BLAW 320, Chapter 23 Anti-Trust Law and Promoting Competition

Anti-Trust Legislation

law intended to promote free competition in the market place by outlawing monopolies-- leads to lower prices.

Illegal practices under the Clayton act (section 2, 3, 7, 8)

price discrimination, exclusive dealing contracts, tying arrangements, mergers, interlocking directorates.

True or false: A divestiture is an order to a company to cease, or divest itself of its anticompetitive conduct.

False

True or false: A group boycott is not a per se violation.

False

True or false: A price-fixing agreement is an agreement by two or more sellers to boycott a particular person or firm.

False

True or false: A price-fixing agreement that is reasonable does not violate antitrust law.

False

True or false: An agreement that is deemed a per se violation will be examined by a court to determine whether the agreement's benefits outweigh its anticompetitive effects.

False

True or false: Conditioning the sale of one product on the purchase of another is an exclusive-dealing contract.

False

interlocking directorates

The practice of having individuals serve as directors on the boards of two or more competing companies simultaneously. (section 8 clayton act)

True or false: A market division by class of customer between rival firms violates antitrust law.

True

True or false: A single seller acting unilaterally is free to deal, or not to deal, with anyone it chooses.

True

True or false: A trade association practice or agreement that restrains trade is analyzed under the rule of reason.

True

True or false: Antitrust legislation was created because of the belief that competition leads to lower prices.

True

True or false: Charging different prices to different buyers for identical goods is price discrimination.

True

True or false: Cooperative research by small-business firms is exempt from antitrust law.

True

Violations of the Clayton Act

When a merger would increase market concentration. -overall concentration of the relevant market -the markets history of tending toward concentration -if the merger is designed to establish market power/ restrict competition

A unilateral refusal to deal can violate antitrust laws if the refusal a. is likely to have an anticompetitive effect on a particular market. b. results in lower prices for consumers. c. provides no economic benefits for consumers. d. is likely to increase competition.

a

Lightning Cycles, Inc., makes Lightning-brand motorcycles and accessories, which are distributed to authorized dealers, including Macho Motors, Inc. Macho operates dealerships in several locations. Lightning imposes restrictions on Macho to limit the areas in which they sell the bikes and insulate other dealers from direct competition. This is a. a territorial restriction. b. a resale price maintenance agreement. c. a refusal to deal. d. a price-fixing agreement.

a

market division

an illegal, anticompetitive practice in which two or more firms agree to divide a market among themselves, selling only to certain customers or in certain geographic areas

Rule of Reason

before ruling on the legality of certain business practices, a court examines why they were undertaken and what effect they have on market competition

predatory bidding

buyer bids up price of an input too high for competitors to pay, causing them to leave market

How to determine monopoly power

by looking at the relevent market and its competitors, and how it acquired its power. Must have dangerous probability to success

Listen Up! Corporation books and promotes concerts and other entertainment events, for which Listen Up! also sells tickets. In weighing a challenge to Listen Up!'s "monopolistic" ticket prices, a court looks at the relevant geographic market. This encompasses a. only areas in which Listen Up! does not have monopoly power. b. only areas in which Listen Up! has monopoly power. c. the area in which Listen Up! and its competitors sell, and their customers buy, the tickets. d. the entire United States in all cases.

c

Marvin starts Marvin's Bike Company in Wheatland, South Dakota. There is one other bike store in Wheatland. Through good business management, Marvin's Bike Company obtains a great deal of market power in Wheatland. This acquisition of monopoly power is a. a per se violation of Section 1 of the Sherman Act. b. an illegal restraint on trade. c. not an antitrust violation. d. a per se violation of Section 2 of the Sherman Act.

c

To acquire monopoly power in its market, Perfect Plastics, Inc., sets its prices lower than its competitors. Under the Sherman Act, this is a. a per se violation. b. a violation if its competitors make similar deals. c. a violation if it thereby acquires monopoly power. d. not a violation.

c

Elements of attempted monopolization

-Anticompetitive conduct -The specific intent to exclude competitors and garner monopoly power -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.

