of gasoline everyday. The price under the contract was set daily by adding 5 cents per gallon to the price of wholesale gasoline in Florida (the nearest off-island refining center) on the same day. Texgas contract with Chell had an identical price term. United's and Total's contracts with Mexxon also provided that the price would be set at the Florida price plus 5 cents.

 The price of gasoline on the island is usually higher than the price of gasoline in Florida by 7 cents per gallon. The wholesalers have publicly stated that this was due to higher cost of doing business in Ames, due to stringent environmental regulations. Internal company documents show, however, that each of the wholesalers have a higher profit margin in Ames than they do in the U.S. Transporting gasoline from Florida will, on average, cost 8 cents per gallon. It is uneconomical to ship gasoline to Ames from Florida in increments less than 200,1000 barrels because most tanker ships are of that size and charge for the full load even if it is used to transport less than a full load. The only terminal facility on Ames capable of off-loading a tanker of that size is owned by United, although Irie has a smaller facility that could be expanded to accommodate such a tanker ship. Historically, the prices charged by each of the six firms have been virtually identical.

 Irie's five year contract with Chell is about to expire. Irie wants to increase its market share in Ames by building more stations. In order to do so, however, it needs to increase the amount of gasoline that it has to sell. Irie approaches Chell about increasing its purchase amount to 15,000 barrels per day. Chell refused to provide the additional amount. Irie then approached Mexxon to see if it would provide 5,000 barrels per day. Mexxon also refused.

 Irie then decided to see if it could import the additional amount from Florida. However, because its terminal is too small, it approached United to see if United would lease its terminal to Irie. United refused, stating that its contract with Mexxon did not allow the leasing of the terminal to any other wholesaler of gasoline on Ames. The United executive told Irie that "we don't want more gasoline on the island."

 Irie then sought to expand its own terminal to accommodate a full tanker-sized shipment of gasoline. It sought a construction permit for the planned expansion. The permit was denied by the local regulatory agency on the ground that it would cause too much environmental damage. Irie later learned that Chell, Mexxon, Texgas and United had heavily lobbied against the planned expansion and had secretly funded an environmental impact study that was ostensibly submitted by Friends' of Ames Bay, an environmental organization.

Irie seeks your counsel regarding a possible lawsuit against Chell, Mexxon, Texgas and United. Identify potential claims that could be asserted against one or more of the defendants under the federal antitrust laws and analyze the strengths and weaknesses of each claim, paying particular attention to whether the claim would survive a motion to dismiss and/or a motion for summary judgment motion. Even if you determine that a claim would be defective because one of the requirements for the claim is not met, continue the analysis as to other elements of the claim that you have identified. If you determine that certain key information is missing, identify what other information you would need to evaluate the claim.

 

 

Question 2


"Market power" is a central concept in antitrust law. Please discuss the following:

 (1) The definition of market power.

 (2) The factors that a court should consider in determining whether a firm, or combination of firms, possesses market power.

 (3) How market power specifically factors into the liability determination in each of the following types of antitrust claims: