Chapter 27: Anti Trust Law

Exemptions

-Labor Unions -Insurance Companies -Exporters -Fisheries -Agricultural Associations

Private Anti-Trust suits can sue for

-Treble Damages -Attorney's Fees -Injunctive Relief (In some cases)

Sherman Act Provisions (2)

1. *Every contract, combination in the form of trust or otherwise*, or conspiracy,*in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal* [and is a felony punishable by fine and/or imprisonment]. 2. *Every person who shall monopolize, or attempt to monopolize*, or combine or conspire with any other person or persons, to monopolize *any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony*[and is similarly punishable].

Violations of the Sherman Act

Can be either criminal or civil offenses

Rule of Reason Violations of Sherman Act

Court balances the defendant's reasons for the agreements against the anti-competitive effects they're concerned with: a. purpose of arrangement (reason) b. parties' power to implement (achievement) c. the effect or potential effect on competition (reach) d. whether there were less restrictive alternatives (best course)

Common law as often __________ towards anti-trusts?

Ineffective

Exclusionary Practices

Sellers or lessors cannot condition the sale or lease of goods on the buyer's or lessee's promise not to use or deal in the goods of the seller's competitor

Remedies available

Sherman Act: Jail, fine, divestiture, dissolution Clayton Act: Fine, divestiture, dissolution

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. 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

Market Power

The power of a firm to control the market price of its product. A monopoly has the greatest degree of market power.

Interlocking Directorates

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

Vertically Integrated Firms

A firm that carries out two or more functional phases (manufacturing, distribution, and retailing, for example) of the chain of production.

Horizontal Merger

A merger between two firms that are competing in the same market. Dependent upon: 1. Current concentration of the relevant market. 2. The relevant market's pre-existing trends toward concentration. 3. Whether or not the merger is apparently designed to establish market power or restrict competition.

Price Discrimination

A seller's act of charging competing buyers different prices for identical products or services.

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.

Examples of Exclusionary Practices

- Exclusive-Dealing Contracts - Tying Arrangements

Requirements for Price Discrimination

- the seller must be engaged in interstate commerce - the goods must be of like grade and quality, -the goods must have been sold to two or more purchasers. -the price discrimination must be to substantially lessen competition, tend to create a monopoly or injure competition

Defenses for Price Discrimination

1. Cost justification 2. Meeting a competitor's prices 3. Changing market condition

Unilateral refusals to deal will violate Section 2 of the Sherman if instances of what occur? (2)

1. the firm refusing to deal has—or is likely to acquire—monopoly power and 2. the refusal is likely to have an anticompetitive effect on a particular market.

What do you have to prove for Sec. 1 of the Sherman Act?

1.Anticompetitive conduct. 2.Intent to exclude competitors and garner monopoly power. 3. A "dangerous" probability of success in achieving monopoly power. *Only serious threats of monopolization are condemned as violations.*

Interstate Commerce Act

1887- law passed to regulate railroad and other interstate businesses

Clayton Act

1914- an amendment that strengthens the Sherman Act by making it illegal for firms to engage in certain anticompetitive business practices.

Federal Trade Commission Act

1914- established the FTC that would investigate and prevent unfair business practices - encourage competition

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.

Per Se Violations of Sherman Act

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

Antitrust Laws

Laws protecting commerce from unlawful restraints and anticompetitive practices.

Illegal Mergers

Mergers or acquisitions that could result in monopoly power or a substantial lessening of competition in the marketplace

What do you have to prove for Sec. 1 of the Sherman Act?

Monopoly Power & Intent

Monopoly

Monopoly is a control or advantage obtained by a single sell or very limited number of sellers obtain over the commercial market in a specific area

Violations of the Clayton Act

Only civil but can still be enforced by either the DOJ or the FTC through civil proceedings

Predatory Pricing

Predatory pricing is the act of setting prices low in an attempt to eliminate the competition. Predatory pricing makes markets more vulnerable to a monopoly. Companies may engage in a variety of activities that intend to drive out competitors, such as create barriers to entry for new competitors or unethical production methods to minimize costs.

Price Fixing

Price fixing is an agreement among competitors in a given market that raises, lowers, or stabilizes prices or competitive terms or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

Differences between Section 1 & Section 2 of The Sherman Act

Section 1 requires two or more persons, because a person cannot contract, combine, or conspire alone. (Often concerned with an agreement which leads to the restraint of trade) Section 2, though, can apply either to one person or to two or more persons because it refers to "every person." Thus, unilateral conduct can result in a violation of Section 2. (Usually cases deal with the structure of a monopoly or "monopoly power" in the market place)

Clayton Antitrust Act

Section 2: Price Discrimination Section 3: Exclusionary Practices Section 7: Mergers Section 8: Interlocking Directorates

Enforcement

The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) enforce Anti-trust law, which was established by the Federal Trade Commission Act

Monopoly power

The ability of a monopoly to dictate what takes place in a given market.

Vertical Merger

The acquisition by a company at one stage of production of a company at a higher or lower stage of production (as when a company merges with one of its suppliers or retailers). Dependent upon: 1. Current concentration of the relevant market. 2. Barriers faced with entry into the market and the apparent 3. Whether or not the merger is apparently designed to establish market power or restrict competition.

Market Concentration

The degree to which a small number of firms control a large percentage of a relevant market.

Antitrust laws are the direct descendants of...

common law Actions intended to limit the restraints of trade

Sherman Antitrust Act

1890 - a federal law that committed the American government to oppose monopolies, it prohibits contracts, combinations, and conspiracies in restraint of trade.*also extends to U.S. nationals abroad who are engaged in activities that affect U.S. foreign commerce*

Horizontal Market Divisions

Agreements to divide up the market between rival companies this includes dividing territories or types of customers

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.

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. ( judged under the rule of reason)

Group Boycotts

An agreement by 2 or more sellers to refuse to deal with another person or company

Exclusive-Dealing Contracts

An agreement under which a seller forbids a buyer to purchase products from the seller's competitors.

Trust

An arrangement in which title to property is held by one person (a trustee) for the benefit of another (a beneficiary).

Concentrated Industry

An industry in which a single firm or a small number of firms control a large percentage of market sales.

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 and commerce as it would be carried on if left to the control of natural economic forces.

Territorial or Customer Restrictions

imposed by manufacturers on the sellers of the products to insulate dealers from direct competition with each other (May have legitimate purpose/ or else judged under the rule of reason)

Vertical Restraints of Trade

occurs when firms at different levels of the manufacturing and distribution process form an agreement

Horizontal Restraints of Trade

occurs when two or more competitors at the same level of distribution enter into an agreement that in some way restrains competition between rival firms competing in the same market. -Price Fixing -Group Boycotts -Horizontal Market Divisions