Business Law and the Regulation of Business Chapter 43: Antitrust

1. Business Law and the Regulation of BusinessChapter 43: Antitrust By Richard A. Mann & Barry S. Roberts

2. Topics Covered in this Chapter A. Sherman Antitrust Act B. Clayton Act C. Robinson-Patman Act D. Federal Trade Commission Act

3. Sherman Antitrust Act • Restraint of Trade - Section 1 prohibits contracts, combinations, and conspiracies that restrain trade. • Rule of Reason - standard that balances the anticompetitive effects against the procompetitive effects of the restraint. • Per Se Violations - conclusively presumed unreasonable and therefore illegal. • Quick Look Standard - a modified or abbreviated rule of reason standard.

4. Restraint of Trade • Horizontal Restraints - agreements among competitors. • Vertical Restraints - agreements among parties at different levels in the chain of distribution.

5. Restraints of Trade Under the Sherman Act

6. Application of Section 1 • Price Fixing - an agreement with the purpose or effect of inhibiting price competition; both horizontal and minimum vertical agreements are per se illegal, while maximum vertical price fixing is judged by the rule of reason. • Market Allocation - division of markets by customer type, geography, or products; horizontal agreements are per se illegal, while vertical agreements are judged by the rule of reason standard.

7. Application of Section 1 • Boycott - agreement among competitors not to deal with a supplier or customer; per se illegal. • Tying Arrangement - conditioning a sale of a desired product (tying product) on the buyer's purchasing a second product (tied product); per se illegal if the seller has considerable power in the tying product or affects a not-insubstantial amount of interstate commerce in the tied product.

8. Section 2 • Section 2 prohibits monopolization, attempts to monopolize, and conspiracies to monopolize. • Monopolization - requires market power (ability to control price or exclude others from the marketplace) plus either unfair attainment of power or abuse of such power. • Attempt to Monopolize - specific intent to monopolize, plus a dangerous probability of success. • Conspiracies to Monopolize

9. SanctionsAgainst Monopolies • Treble Damages - three times actual loss. • Criminal Penalties

10. Clayton Act • Tying Arrangement - prohibited if it tends to create a monopoly or may substantially lessen competition. • Exclusive Dealing - arrangement by which a party has sole right to a market; prohibited if it tends to create a monopoly or may substantially lessen competition.

11. Merger • Prohibited if it tends to create a monopoly or may substantially lessen competition. • Horizontal Merger - one company's acquisition of a competing company. • Vertical Merger - a company's acquisition of one of its suppliers or customers. • Conglomerate Merger - the acquisition of a company that is not a competitor, customer, or supplier. • Sanctions - treble damages.

12. Robinson-Patman Act • Prohibits buyers from inducing or sellers from giving different prices to buyers of commodities of similar grade and quality. • Injury - plaintiff may prove injury to competitors of the seller (primary-line injury), to competitors of other buyers (secondary-line injury), or to purchasers from other secondary-line sellers (tertiary-line injury).

13. Robinson-Patman Act • Defenses - (1)­cost justification, (2)­meeting competition, and (3)­functional discounts • Sanctions - civil (treble damages); criminal in limited situations.

14. Federal Trade Commission Act • Purpose - to prevent unfair methods of competition and unfair or deceptive practices. • Sanctions - actions may be brought by the FTC, not by private individuals.

15. Meeting Competition Defense Illustration One X Manufacturer Y Manufacturer 65¢ 65¢ 65¢ 65¢ 60¢ A B C D Result: Manufacturer X may lower its price to A to 60¢ without lowering its price to B, C, and D. Illustration Two X Manufacturer Y Manufacturer 65¢ 65¢ 65¢ 65¢ 60¢ A B C D N Result: Manufacturer X may not lower its price to A to 60¢ without lowering its price to B, C, and D.