Chapter 43 Part 1
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. What would you like to do?
What were Anti-Trust laws created for?
To protect competition
When is a monopoly bad?
having monopoly power isn't bad or illegal, what is bad/illegal is HOW the power was acquired and WHAT the firm does once they have the power.
The Sherman Act Section 1
Prohibits anti-competition agreements between 2 or more companies. (e.g. 2 companies get together to set prices)
The Sherman Act Section 2
Prohibits monopolization, attempts to monopolize, and conspiracies to monopolize. Although being a monopoly isn't bad (can gain power from a patent), using monopoly power to attempt to force out or block competition is illegal. Requires action an individual person or 2+
Restraint of trade
Under S1 of Sherman, "an agreement that reduces competition in the marketplace"
Standards applied to determine whether anti-competition agreements are valid
- Under S1 of Sherman
- 1.) Per Se (unreasonable hence illegal)
- 2.) Rule of Reason Test (weighs the anti-competitve effects of a restraint against its pro-competitive effects. Plaintiff must prove agreement will cause economic harm)
- 3.) "Quick Look" rule of reason test (assumed to be illegal but will look into it. used when horizontal companys want to merge)
Horizontal Trade Restraints
S1 of Sherman Act. Involves competitors at the same level (e.g. Coke and Pepsi). Most are illegal.
Vertical Trade Restrictions
S1 Sherman. B/w parties not in direct competition and at different levels of the distribution chain. (e.g. anti-comp agreements imposed by sellers upon buyers or vica versa / manufacturer and distributor) Most are Rule of Reason Test.
S1 doesn't prohibit unilateral (single) conduct; only concerted action (e.g. if manufacture annouces its prices and refuses to deal with retailers who don't want them, no prob. Prob comes when manufacturer and specific retailers agree to buy and sell at certain price)
Occurs when a company copies a competitor (e.g. A lowers prices so B lowers prices). Not illegal under S1 as long as there was no pre-arranged agreement.
An effort to establish minimum OR maximum prices, raise or stabilize prices, or depress prices.
Horizontal Price Fixing
All horizontal are per se illegal
Vertical Price Fixing
both minimum and maximum price-fixing is judged by rule of reason test. (could be acceptable if occurs to compete with other compaines e.g. for and ford dealers competing with GM and GM dealers)
Agreement to control prices by dividing the market among rival firms (by customer type, geography, or products).
Horizontal Market Allocation
Horizontal is always per se illegal
Vertical Market Allocation
Vertical is judged by Rule of Reason Test.
An agreement b/w 2 or more firms to refuse to deal with a third party.
When Group Boycotts are Illegal
Illegal per se if it is horizontal, group has market power, and it is designed to eliminate or force a competitor to meet a group standard or lock out competitors.
Vertical Group Boycott
Subject to the Rule of Reason Test
Cooperative Horizontal Agreements
1) trade associations and 2) joint ventures (usually for R&D) that are designed to increase economic efficiency and render markets more competitive are subject to the R/R Test and are usually ok. Example: Noerr-Pennington Doctrine (allows joint lobbying efforts)
Vertical agreement where seller requires buyer of one product (the tying product) to also buy a second product, service, or intangible (the tied product) from the seller.
Per Se Illegal Tying Agreements
Occur when seller has considerable economic power in the tying product, AND if it affects more than an insubstantial amount of interstate commerce in the tied product. Other wise, judged under R/R Test
S2 Sherman Act. when one firm has sufficient market power to control prices and exclude competition
Monopoly Market Share Test
S2 Sherman. Company's market share determined by relevant product & geography. Rule of thumb: 30% > of market, not a monopoly; 30-70%, possible monopoly; 70-75% <, considered monopoly.
Monopolization and violaiting S2 of Sherman Act
To violate S2, a company with monopoly power MUST engage in "unfair conduct" - attain monopoly power unfairly or abuse it once obtained.
Monopoly Predatory Pricing
Firm attempts to drive out competitor(s) by selling products at prices substantially below normal costs of production.
Monopoly Refusal to Deal
May violate S2 if firm refusing to deal has monopoly power.
Attempts to monopolize
S2 prohibits attempts to monopolize; must prove that firm had specific intent to monopolize and a "dangerous" probability of success. (not a lot of these)
Conspiracies to Monopolize
S2 prohibits conspiracies among frims to acquire monopoly power
Regulators of Anti-Trust Laws
Federal Trade Commission (FTC) & Department of Justice (DOJ) regulate
Who can sue under anti-trust laws?
FTC, DOJ, & other competitors
Enforcement for Sherman Act
Sactions: Treble damages (3 times actual loss) for injured parties and criminal penalties (fines and imprisonment) possible
3 Options for Actions against companies violating Sherman Act
- 1.) Injunction
- 2.) Consent Decree - when comp. says they will do all things regulators ask and will pay finces but will NOT admit guilt
- 3.) Divestiture - breaking up the company
What would you like to do?
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