The Clayton Act

A federal regulation intended to prevent specific business actions that might prohibit competition,

Federal Trade Commission

A government agency established in 1914 to prevent unfair business practices and help maintain a competitive economy, support antitrust suits

Civil Treble & Attorneys' fees

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 (three times the actual damages suffered) and attorney's fees.

Per Se Violations

A restraint of trade that is so anticompetitive that it is deemed inherently (per se) illegal.

Tying arrangements

A seller's act of conditioning the sale of a product or service on the buyer's agreement to purchase another product or service from the seller; violates Clayton Act section 3

unilateral refusal to deal

A unilateral choice by one party not to deal with another party. This does not violate Section 1 of the Sherman Act because there is not concerted action.

Per Se Violations of Sherman Act

Acts or practices considered so harmful to competition that they are almost always illegal; no defense or justification for practice.

resale price maintenance agreement

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

price-fixing agreement

An agreement between competitors to fix the prices of products or services at a certain level.

Group Boycott

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

exclusive dealing contract

An agreement under which a seller forbids a buyer to purchase products from the seller's competitors; violates section 3 of Clayton act

The intent requirement

Anticompetitive behavior must be "willful acquisition of power." Intent may be inferred from evidence that the firm had monopoly power and engaged in anticompetitive behavior.

Horizontal Restraint

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

True or false: Market concentration refers to the number of firms in the market.

False

True or false: Monopoly power is a minor amount of market power.

False

True or false: No person may be a director for two competing corporations at the same time.

False

True or false: Predatory pricing involves selling a product at prices substantially above the fair market value.

False

True or false: Section 1 of the Sherman Act condemns monopolization.

False

True or false: Territorial and consumer restrictions are per se violations.

False

True or false: The offense of monopolization does not require the intent to monopolize.

False

True or false: The primary measure of monopoly power is a competitor's assessment of the acts of a firm under review.

False

True or false: Under an exclusive-dealing contract, a seller promises a buyer a certain territory in which the buyer will have no direct competition.

False

proving indirect monopoly power

Firm has a dominant share of the relevant market and there are significant barriers for new competitors entering the market

proving direct monopoly power

Firm used its power to control prices and restrict output.

Horizontal market division

It is a per se violation of Section 1 of the Sherman Act for competitors to divide up territories or customers.

Practices in Violation of The Sherman Act (section 1)

Price fixing, Group boycotts, market division, customer allocation, bid rigging

relevant product market

Products or services that compete with one another, have identical attributes, and reasonable interchangeable products

Differences between Section 1 and 2 (Sherman Act)

Section 1 cases are often concerned with finding an agreement (written or oral) that leads to a restraint of trade. Section 2 cases deal with the structure of a monopoly that already exists in the marketplace.

Violations of the Sherman Antitrust Act or the Clayton act

Section 1 of Sherman: - prohibits any agreement that is unreasonable restraint of trade -subject to rule of reason - consider purpose of the arrangement -the power of the parties involved -the effect of their actions restraining trade -if anticompetitive effects outweigh the competitive benefits

relevant geographic market

Section of the country within which a firm can increase its price a bit without attracting new sellers or without many customers to alternative suppliers outside that area.

Mergers

The joining together of two or more companies or organizations to form one larger one.

Monopolization

The possession of monopoly power in the relevant market and the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.

True or False: The basic purpose of antitrust law is to regulate economic competition.

True

True or false: For products that are sold nationwide, the relevant geographic market encompasses the entire United States.

True

True or false: In determining the legality of a merger, a crucial consideration is market concentration.

True

True or false: Insurance companies are exempt from antitrust laws whenever state regulation exists.

True

True or false: Labor unions can organize and bargain without violating antitrust law.

True

True or false: Monopoly power may be proved by evidence that a firm used its power to control prices.

