Chapter 16 - Regulating Competition (Antitrust Laws)

The U.S. Department of Justice has imposed more than $___ billion in fines related to antitrust violations since 2009. Department of Justice was successful in obtaining prison sentences for ____% of defendants in 2012.

3 78

Antitrust laws intend to protect _____ and not _____

Consumers Competitors

Rule of reason?

Contracts or conspiracies in restraint of trade were illegal only if they constituted undue or unreasonable restraints of trade Includes unreasonable attempts to monopolize

What does the FTC determine?

FTC determines what methods, acts or practices constitute unfair competition Function - To prevent illegal business practices

T/F - Are normal activities of labor unions are not exempt from coverage under the Sherman Act?

False

What are the 3 things that antitrust law enforce?

Federal government -->Enforcement procedures are applied through Department of Justice and the FTC States -->Civil suits under Sherman act and injunction suits Enact interstate laws that cover both products and services Private parties -->Suits seeking monetary damages or sanction by antitrust laws

International Antitrust Enforcement?

Foreign companies must comply with U.S. antitrust law if their activities have a substantial impact on U.S. commerce ex. U.S. companies doing business in other countries must comply with their antitrust laws European commission regulates anticompetitive activity in European Union nations

What are the analyses that are employed depending on the relationship of the parties?

Horizontal restraints- agreements between direct competitors (threatens free competition) Vertical restraints - agreement between firm in production or distribution chain (more likely to have problem)

What is a trying contract?

In a tying contract, a product is sold only on condition that buyer purchase a different product from the seller. A common form of this contract is full-line forcing where the seller compels the buyer to take a complete product line from the seller.

Clayton Act - Individuals or organizations injured by a violation could obtain?

Injuctive relief

What is the cognate doctrine?

Manufacturers announce product prices and refuse to deal with those who fail to comply - Not a per se violation of the Sherman act As per Colgate doctrine resale price maintenance is legal if there is no coercion or pressure other than the announced policy and its implementation

What does the Sherman Act, Section 2 regulate?

Monopoly -Attempts to monopolize any part of interstate or foreign commerce

What does the National Cooperative Production Amendments Act not protect?

National Cooperative Production Amendments Act does not protect joint production ventures from all possibilities of antitrust violations.

What is the Clayton Act?

Outlawed practices that substantially lessened competition or created a monopoly -->Eased burden of proof

What is price fixing?

Pact among competitors to charge same price for their products (most common)

What is a Premerger notification?

Parties to a merger must notify the DOJ and FTC before the merger

What can the plaintiff be awarded within the national cooperative production amendment act?

Plaintiff can be awarded actual damages plus costs in a private civil antitrust action brought against the joint venture -->The joint venture will not be subject to triple damages

Sherman Act (sec 1) - what does it prohibit?

Prohibits contracts, combinations, and conspiracies that restrict trade

Indirect Price Fixing attempts to control prices to?

Protect a channel of distribution or a marketing system Keep marginal competitors in business to avoid becoming a monopoly

What is a reciprocal dealing?

Reciprocal dealing is an arrangement when two parties face each other as both buyer and seller.

What is a requirements contract?

Requirements contract is a similar arrangement where the buyer agrees to purchase all the needs of a given contract from seller during a period of time.

Vertical price fixing is referred to as?

Resale price maintenance

Clayton Act - Mergers and Acquisitions?

Section 7 makes certain mergers and acquisitions illegal -Horizontal merger -Market extension merger -Product extension -Geographic extension -Vertical merger -Conglomerate merger

What is predatory conduct?

Seeking to advance market share by injuring competitors by means other than improved performance Involves predatory pricing

What are the exceptions to the Robinson-Patman Amendment?

Sellers may select their own customers in good-faith transactions and not in restraint of trade. Changing conditions defense - Price can be changed in response to changing conditions. Panera Cream Cheese Story Cost justification defense: Price differentials based on differences in the cost of manufacture, sale, or delivery of commodities. Good-faith meeting-of-competition defense: Seller in good faith may meet the equally low price of a competitor.

What is predatory pricing?

Selling at lower costs to drive out competition -Profit-maximizing and limit pricing are examples of predatory pricing

What is the Noerr-Pennington doctrine?

The Noerr-Pennington doctrine is based on First Amendment rights that extends to concerted efforts to lobby government officials, regardless of the anticompetitive purposes of the lobbying effort.

Firms indicted under the Sherman Act may choose to resolve the criminal suit with a plea of nolo contendere. How might this no contest plea benefit the company?

Under the Sherman Act, firms may face both criminal and civil penalties. By utilizing a nolo plea those who might potentially sue civilly, are deprived of the evidence that would be presented in the criminal forum. Plea is interpreted as avoiding a conviction, the civil plaintiff is left with the burden of proving the antitrust violation.

Underlying purpose and objective of area of antitrust laws and regulations is...

