Chapter 46 Antitrust Laws and Unfair Trade Practices Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Federal Antitrust Law Antitrust laws: A series of laws enacted to limitanticompetitive behavior in almost all industries,businesses, and professions operating in theUnited States Comprises several major statutes that prohibitcertain anticompetitive and monopolistic practices Copyright Pearson Education, Inc.Publishing as Prentice Hall. Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Federal Antitrust Law Government enforcement of federal antitrust lawsdivided between the Antitrust Division of theDepartment of Justice and the Bureau ofCompetition of the FTC Sherman Act only major antitrust act that includes criminal sanctions Government may seek civil damages, includingtreble damages, for violations of antitrust laws Copyright Pearson Education, Inc.Publishing as Prentice Hall. Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Federal Antitrust Law Section 4 of the Clayton Act: Permits any personwho suffers antitrust injury in his or her businessor property to bring a private civil action againstthe offenders To recover damages, plaintiffs must prove thatthey suffered antitrust injuries caused by theprohibited act Successful plaintiffs may recover treble damages Copyright Pearson Education, Inc.Publishing as Prentice Hall. Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Federal Antitrust Law Treble damages: Damages that may be awarded ina successful civil antitrust lawsuit, in an amountthat is triple the amount of actual damages Damages may be calculated as lost profits - ruleapplies to all violations of the Sherman Act, theClayton Act, and the Robinson-Patman Act Copyright Pearson Education, Inc.Publishing as Prentice Hall. Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.
Federal Antitrust Law Government judgment: A judgment obtained bythe government against a defendant for anantitrust violation that may be used as prima facieevidence of liability in a private civil treble- damages action Section 16 of the Clayton Act permits thegovernment or a private plaintiff to obtain aninjunction againstanticompetitive behavior thatviolates antitrust laws Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Section 1 of the Sherman Act: Prohibits contracts,combinations, and conspiracies in restraint oftrade Outlaws contracts, combinations, andconspiracies in restraint of trade U.S. Supreme Court developed two tests fordetermining the lawfulness of a restraint: Rule of reason Per se rule Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Rule of reason: Only unreasonable restraints oftrade violate Section 1 of the Sherman Act Perse rule: Applicable to restraints of tradeconsidered inherently anticompetitive Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Horizontal restraints of trade: A restraint of tradethat occurs when two or more competitors at thesame level of distribution enter into a contract,combination, or conspiracy to restrain trade Most fall under the per se rule Some examined under the rule of reason Copyright Pearson Education, Inc.Publishing as Prentice Hall. Exhibit 46.1 Horizontal Restraint of Trade
Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Price-Fixing: A restraint of trade that occurs whencompetitors in the same line of business agree toset the price of the goods or services they sell,raising, depressing, fixing, pegging, or stabilizingthe price of a commodity or service Division of markets: A restraint of trade in whichcompetitors agree that each will serve only adesignated portion of the market Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Group boycott: A restraint of trade in which two ormore competitors at one level of distribution agreenot to deal with others at another level ofdistribution Copyright Pearson Education, Inc.Publishing as Prentice Hall. Exhibit 46.2 - Group Boycott by Sellers
Copyright Pearson Education, Inc.Publishing as Prentice Hall. Exhibit 46.3 Group Boycott by Purchasers
Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Other horizontal agreements: Trade association activities and rules, exchangeof non-price information, participation in jointventures Reasonable restraints are lawful Unreasonable restraints violate Section 1 of theSherman Act Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Vertical restraint of trade: A restraint of trade thatoccurs when two or more parties on differentlevels of distribution enter into a contract,combination, or conspiracy to restrain trade Court applies both per se rule and rule of reason Copyright Pearson Education, Inc.Publishing as Prentice Hall. Exhibit 46.4 - Vertical Restraint of Trade
Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Resale price maintenance (vertical price-fixing): Aper se violation of Section 1 of the Sherman Actthat occurs when a party at one level ofdistribution enters into an agreement with a partyat another level to adhere to a price schedule thateither sets or stabilizes prices Setting maximum resale prices examined underrule of reason Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Nonprice vertical restraints: Restraints of tradethat are unlawful under Section 1 of the ShermanAct if their anticompetitive effects outweigh theirprocompetitive effects Unilateral refusal to deal: Unilateral choice by oneparty not to deal with another party Not a violation of Section 1 of the Sherman Actbecause there is no concerted action withothers Copyright Pearson Education, Inc.Publishing as Prentice Hall. Restraints of Trade: Section 1 of the Sherman Act
Conscious parallelism: A doctrine which states thatif two or more firms act the same but no concertedaction is shown, there is no violation of Section 1of the Sherman Act Noerr doctrine: Two or more persons can petitionthe executive, legislative, or judicial branch of thegovernment or administrative agencies to enactlaws or take other action without violatingantitrust laws Copyright Pearson Education, Inc.Publishing as Prentice Hall. Monopolization: Section 2 of the Sherman Act
Section 2 of Sherman Act: Prohibits act ofmonopolization as well as attempts orconspiracies to monopolize trade Proving that a defendant is in violation of Section 2means proving that the defendant: Possesses monopoly power in the relevantmarket Engaged in a willful act of monopolization toacquire or maintain that power Copyright Pearson Education, Inc.Publishing as Prentice Hall. Monopolization: Section 2 of the Sherman Act
