Chapter 46 Antitrust Law

The Clayton Act

-Aimed at specific anticompetitive or monopolistic practices that the Sherman Act did not cover -Section 2 prohibits price discrimination which occurs when a seller charges different prices to competing buyers for identical goods or services -Section 3 prohibits exclusive dealing contracts and tying arrangements -Section 7 prohibits mergers when a person or business organization from holding stock or assists in more than one business when "the effect may be to substantially lessen competition" -Section 8 prohibits interlocking directorates or having individuals serve as directors on the boards of two or more large competing companies simultaneously

Sherman Antitrust Act Section 1

-Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal and is a felony punishable by fine and/or imprisonment -the act of joining together is illegal

Sherman Antitrust Act Section 2

-Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states, or with foreign nations, shall be deemed guilty of a felony -Looks at the misuse of monopoly power in the marketplace

Predatory Pricing

-When one firm attempts to drive its competitors from the market by selling its product at prices substantially below the normal costs of production -Once the competitors are eliminated, the predator presumably will raise its prices far above their competitive levels to recapture its losses and earn higher profits

Attempts to Monopolize

1. Anticompetitive conduct 2. The specific intent to exclude competitors and garner monopoly power 3. A "dangerous" probability of success in achieving monopoly power . The probability cannot be dangerous unless the alleged offender possesses some degree of market power

Monopolization

1. The possession of monopoly power in the relevant market 2. "The willful acquisition or maintenance of the power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." To establish a violation of section 2, a plaintiff must prove both of these elements-monopoly power and an intent to monopolize To prove monopoly power the plaintiff must show that the firm has a dominant share of the relevant market and that there are significant barriers for new competitors entering the market -Relevant market -Intent Requirement -Unilateral Refusals to Deal

Exclusive-Dealing Contract

A contract under which a seller forbids a buyer to purchase products from the seller's competitors

Monopoly

A market in which there is a single seller or a very limited number of sellers

Enforcement and Exemptions

Agency Actions: U.S. Department of Justice and the Federal Trade Commission enforce antitrust laws including divestiture where a company must give up one of more of its operations Private Actions: A Party wishing to sue under the Sherman Act must prove that: 1. The antitrust violation either caused or was a substantial factor in causing injury that was suffered 2. The unlawful actions of the accused party affected business activities of the plaintiff that were protected by the antitrust laws 3. Some evidence suggesting that an illegal agreement was made

Restraints of trade

Agreements between firms that have the effect of reducing competition in the marketplace

Price fixing agreement

An agreement among competitors to fix prices that constitutes a per se violation of Section 1

Resale price maintenance agreement

An agreement between a manufacturer and distributor or retailer in which the manufacturer specifies what the retail prices of its products must be

Vertical Restraints

An agreement between firms at different levels in the manufacturing and distribution process/ encompass the entire chain of production

Horizontal restraint

Any agreement that in some way restrains competition between rival firms competing in the same market

Case 46.1 Leegin Creative Leather Products, Inc., v PSKS, Inc.

Do minimum resale price maintenance agreements constitute per se violations? Answer: Not in this case -Leegin began to sell leather products under the brand name "Brighton" including selling to PSKS Kay's Kloset in 1995 -Leegin discovered that PSKS operated store Kay's Kloset had been marking down Brighton's entire line by 20 percent -Leegin stopped selling Brighton products to the store and PSKS sued Leegin alleging that Leegin had violated the antitrust laws by "entering into agreements with retailers to charge only those prices fixed by Leegin" -To justify a per se prohibition a restraint must have manifestly anticompetitive effects and lack any redeeming virtue -Vertical agreements establishing minimum resale prices can either have pro competitive or anticompetitive effects, depending on the circumstances in which they are formed -As the "per se" rule would proscribe a significant amount of pro competitive conduct, these agreements appear ill suited for per se condemnation -Court reversed original ruling in favor of Leegin

Case 46.3 Carrier Corp. V Outokumpu Oyj

Does the alleged anticompetitive conspiracy have a substantial effect on U.S. commerce? -The Commission of European Communities found that Outokumpu had conspired with other companies to fix ACR tubing prices in Europe -Carrier filed a suit in a U.S. court, alleging that the cartel had also conspired to fix prices in the U.S. by agreeing that only Outokumpu would sell ACR tubing in the U.S. market -Although Carrier's complaint provides numerous circumstantial allegations, of particular interest is its claim that Outokumpu's competitors initially refrained from aggressively competing for Carrier's U.S. business until 2003 and then suddenly began doing so at that time -When two companies refrain from entering a market and then suddenly do so after a cartel dissolves, there are good grounds for suspicion -The federal appellate court found that the district court had jurisdiction over Carrier's Sherman Act claims, it therefore reversed the district court's judgement for the defendants -You can break U.S. antitrust laws outside of the U.S. is true

Monopoly power

Exists when a firm has an extreme amount of market power-the ability to affect the market price of its product

Per Se Violations (Horizontal Restraints)

Group Boycott-Agreement by two or more sellers to refuse to deal with a particular person or firm Horizontal Market Division- Illegal for competitors to divide up territories or customers of market Trade Associations Joint Ventures

Case 46.2 E.I. Dupont de Nemours and Co. v Kolon Industries

Is there sufficient evidence to show that a company possessed monopoly power in the relevant market? In this case yes -Dupont, Teijin, and Kolon only three companies that sell para-aramid fiber into the U.S. market -DuPont is the industry leader, producing more than 70 percent of all para-aramid fibers purchased in the U.S. -DuPont brought a lawsuit against Kolon for misappropriation of trade secrets and Kolon counterclaimed that DuPont had monopolized and attempted to monopolize the para-aramid market in violation of Section 2 of the Sherman Act -An attempted monopolization offense consists of 1. the use of anticompetitive conduct 2. With specific intent to monopolize and 3. a dangerous probability of success -"DuPont's conduct has constrained the only potential entrant into the U.S. market from effectively entering the market to the point where it has virtually no competition and is preserving and growing its monopoly position -Court found that Kolon had alleged sufficient facts to show that DuPont's behavior violated the prohibition against monopolization and attempted monopolization in Section 2 of the Sherman Act

Horizontal mergers

Mergers between firms that compete with each other in the same market

Per se violations

Restraints that are so substantially anticompetitive

Rule of Reason

Used by courts to analyze anticompetitive agreements that allegedly violate section 1 of the Sherman Antitrust Act. Courts consider the following: 1. The purpose of the agreement 2. The parties ability to implement the agreement to achieve that purpose 3. The effect or potential effect of the agreement on competition 4. Whether the parties could have relied on less restrictive means to achieve their purpose

Vertical Mergers

When a company at one stage of production acquires a company at a higher or lower stage of production

Tying Arrangements

When a seller conditions the sale of a product on the buyer's agreement to purchase another product produced or distributed by the same seller