Monday, January 16, 2012
Posted by D. Daniel Sokol
Herb Hovenkamp (Iowa Law) has written on Mergers, Market Dominance and the Lundbeck Case.
ABSTRACT: In Lundbeck the Eighth Circuit affirmed a district court’s judgment that a merger involving the only two drugs approved for treating a serious heart condition in infants was lawful. Although the drugs treated the same condition they were not bioequivalents. The Eighth Circuit approved the district court’s conclusion that they had not been shown to be in the same relevant market.
Most mergers that are subject to challenge under the antitrust laws occur in markets that exhibit some degree of product differentiation. The Lundbeck case illustrates some of the problems that can arise when courts apply ideas derived from models of perfect competition to settings where they do not apply. Customer evidence produced in the litigation indicates that user responses in such situations will be arrayed over space and time in a complex fashion – a fact confirmed by the defendant’s own marketing strategies. This is not a situation in which virtually all customers immediately drop one brand in response to the other’s price cut, or where none of them does. As soon as we know that differentiation exists it makes little sense to state categorically that two products are not in the same market until we can ascertain with some certainty that the demand for one is unresponsive – across the full range of consumers – to the price of the other. As soon as we know that some customers are on the margin, however, then it becomes necessary to determine whether they are a sufficient constraint on pricing to warrant merger concern. The enormous post-merger price increase in the Lundbeck case provides a clear answer.
By relying on the testimony of a small group of customers – essentially permitting them to speak for all – the district court erroneously applied a tool that might make sense in a market for a fungible product to one that was in fact significantly differentiated. Even assuming that the two products were not in the same market, however, Lundbeck represents an acquisition of a potentially competing drug by a monopolist – something that should invite harsh antitrust scrutiny, particularly in a case such as this one where there were no serious claims of efficiencies.