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What does the Clayton Act deal with?
- price discrimination
- tying contracts
- exclusive dealings
- mergers
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Who can enforce the Clayton Act?
- private parties -- civil suit
- DoJ and FTC -- civil suit
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The Clayton Act only applies to practices involving what?
Goods
(NOT services etc)
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What is an exclusive dealing contract?
- seller prohibits buyer from purchasing products from seller's competition
- allows seller the sole right to sell the product
- vertical agreement
- to be considered illegal, it has to be proven to hurt competition
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Which standard is used to dertermine the legality of an exclusive dealing contract?
rule of reason
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What are the 3 kinds of mergers?
- horizontal -- between firms that compete in the same market
- vertical -- company acquires one of its sellers
- conglomerate -- between unrelated firms (eg. foil + tv)
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How is the legality of a merger determined?
rule of reason -- how big is resulting firm's market share?
horizontal mergers: assumed illegal, but "quick look" rule of reason is applied
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What do the FTC and DoJ use to determine the market concentration of an acquiring company?
Herfindahl-Hirschman Index
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How is the Herfindahl-Hirschman Index (HHI) used?
- if a merger increases the acquiring firm's HHI by 50 to 100 points, the merger should be investigated
- if a merger increases the acquiring firm's HHI by more than 100 points, the merger is presumed to enhance market power
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Which factors are considered when using the rule of reason test to investigate a merger?
- market share of each firm
- degree of market concentration
- number of firms in the industry
- entry barriers to the industry
- strength of other competitors
- character and history of merging firms
- market trends and demand
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What are defenses for the legality of a merger?
- "failing company" merger
- "small company" merger
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How do vertical and conglomerate mergers increase economic efficiency?
- transferring assets to most productive use
- extending retail product lines
- reducing overhead costs
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What are interlocking directorates and are they legal?
illegal under Clayton Act
when a director of a public company, that has at least 10 million in capital, is also a director of another public company that has at least 10 million in capital
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What is the Robinson-Patman Act?
- amendment to Clayton Act
- prohibits buyers from inducing and sellers from granting price discrimination in interstate commerce
- price discrimination must substantially lessen competition or tend to create a monopoly to violate the act
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What is price discrimination?
seller charges different buyers different prices for the same goods (includes other costs like warranties, insurance, credit terms, delivery charges etc.)
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What are the 3 lines of injury in regards to price discrimination?
- primary line injury (competitor of seller)
- secondary line injury (non-favored buyers)
- tertiary line injury (customers of non-favored buyers)
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What are the 3 defenses for price discrimination?
- cost justification -- seller shows cost reduction
- meeting competition -- "price match"
- functional discounts -- non-favored buyer did not take advantage of available discount
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What is the Federal Trade Commission Act?
- 5-member FTC is empowered to conduct appropriate investigations and hearings
- supplement to Sherman and Clayton Act
- FTC to stop practices before harm to competition becomes too great
- cease and desist order is primary sanction
- "catch all" statute
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What is the first step to take in antitrust action?
file complaint with FTC
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Which areas are exempt from anti-trust laws?
- labor
- agricultural associations and fisheries
- insurance
- most foreign trade
- professional baseball
- cooperative research and production (if temporary)
- joint efforts to obtain legislative or executive action (lobbying)
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What aspects of foreign trade are subject to US antitrust laws?
- foreign persons may sue US companies in US courts even if violation occurs outside of the US
- any conspiracy with substantial effect on US commerce, even if violation occurs outside of the US and a foreign government or person commits it
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