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