Workable compensation

What is a conglomerate merger?

A conglomerate merger is one in which the businesses involved neither compete nor are related as customer and supplier in any line of commerce.

What is a horizontal merger?

A horizontal merger combines two businesses in the same field or industry, possibly former competitors, thereby reducing competition and leading to greater concentration in the industry.

What is a market extension merger?

A market extension merger describes an acquisition in which the acquiring company extends its markets. This extension may be either in new products (product extension) or in new areas (geographic extension).

What is a vertical merger?

A vertical merger, however, brings together one company that is the customer of the other in one of the lines of commerce in which the other is a supplier, potentially removing the merged customer from the market as far as other suppliers are concerned and possibly remove a source of supply if the acquiring company is a customer of the acquired one.

What is the Parker v. Brown doctrine?

(state action exemption) a state action exemption which holds that a state acting in its sovereign capacity is immune from federal antitrust scrutiny.

What does the monopolization violation require the plaintiff to prove that the defendant did?

-Had monopoly power -Willfully maintained that power

What are some exceptions to the Sherman Act?

-Insurance companies -Farmers' cooperatives -Shipping -Milk marketing -Investment companies -Activities required by state law -Legitimate activities of labor unions

What are the provisions of national cooperative production amendment act?

-Joint production ventures will be subject to the rule of reason analysis -Joint venture must notify the Justice Department and the FTC of its plans to engage in joint activities

Clayton Act - Special Arrangements?

1 - Tying Contract --> Full Line forcing (have to buy two things to get one) 2 - Reciprocal Dealing 3 - Exclusive Dealing 4 - Requirements Contract

Why study anti-trust laws?

1) Applies equally to small and large businesses 2) Violations are serious - fines - possible imprisonment

When was the Federal Trade Commission Act?

1914

Federal Trade Commission Act - Wheeler-Lea amendment?

Added that unfair or deceptive practices in commerce are unlawful under Section 5

Horizontal price fixing?

Agreement between competitors to fix prices

What is a vertical territorial agreement?

Agreement is between a manufacturer and a dealer or distributor. The dealer or distributor is given an exclusive territory, and the manufacturer agrees not to sell to other dealers or distributors in that territory in exchange for an agreement by the dealer that it will not operate outside the area assigned. Vertical arrangements are usually part of a franchise or license agreement, are not per se violations but subject to the RULE OF REASON

Per se illegality?

Agreements having malignant effect on competition such that elaborate enquiry is unnecessary

Clayton Act - What is the Robinson - Patman amendment?

Amendment to Section 2 that ensures equality of price to all customers of a seller of commodities for resale Extends only to interstate transactions of goods Provides FTC the jurisdiction and authority to regulate quantity discounts Prohibits predatory pricing The Robinson-Patman amendment attempted to eliminate the advantage that a large buyer could secure over a small buyer because of the larger purchasing ability. Law is applicable only to the sale of goods and not to services or advertising

What is the FTC?

An independent administrative agency charged with keeping competition free and fair. The FTC enforces the Clayton Act and Section 5 of the FTC Act, which prohibits unfair methods of competition and unfair or deceptive acts or practices.

What are concerted activities?

Attempt by competitors to share activities or join together in the performance of a function Beneficial to the society Joint efforts can reduce costs and improve efficiency, with direct benefit to the public Ex. The Sherman Act so that television industry officials could discuss the development of joint guidelines to limit the depiction of violence on television.

Vertical price fixing?

Attempts by manufacturers to control the ultimate retail price for products

Who has the authority to challenge mergers?

Department of justice and FTC

What are the FTC questions asked to confirm unfair conduct?

Does the conduct injure consumers significantly? Does the conduct offend an established public policy? Is the conduct oppressive, unscrupulous, immoral, or unethical?

What are the Sherman Act sanctions?

Enjoined by courts - Subject to fines/imprisonment Triple damages - Property subject to seizure and forfeiture

The _______ _______ treaty specifically regulates price fixing, market divisions, production controls, abuse of a dominant position and mergers.

European Union

Plaintiff must prove that the low-price scheme is likely to _________ ________ a rise in prices sufficient to recoup the initial income loss.

Eventually produce

What is an exclusive dealing?

Exclusive dealing contains a provision that one party will deal only with the other party.

Monopoly must be _____________ acquired to be illegal

deliberatively

What is a horizontal territorial agreement?

each competitor at the same level gets an exclusive territory. Such agreements are illegal per se under the Sherman Act

Antitrust laws warn competitors to stay out of ___________ ___________

illegal cooperation

Clayton Act - The Judicial Department can obtain ________ to prevent violations?

injuctions

A firm that is indicted for violating the Sherman Act often will face civil actions as well. It may resolve the criminal case through a plea of ________ ________ so the civil plaintiffs do not benefit from a criminal conviction.

nolo contendere