Relevant product or service market: Includessubstitute products or services that are reasonablyinterchangeable with the defendants products orservices Relevant geographical market: Area in which thedefendant and its competitors sell the product orservice Copyright Pearson Education, Inc.Publishing as Prentice Hall. Monopolization: Section 2 of the Sherman Act
Monopoly power: The power to control prices orexclude competition Measured by the market share the defendantpossesses inthe relevant market Willful act of monopolizing: An act that is requiredto find a violation of Section 2 of the Sherman Act Possession of monopoly power without such actdoes not violate Section 2 Copyright Pearson Education, Inc.Publishing as Prentice Hall. Monopolization: Section 2 of the Sherman Act
Firms that attempt or conspire to monopolize arelevant market may be found liable under Section2 of the Sherman Act Defenses to Monopolization: Innocent acquisition Natural monopoly Copyright Pearson Education, Inc.Publishing as Prentice Hall. Mergers: Section 7 of the Clayton Act
Section 7 of the Clayton Act: A section whichprovides that it is unlawful for a person orbusiness to acquire the stock or assets of anotherwhere in any line of commerce or in any activityaffecting commerce in any section of the country,the effect of such acquisition may be substantiallyto lessen competition, or to tend to create amonopoly Copyright Pearson Education, Inc.Publishing as Prentice Hall. Mergers: Section 7 of the Clayton Act
Elements to prove a violation: Line of commerce: The products or services thatwill be affected by a merger, including thosethat consumers use as substitutes Section of the country: Geographical area thatwill feel the direct and immediate effects of amerger Copyright Pearson Education, Inc.Publishing as Prentice Hall. Mergers: Section 7 of the Clayton Act
Probability of a substantial lessening ofcompetition: The probability that a merger willsubstantially lessen competition or create amonopoly Classification of mergers: Horizontal merger: A merger between two ormore companies that compete in the samebusiness and geographical market Copyright Pearson Education, Inc.Publishing as Prentice Hall. Mergers: Section 7 of the Clayton Act
Vertical merger: A merger that integrates theoperations of a supplier and a customer Market extension merger: A merger betweentwo companies in similar fields whose sales donot overlap Conglomerate merger: A merger between firmsin totally unrelated businesses Does not fit into any other category Copyright Pearson Education, Inc.Publishing as Prentice Hall. Mergers: Section 7 of the Clayton Act
Defenses to Section 7 Actions: The failing company doctrine The small company doctrine Hart-Scott-Rodino Antitrust Improvement Act: Anact that requires certain firms to notify the FederalTrade Commission and the Justice Department inadvance of a proposed merger Copyright Pearson Education, Inc.Publishing as Prentice Hall. Tying Arrangements: Section 3 of the Clayton Act
Section 3 of the Clayton Act: Prohibits tyingarrangements that involve sales and leases ofgoods Tying arrangement: A restraint of trade in which aseller refuses to sell one product to a customerunless the customer agrees to purchase a secondproduct from the seller Copyright Pearson Education, Inc.Publishing as Prentice Hall. Price Discrimination: Section 2 of the Clayton Act
Section 2 of the Clayton Act (Robinson-PatmanAct): A federal statute that prohibits pricediscrimination in the sale of goods if certainrequirements are met Section 2(a) of the Robinson-Patman Act: A sectionthat prohibits direct and indirect pricediscrimination by sellers of a commodity of a likegrade and quality Copyright Pearson Education, Inc.Publishing as Prentice Hall. Direct Price Discrimination
To prove a violation of Section 2(a) of theRobinson-Patman Act, the following elements ofdirect price discrimination must be shown: Commodities of like grade and quality Sales to two or more purchasers Injury A plaintiff who has not suffered injury because of aprice discrimination cannot recover Copyright Pearson Education, Inc.Publishing as Prentice Hall. Indirect Price Discrimination
A form of price discrimination (e.g., favorablecredit terms) that is less readily apparent thandirect forms of price discrimination Copyright Pearson Education, Inc.Publishing as Prentice Hall. Defenses to Price Discrimination
Cost justification defense: A defense in a Section2(a) action which provides that a sellers pricediscrimination is not unlawful if the pricedifferential is due to differences in the cost ofmanufacture, sale, or delivery of the product Changing conditions defense: A pricediscrimination defense that claims prices werelowered in response to changing conditions in themarket for or themarketability of the goods Copyright Pearson Education, Inc.Publishing as Prentice Hall. Defenses to Price Discrimination
Meeting the competition defense: A defenseprovided in Section 2(b) of the Robinson-PatmanAct that says a seller may lawfully engage in pricediscrimination to meet a competitors price Copyright Pearson Education, Inc.Publishing as Prentice Hall. Federal Trade Commission Act
A federal government administrative agency thatis empowered to enforce the Federal TradeCommission Act Section 5 of the Federal Trade Commission Act: Asection that prohibits unfair methods ofcompetition and unfair or deceptive acts orpractices in or affecting commerce Copyright Pearson Education, Inc.Publishing as Prentice Hall. Exemptions From Antitrust Laws
Statutory exemptions: Exemptions from antitrustlaws that are expressly provided in statutesenacted by Congress Implied exemptions: Exemptions from antitrustlaws that are implied by the federal courts State action exemptions: Business activities thatare mandated by state law are exempt from federalantitrust laws Copyright Pearson Education, Inc.Publishing as Prentice Hall. Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.
State Antitrust Laws Most states have enacted antitrust statutes Usually patterned after federal antitrust statutes Used to attack anticompetitive activity that occursin intrastate commerce When applied laxly, plaintiffs often bring lawsuitsunder state antitrust laws Copyright Pearson Education, Inc.Publishing as Prentice Hall. Copyright 2013 Pearson Education, Inc. Publishing as Prentice Hall.