True

True or false: Resale price maintenance agreements are subject to analysis under the rule of reason.

True

True or false: Size alone does not determine whether a firm is a monopoly.

True

True or false: The Clayton Act prohibits certain classes of price discrimination.

True

True or false: The Internet is changing the notion of the size and limits of a relevant geographic market.

True

True or false: The Sherman Act, the Clayton Act and the Federal Trade Commission Act are all examples of legislation designed to curb anticompetitive business practices.

True

True or false: The possession of monopoly power alone does not constitute the offense of monopolization.

True

Head of DOJ

US AG William Barr

A court deems an agreement between Silver Saddles Saddlery and Time Tested Tack, Inc. to be a per se violation of the Sherman Act. The court is a. prevented from determining whether the agreement's benefits outweigh its anticompetitive effects. b. required to unanimously decide whether the agreement's benefits outweigh its anticompetitive effects. c. required to apply the rule of reason. d. required to issue a formal complaint against Silver Saddles and Time Tested Tack.

a

A suit is filed against Dormroom Furniture Unlimited, Inc., alleging that the firm has committed the offense of monopolization. To determine whether Dormroom has committed this offense, the court will consider the extent of Dormroom's market power and a. how Dormroom acquired its power. b. how Dormroom makes its products. c. Dormroom's customers. d. Dormroom's suppliers.

a

An antitrust action is brought against Tri-State Transport Company, alleging the offense of attempted monopolization. To be guilty of this offense, Tri-State's attempt must have a. a dangerous probability of success. b. a deadly guaranty of success. c. a distant possibility of success. d. a distinct improbability of success.

a

Big U.S. Oil Company joins with a foreign cartel to control the price of oil. If the cartel has a substantial effect on U.S. commerce a. both Big U.S. Oil and the foreign cartel can be sued for violation of U.S. antitrust laws. b. neither Big U.S. Oil nor the foreign cartel can be sued for violation of U.S. antitrust laws. c. only Big U.S. Oil can be sued for violation of U.S. antitrust laws. d. only the foreign cartel can be sued for violation of U.S. antitrust laws .

a

City Manufacturing Corporation conditions shipments of its products to Exurb Stores, Inc., on Exurb's agreement not to buy products from Regional Works Company, City's competitor. This is a. an exclusive-dealing contract. b. a tying arrangement. c. price discrimination. d. a unilateral refusal to deal.

a

Edgy Engine Components, Inc., a maker of vehicle parts, refuses to sell to Fidgety Fix-It, Inc., a national vehicle service firm. Edgy Engine convinces Greasy Motor Parts Company, a competitor, to do the same. This is a. a group boycott. b. a market division. c. a joint venture. d. an exclusive-dealing contract.

a

Gourmet Foods, Inc., requires all distributors of its products to sell them at a specified minimum price. Under the Sherman Act, this is a violation a. if the anticompetitive effects outweigh the competitive benefits. b. if the competitive benefits outweigh the anticompetitive effects. c. under any circumstances. d. under no circumstances.

a

HVAC Parts Company charges different buyers different prices for identical goods. HVAC's prices are subject to evaluation under a. the Clayton Act. b. the Federal Trade Commission Act. c. the Sherman Act. d. no antitrust law.

a

Organic Cheeses, Inc., Fine & Fresh Foods Company, and Healthy Whole Foods, Inc. organize together to exchange information and share advertising. This is an example of a a. trade association. b. resale price maintenance agreement. c. monopoly. d. territorial restriction.

a

Precious Metals Corporation, a raw materials vendor, sells its commodities in certain quantities to Quarry Refining Company for a certain price but charges Rich Assets, Inc., a Quarry competitor, a higher price. This is most likely a violation of a. the Clayton Act. b. the Federal Trade Commission Act. c. the Sherman Act. d. no antitrust law.

a

To fall under the Sherman Act, an activity must a. substantially affect interstate commerce. b. involve monopolization. c. promote competition. d. involve international trade.

