218 Chapter 19
two ways to prove monopoly power
1. show that the firm has a dominant share of the relevant market 2. must show that there are significant barriers for new competitors entering the market
The most famous trust in the late 1800s
Standard Oil Trust
divestiture
a company's sale of one or more of its divisions' operating functions under court order as part of the enforcement of the antitrust laws
vertically integrated firm
a firm that carries out two or more functional phases (manufacturing, distribution, and retailing) of the chain of production
Monopoly
a market in which there is a single seller or a limited number of sellers
horizontal mergers
a merger between two firms that are competing in the same market
section 7 of the clayton act - mergers
a person or business organization cannot hold stock and/or asset in another entity
vertical restraint
a restraint of trade created by an agreement between firms at different levels in the manufacturing and distribution process
Per se violation
a restraint of trade that is so anticompetitive that it is deemed inherently illegal
section 2 of the clayton act - price discrimination
a seller's act of charging competing buyers different prices for identical products or services
unilateral refusal to deal
a single manufacturer acting unilaterally, though, normally is free to deal, or not to deal, with whomever it wishes
rule of reason
a test used to determine whether an anticompetitive agreement constitutes a reasonable restraint on trade
attempted monopolization
an action by a firm that involves anticompetitive conduct, the intent to gain monopoly power, and a "dangerous probability" of success in achieving monopoly power
tying arrangement
an agreement between a buyer and a seller in which the buyer of specific product or service becomes obligated to purchase additional products or services from the seller
resale price maintenance agreement
an agreement between a manufacturer and a retailer in which the manufacturer specifies the minimum retail price of its products.
price fixing agreement
an agreement between competitors in which the competitors agree to fix the prices of products or services at a certain level
exclusive dealing contract
an agreement under which a seller forbids a buyer to purchase products from the seller's competition
concentrated industry
an industry in which a single firm or small number of firms control a large percentage of market sales
horizontal restraint
any agreement that restrains competition between rival firms competing in the same market
restraints of trade
any contract or combination that tends to eliminate or reduce competition, effect a monopoly, artificially maintain prices, or otherwise hamper the course of trade
Similarity of section 1 and section 2 of the sherman act
both seek to curtail market practices that result in undesired monopoly pricing and output behavior
relevant geographic market
for products that are sold nationwide, the geographic market encompasses the entire united states
horizontal market division
it is a per se violation of section 1 of the sherman act for competitors to divide up territories or customers
antitrust law
law protecting commerce from unlawful restraints and anticompetitive practices
how to prove a high degree of market power
more narrowly a product market is defined, the greater chance it is
section 8 of the clayton act - interlocking directorates
practice of having individuals serve as directors on the boards of two or more competing companies simultaneously
Section 1 of the Sherman Act
prohibits horizontal restraints and vertical restraints
relevant product market
relevant market includes all products that, although produced by different firms, have identical attributes, such as sugar
two elements of relevant market
relevant product market relevant geographic market
section 3 of the clayton act- exclusionary practices
sellers cannot condition the sale of goods on the buyer's promise not to use or deal in the goods of the seller's competitor
monopoly power
the ability of a monopoly to dictate what takes place in a given market
vertical mergers
the acquisition by a company at one stage of production of a company at a higher or lower stage of production
market concentration
the degree to which a small number of firms control a large percentage of a relevant market
monopolization
the possession of monopoly power in the relevant market and the willful acquisition or maintenance of that power
market power
the power of a firm to control the market price of its product. a monopoly has the greatest degree of market power
predatory pricing
the pricing of a product below cost with the intent to drive competitors out of the market
group boycott
the refusal to deal with a particular person or firm by a group of competitors
treble damages
three times the actual damages suffered
difference between section 1 and section 2 of the Sherman Act
violation of section one requires two or more persons. Section 2, can apply either to one person or two or more persons
predatory bidding
when a buyer bids up the price of an input too high for its competitors to pay