Ch 18 Econ (Antitrust)

Clayton Act of 1914

An amendment passed by the U.S. Congress in 1914 that provides further clarification and substance to the Sherman Antitrust Act of 1890. The Clayton Antitrust Act attempts to prohibit certain actions that lead to anti-competitiveness. Outlaws price discrimination, prohibits tying contracts, prohibits stock acquisition of competing corporations, prohibits the formation of interlocking directorates (director of one firm, is board member on another firm).

X-inefficiency

The degree of efficiency maintained by individuals and firms under conditions of imperfect competition.

"Rule of Reason"

a legal doctrine used to interpret the Sherman Antitrust Act, one of the cornerstones of United States antitrust law.

Misleading/ Faulty Advertising

advertising has the potential to persuade people into commercial transactions that they might otherwise avoid

Tying Agreements

an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees he will not purchase the product from any other supplier

Social Regulation

correcting failures of the legal system- mainly liability and tort law- to prevent harms or to promote positive ends. These in turn arise from failures in the market."

Laissez-faire perspective on antitrust

hands off approach the market will correct for any abuses of monopoly power by creating profit incentives that attract new and stronger competitors. There is no reason to enforce antitrust policy as the long-run competitive process will effectively undermine monopolies.

Public interest Theory of Regulation

industrial regulation is necessary to keep a natural monopoly from charging monopoly prices and harming consumers/society

Per Se Violations

it is only necessary to prove that the defendant violated the statute, and that the violation was the cause of the plaintiff's injuries or losses. There is no need to prove that the defendant intended to commit the act.

Federal Trade Commission Act of 1914

its purpose was to prevent unfair methods of competition in commerce as part of the battle to "bust the trusts."

Sherman Act of 1890

prohibits certain business activities that federal government regulators deem to be anti-competitive, and requires the federal government to investigate and pursue trusts. prohibits agreements in restraint of trade--such as price-fixing, refusals to deal, bid-rigging, etc.

Price Discrimination

the action of selling the same product at different prices to different buyers, in order to maximize sales and profits.

Price Fixing

the maintaining of prices at a certain level by agreement between competing sellers.

Interlocking Directorates

A director of one firm is also a board member of a competing firm, with the effect of reducing competition

Conglomerate Merger

A merger between firms that are involved in totally unrelated business activities. There are two types- pure and mixed.

Natural Monopoly

A natural monopoly is a monopoly in an industry in which it is most efficient (involving the lowest long-run average cost) for production to be permanently concentrated in a single firm rather than contested competitively.

Legal Cartel Theory of Regulation

The legal cartel theory of regulation states that politicians supply regulation to those industries which seek it. Once a industry is a legal cartel, it is guaranteed profitability and security from competition. Legal cartels also are much more stable and profitable than private cartels. When regulatory commissions create legal cartels, they divide up markets and reduce competition.

Intercorporate Stockholding

outlawed by Clayton act when this hinders competition

Celler-Kefauver Act of 1950

reformed and strengthened the Clayton Antitrust Act of 1914 which had amended the Sherman Antitrust Act of 1890.

Active perspective on antitrust

sometimes competition is insufficient to achieve allocative efficiency and ensure fairness. Firms will occasionally use illegal tactics against competitors or collude to fix prices. Active strict enforcement of these laws is necessary to stop illegal business practices, prevent anticompetitive mergers, and remedy monopoly.

Federal Trade Commision & Federal Justice Department

FTC is an agency of the US government used to promote consumer protection and the elimination and prevention of anticompetitive business practices. Justice Department is the executive department responsible for enforcement of the law and administration of justice.

Wheeler-Lea Act of 1938

amended Section 5 of the Federal Trade Commission Act to 1898 proscribes "unfair or deceptive acts or practices" as well as "unfair methods of competition." [1] It provided civil penalties for violations of Section 5 orders

Vertical Merger vs Horizontal Merger

vs A merger occurring between companies in the same industry.