a

Section 1 of the Sherman Act

a section that prohibits contracts, combinations, and conspiracies (written or oral) in restraint of trade b/w 2 or more parties and affects interstate commerce

trade association

an organization that represents firms within a particular industry.

territorial restrictions

attempts by the supplier, usually a manufacturer, to limit the geographic area in which a retailer may resell its merchandise

A trade association a. is always a per se violation of Section 1 of the Sherman Act. b. may be legal if it is sufficiently beneficial to both the association and the public. c. is an innovative, legally efficient approach to doing business. d. always creates illegal territorial or customer restrictions.

b

Congress enacts a statute to outlaw a specific type of anticompetitive business agreement. Like other laws that regulate economic competition, this law is referred to as a. a federal trade commission act. b. an antitrust law. c. an interstate commerce act. d. a suppressive restraint on trade.

b

Global Services Corporation engages in trade practices that may violate antitrust law. The Federal Trade Commission has the power to act against unfair trade practices under a. the Clayton Act. b. the Federal Trade Commission Act. c. the Sherman Act. d. no law.

b

Gulf Air, Inc., is the major wholesale distributor of software in the state of Florida. Its closest competitor is Fluid Systems Company, another Florida firm. The two firms agree that Gulf Air will operate in south Florida and Fluid Systems will operate in north Florida. This is a. a group boycott. b. a market division. c. a joint venture. d. an exclusive-dealing contract.

b

North Mining Company and South Excavation Company agree to abide by the decisions of East Coast Financial Corporation as to their respective levels of production, markets, and prices, effectively reducing competition and increasing profits. This is most likely a. a common, legal, time-honored type of business arrangement. b. an illegal restraint on trade. c. an innovative, legally efficient approach to doing business. d. an outdated, but legal business trust.

b

Spa Selectiva Company makes and sells beauty salon supplies. By selling its product at prices substantially below the normal cost of production, Spa Selectiva hopes to drive its competitors from the market. This is a. market power. b. predatory pricing. c. price discrimination. d. price-fixing.

b

Cardio, Inc., makes and sells Drawdown, the most prescribed name-brand heart medication. Emitate Corporation has the potential to make a generic version of the same drug. A court would most likely rule that the agreement between Cardio and Emitate is a. a deal that neither restrains trade or harms competition. b. a legal restraint of trade. c. a per se violation of the Sherman Act. d. subject to analysis under the rule of reason.

c

Imperio Caffeine Corporation makes and sells coffee under a variety of brand names. Imperio wants to merge with Java Company, its main competitor. In weighing a challenge to the deal, a court looks at the relevant product market. This most likely includes coffee and a. no other products. b. products that are not identical but are related, such as spin-offs. c. products that are sometimes substituted for coffee. d. products with identical attributes only.

c

Luminescent Silicon Corporation, which controls 40 percent of the computer-chip market in the United States, merges with Micro Processors, Inc., which controls 15 per-cent of the same market. This merger is a violation a. only if the result more clearly concentrates the market. b. only if the result makes it more difficult for potential competitors to enter the market. c. if the result more clearly concentrates the market and makes it more difficult for potential competitors to enter the market. d. under no circumstances.

c

Mango Corporation believes that Melon Corporation engages in anticompetitive behavior in an attempt to drive Mango and its other competitors out of the market. Antitrust laws can be enforced against Melon by a. Mango and its competitors only. b. Mango, its competitors, and the Federal Trade Commission only. c. Mango, its competitors, the Federal Trade Commission, and the U.S. Department of Justice. d. the Federal Trade Commission and U.S. Department of Justice only.

c

Master Manufacturing Corporation has exclusive control over the market for its product. Under the Sherman Act, this is a. a per se violation. b. a violation if it acquired this power through "business acumen." c. a violation if it acquired this power through "anticompetitive means." d. not a violation.

