Transcript Chapter 37 Antitrust Law

Chapter 37
Antitrust Law
Learning Objectives
 What is a monopoly? What is market power?
 What type of activity is prohibited by §§ 1 and
2 of the Sherman Act?
 What are the four major provisions of the
Clayton Act?
 What federal agencies enforce the federal
antitrust laws?
 What are four activities that are exempt from
antitrust laws?
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Introduction
Common law actions intended to limit
restrains on trade and regulate economic
competition.
Embodied almost entirely in:
The Sherman Antitrust Act of 1890.
The Clayton Act of 1914.
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The Sherman Antitrust Act
Section 1 and 2 contain the main provisions of
the Sherman Act.
 Section 1:
• Requires two or more persons, as a person cannot contract,
combine, or conspire alone.
• Concerned with finding an agreement.
 Section 2:
• Applies both to an individual person and to several people,
because it refers to every person.
• Deals with the structure of monopolies in the marketplace.
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Section 1 of the Sherman Act
Analysis: Per Se Violations vs. Rule of
Reason.
Some activity is so blatantly
anticompetitive that it is a per se (on its
face) violation (price fixing).
Other activities can be analyzed by “rule
of reason” to determine reasonableness.
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Section 1: Horizontal Restraints
Agreements among Sellers (or Buyers)
that restrain competition between rival
firms competing in the same market .
Seller
Seller
Seller
Buyer
Buyer
Buyer
Horizontal Restraints
Price Fixing
An agreement between competing firms
in the market to set an established price
for the goods or services they offer.
Price fixing is a per se violation of the
Act.
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Horizontal Restraints
 Group Boycotts
Agreement between two or more sellers
to refuse to deal with a particular person
or firm.
Group boycotts are per se violations of
the Act.
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Horizontal Restraints
Market Division
Occurs when competitors in the same
market agree that each will have
exclusive rights to operate in a particular
geographic area.
Horizontal market divisions are per se
violations of the Act.
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Horizontal Restraints
 Trade Associations
 Industry specific organizations created to
provide for the exchange of information,
representation of the business interests before
governmental bodies, advertising campaigns,
and setting of regulatory standards to govern
their industry or profession.
 Rule of reason is applied to determine if a
violation of the Act has occurred.
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Horizontal Restraints
Joint Ventures
Undertaking by two or more individuals
or firms for a specific purpose.
The rule of reason is applied to analyze
the agreement if the venture has first been
found not to involve price fixing or
market divisions.
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Section 1 -- Vertical Restraints
Per se anticompetitive
agreements imposed
by Sellers upon
Buyers (or vice
versa) that may
include affiliates in
the entire supply
chain of production.
Seller
Buyer
Buyer
Buyer
Vertical Restraints
 Agreements between firms at different levels
of the manufacturing and distribution process.
 Vertical restraints may restrain competition
among firms that occupy the same level in
chain.
 Vertical restraints that significantly affect
competition may be per se violations.
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Vertical Restraints
Territorial or Customer Restrictions:
Imposed by manufacturers on the sellers of
the products, to insulate dealers from direct
competition with each other.
Territorial and customer restrictions are
judged under the rule of reason.
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Vertical Restraints
 Resale Price Maintenance Agreements
An agreements between a manufacturer
and a distributor or retailer in which the
manufacturer specifies the retail price at
which retailers must sell products
furnished by the manufacturer or
distributor.
This is a type of vertical restraint and is
normally a per se violation.
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Vertical Restraints
 Refusal to Deal
Unlike a group boycott, a refusal to deal
is an action by one firm against another,
and this is usually legal, unless:
• the firm refusing to deal has, or is likely to
acquire, monopoly power, and
• the refusal is likely to have an
anticompetitive effect on a particular
market.
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Section 2 of the Sherman Act
Section 2 of the Sherman Antitrust Act
deals with:
Monopolization.
Attempts to monopolize.
Predatory pricing.
Attempt by a firm to drive its competitor from
the market by selling its product at prices
substantially below the normal costs of
production.
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Section 2 -- Monopolization
Monopolization in violation of the act
requires two elements:
The possession of monopoly power and
The willful acquisition and maintenance of the
power.
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Section 2 -- Monopolization
Monopoly Power
Exists when one firm has sufficient market
power to control prices and exclude
competition.
Market Share Test is often used to assess
market power.
• As a rule of thumb, if a firm has 70% or more of a
relevant market, it is regarded as having monopoly
power.
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Section 2 -- Monopolization
Intent Requirement
The intent to monopolize is difficult to prove.
Intent may be inferred from evidence that the
firm had monopoly power and engaged in
anticompetitive behavior.
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Section 2 -- Monopolization
Attempts to Monopolize
Firm actions are scrutinized to determine
whether they were intended to exclude
competitors and garner monopoly power
and had a “dangerous” probability of
success.
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The Clayton Act
The Clayton Act deals with:
Price Discrimination.
Exclusionary Practices.
Mergers.
Interlocking Directorates.
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Section 2: Price Discrimination
Price Discrimination
 Charging of different prices to competing buyers for
identical goods.
Exceptions:
 Charge of lower price was temporary and in good faith
to meet another seller’s equally low price to the buyer’s
competitor.
 A particular buyer’s purchases saved the seller costs in
producing and selling the good.
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Section 3: Exclusionary Practices
Exclusive Dealing Contracts
 A contract under which a seller forbids to purchase
products from the seller’s competitors.
 Prohibited if the effect of the contract is to
“substantially lessen competition or tend to create a
monopoly.”
Tying Arrangements
 The conditioning of the sale of a product on the buyer’s
agreement to purchase another product produces or
distributed by the same seller.
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Section 7: Mergers
Horizontal Mergers occur between firms
at the same level in the production and
distribution chain.
Vertical Mergers occur between firms at
different levels in the production and
distribution chain.
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Section 7: Mergers
Conglomerate Mergers occur when a
firm seeks to:
Extend its product into a new market by
merging with a firm in that market.
Extend its product line by merging with a firm
already producing that product.
Diversify by acquiring a firm that deals in
unrelated products.
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Section 8: Interlocking
Directorates
Occurs when an individual serves on the
board of directors of two or more
competing companies simultaneously.
These are prohibited if the two firms
meet certain size requirements.
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The Federal Trade Commission Act
FTCA provides that:
“Unfair methods of competition in or affecting
commerce, and unfair or deceptive acts or
practices in or affecting commerce are hereby
declared illegal.”
The Federal Trade Commission
(http://www.ftc.gov) enforces the FTCA.
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Enforcement of Antitrust Laws
Federal agencies that enforce the
antitrust laws are:
U.S. Department of Justice (DOJ).
Federal Trade Commission (FTC).
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Exemption from Antitrust Laws
Most statutory exemptions to the antitrust laws
apply to the following areas:
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Labor.
Agricultural associations and fisheries.
Insurance.
Foreign trade.
Professional baseball.
Cooperative research and production
Joint efforts y businesspersons to obtain legislative or
executive action.
• And Others.
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