MGMT 211- Chapter 27 Text

Attempted monopolization of a market requires the following

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. Only serious threats of monopolization are condemned as violations

There are several statutory defenses to liability for price discrimination, including the following

1. Cost Justification 2. Meeting a Competitors Prices 3. Changing market conditions

When analyzing the legality of a horizontal merger, the courts consider the following

1. Overall concentration of the relevant market 2. The relevant market's history of tending toward concentration 3. Whether the merger is apparently designed to establish market power or restrict competition

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 the 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

When analyzing an alleged Section 1 violation under the rule of reason, a court will consider the following factors

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

The relecant market consists of two elements

1. a relevant product market 2. a relevant geographic market

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 historical accident"

Monopolization

requires two or more persons, because a person cannot contract, combine or conspire alone

Section 1 of the Sherman Act

condemns "every person who shall monopolize or attempt to monopolize"

Section 2

can apply either to one person or to two or more persons because it refers to "every person"

Section 2 of the Sherman Act

FTC has the authority to enforce violations of

Section 5 of the FTC Act

Only the DOJ can prosecute violations of the

Sherman Act

Tying arrangements can also be considered agreements that restrain trade in violation of Section 1 of the

Sherman Act

does not announce a new principle of law, but applies old and well recognized principles of the common law

Sherman Act

The federal agencies that enforce the federal antitrust laws are the

US Department of Justice and the Federal Trade Commission

When trade association agreements have substantially anticompetitive effects,

a court will consider them to be in violation of Section 1 of the Sherman Act

Determining market concentration involves

allocating percentage market shares among the various companies in the relevant market

A price-fixing agreement is

always a violation of Section 1, even if there are good reasons behind it

A private party can bring an action under Section 2 of the Sherman Act based on the

attempted enforcement of a fraudulently obtained patent

Section 2 also prohibits

attempted monopolization of a market

Clayton Act can be enforced through

both the DOJ and FTC in civil proceedings

normally includes the purchase of inventory, basic manufacturing, distribution to wholesalers and eventual sale of a product at the retail level

chain of production

It is a per se violation of Section 1 of the Sherman Act for

competitors to divide up territories or customers

in these, trade associations can be and have been used as a means to facilitate anticompetitive actions

concentrated industries

one in which either a single firm or a small number of firms control a large percentage of market sales

concentrated industry

Under Section 3 of the Clayton Act, sellers or lessors can not

condition the sale or lease of goods on the buyer's or leesee's promise not to use or deal in the goods of the sellers competitor

Products are considered reasonably interchangeable if

consumers treat them as acceptable substitutes

Before a court can determine whether a firm has a dominant market share, it must

define the relevant market

Monopoly power can be proved by

direct evidence that the firm used its power to control prices and restrict output

DOJ or FTC may ask the courts to impose various remedies including

dissolution or divertiture

making a company give up one or more of its operations

divestiture

To violate Section 2, the seller must be

engaged in interstate commerce, the goods must be of like grade and quality, and the goods must have been sold to two or more purchasers

a contract under which a seller forbids a buyer to purchase products from the seller's competitors is called an

exclusive dealing contract

Section 3 prohibits two types of vertical agreements involving exclusionary practices-

exclusive dealing contracts and tying arrangements

To prove monopoly power indirectly, the plaintiff must show that the

firm has a dominant share of the relevant market and that new competitors entering that market face significant barriers

When the product market is defined narrowly, the degree of a firm's market power appears

greater

an agreement by two or more sellers to refuse to deal with a particular person or firm

group boycott

Under Section 7 of the Clayton Act, a person or business organization cannot

hold stock or assets in more than one business when "the effect may be to substantially lessen competition"

A merger between firms that compete with each other in the same market

horizontal merger

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

horizontal restraint

may include price fixing agreements, group boycotts, market divisions, trade associations and joint ventures

horizontal restraint

The types of trade restraints that Section 1 of the Sherman Act prohibits generally fall into two broad categories

horizontal restraints vertical restraints

Generally, the geographic market is that section of the country within which a firm can

increase its price a bit without attracting new sellers or losing many customers to alternative suppliers outside that area

Section 8 of the Clayton Act deals with

interlocking directorates

the practice whereby individuals serve as directors on the boards of two or more competing companies simultaneously

interlocking directorates

If a horizontal merger creates an entity with a significant market share, the merger may be considered illegal because

it increases market on concentration

If a firm possesses market power as a result of carrying out some purposeful act to acquire or maintain that power through anticompetitive means, then

it is in violation of Section 2

when two or more individuals or business entities join together in a particular commercial enterprise

joint venture

If transportation costs are significant or a producer and its competitors sell in only a limited area, the the geographic market is

limited to that area

A crucial consideration in most merger cases is

market concentration

the power to affect the market price of its product

market power

Two distinct types of behavior are subject to sanction under section 2:

monopolization and attempts to monopolize

used to describe a market in which there is a single seller or a very limited market in which there is a single seller or a very limited number of sellers

monopoly

exists when a firm has an extreme amount of market power

monopoly power

Violations of the Clayton Act are

not crimes

substantially anticompetitive restraints

per se violations

One factor of particular importance is whether the merger will make it more difficult for

potential competitors to enter the relevant market

occurs when one firm attempts to drive its competitors from the market by selling its product at prices substantially below the normal cost of production

predatory pricing

Section 2 of the Clayton Act prohibits

price discrimination

occurs when a seller charges different prices to competing buyers for identical goods or services

price discrimination

an agreement among competitors to fix prices

price-fixing agreement

includes all products that have identical attributes as well as products that are reasonably interchangeable with them

relevant product market

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

resale prive maintenance agreement

Today's antitrust laws are the direct descendants of common law actions intended to limit

restraints of trade

agreements between or among firms that have the effect of reducing competition in the marketplace

restraints of trade

analyze anticompetitive agreements that allegedly violate Section 1 of the Sherman Act to determine whether they actually constitute reasonable restraints of trade

rule of reason

both maximum resale price maintenance agreements and minimum resale price maintenance agreements are judged under

rule of reason

The underlying assumption of section 1 of the Sherman Act is that

society's welfare is harmed if rival firms are permitted to join in an agreement that consolidates their market power or otherwise restrains competition

The clayton act was aimed at

specific anticompetitive or monopolistic practices that the Sherman Act did not cover

Congress enacted the Clayton Act to

strengthen federal antitrust laws

When a small number of companies share a large part of the market,

the market is concentrated

Section 2 cases deal with

the structure of a monopoly that exists in the marketplace

Establishing the relevant product market is often the key issue in monopolization cases because

the way the market is defined may determine whether a firm has monopoly power

A seller is prohibited from making an exclusive dealing contract under section 3 if the effect of the contract is

to substantially lessen competition or tend to create a monopoly

frequently involved in setting regulatory standards to govern the industry or profession

trade associations are

Businesses in the same general industry or profession frequently organize

trade associations to pursue common interests

three times the actual damages suffered

treble damages

A private party who has been injured as a result of a violation of the Sherman Act or the Clayton Act can sue for

treble damages and attorney's fees

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, a

tying arrangement results

To prove a violation of Section 1, the plaintiff must demonstrate that the boycott or joint refusal to deal was

undertaken with the intention of eliminating competition or preventing entry into a given market

occurs when a company at one stage of production acquires a company at a higher or lower stage of production

vertical merger

encompass the entire chain of production

vertical relationships

results from an agreement between firms at different levels in the manufacturing and distribution process

vertical restraint

Section 1 cases are often concerned with

whether an agreement leads to a restraint of trade