c

Some agreements are so blatantly and substantially anticompetitive that they are deemed illegal per se under Section 1 of the Sherman Act. Which of the following is not a per se violation? a. A price-fixing agreement. b. A group boycott. c. A trade association. d. A market division.

c

Thermo Gas, Inc., and Uno Oil Corporation refine and sell gasoline and other petroleum products. To limit the supply of gas on the market and thereby raise prices, Thermo Gas and Uno Oil agree to buy "excess" supplies from dealers and "dispose" of it. This is a. a deal that neither restrains trade or harms competition. b. a legal restraint of trade. c. a per se violation of the Sherman Act. d. subject to analysis under the rule of reason.

c

When applying the rule of reason to determine whether an agreement violates Section 1 of the Sherman Act, a court will not consider a. the purpose of the agreement. b. the parties' market ability to implement the agreement. c. the effect of the agreement on international trade. d. the potential effect of the agreement on competition.

c

When are trade associations in violation of the Sherman Act (sect. 1)

concentrated markets can occur when a single firm or small number of firms control a large percentage of market sales.

Defenses for Price Discrimination

cost justification, meeting competitors prices, changing market conditions.

A suit is filed against Adroit Drilling Tools Corporation, alleging that the firm committed the offense of monopolization. To determine whether Adroit has monopoly power requires looking at a. the definition of monopoly in the Sherman Act. b. Adroit's size alone. c. Adroit's production methods and marketing techniques. d. the relevant market.

d

Cardio, Inc., makes and sells Drawdown, the most prescribed name-brand heart medication. Emitate Corporation has the potential to make a generic version of the same drug. Cardio pays Emitate not to sell its product. This is a. a customer restriction. b. a joint venture. c. an exclusive-dealing contract. d. a price-fixing agreement.

d

Fresh Vegetables, Inc., a wholesaler, refuses to sell its produce to Good Mart Stores, Inc., a retailer. This is a. "an unfair or deceptive act or practice." b. a per se violation. c. not a violation. d. subject to analysis under the rule of reason.

d

Rally Speedboat Corporation refuses to sell its products to Super Weekends, Inc., a recreational water products dealership. This is a. an exclusive-dealing contract. b. a horizontal market division. c. attempted monopolization. d. a unilateral refusal to deal.

d

To drive its competitors out of a certain geographic segment of its market, Fryin' Potatoes, Inc., sets the prices of its products below cost for the buyers in that area. This is a. a refusal to deal. b. business acumen. c. predatory bidding. d. price discrimination.

d

When are trade associations legal?

deemed reasonable by the court as long as it is beneficial to both the association and to the public, a court may deem it reasonable.

The Sherman Act

if the anticompetitive effects outweigh the competitive benefits. Must substantially affect interstate commerce.

Market Concentration

measures the degree of competition that exists within a market by calculating the market share of the largest few firms in the industry

Requirements for Price discrimination

must engage in interstate commerce, goods must be of like grade and quality, goods must have been sold to 2 or more purchasers.

Agreements subject to analysis under Rule of reason

resale price maintenance, trade associations

predatory pricing

selling a product below cost to drive competitors out of the market

sherman vs clayton antitrust act

sherman- allowed the government investigate harmful trusts and decide whether they were worthy or not clayton- clarified and extended the sherman act, clarified what a corporation cannot do

price discrimination

the business practice of selling the same good at different prices to different customers; violates section 2 of Clayton Act

Horizontal merger

the combination of two or more firms competing in the same market with the same good or service

vertical merger

the combination of two or more firms involved in different stages of producing the same good or service

When does unilateral refusal to deal violate Sherman act sect. 2

the firm refusing to deal has or is likely to acquire monopoly power and to have an anticompetitive effect on a particular market

Section 2 of the Sherman Act

the possession of monopoly power in the relevant market, and the willful acquisition of that power as distinguished from its growth as a consequence of a superior product, business acumen, or historic accident.

divestiture

the transfer of total or partial ownership of some of a firm's operations to investors or to another company