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Laws protecting commerce from unlawful restraints
- 1.Prevent extreme concentrations of economic power (monopolies)
- 2.Regulate unfair trade agreements
- 3.Prohibit price fixing
- Designed to regulate competition
Section 1 of the Sherman Act
Prohibits all agreements "in restraint of Trade" (anything that impedes trade, transport and related activities.
Examples of restraint of trade
Monopolies, price fixing, other tactics used to inhibit competition.
Section 2 of the Sherman Act
Bans monopolization, the wrongful acquisition of a monopoly.
Section 5 of the Sherman Act
Prohibits unfair methods competition
Put in place because the provisions of the Sherman Act were not being enforced. clarified Sherman Act.
What are the provisions of the Clayton Act
Prohibits anti-competitive mergers, tying agreements, and exclusive dealing arrangements
Robinson-Putnam Act RPA
Bans price discrimination that reduces competition. permits price variation if due to costs.
Per Se Violation-category of antitrust violations
An automatic breach. Courts will generally not consider mitigating factors.
Rule of Reason Violation-category of antitrust violations
Only Illegal if they have a anti-competitive impact
strategies that allow companies to work together to their mutual advantage
What are the 3 potentially illegal cooperative strategies?
- 1. Horizontal Agreements
- 2. Vertical Agreements
- 3. Mergers and Joint ventures
Horizontal cooperative strategies
Agreements among competitors
Types of Horizontal Cooperative Strategies
- 1. Market Division
- 2. Price fixing and bid rigging
- 3. Refusal to deal
Market division an
effort by a group to divide its market. An arrangement to allocate customers, territories, or products. This is a Per Se violation of S1 of the Sherman Act.
Price fixing and bid rigging
price fixing-when competitors agree on the prices at which it will buy or sell products or services. bid rigging-competitors eliminate price competition by agreeing on who will submit the lowest bid. Per Se violation
Refusal to deal
A group of competitors boycotts a buyer, supplier, or even another competitor. Rule of reason violation if it harms competition.
Vertical Cooperative Strategies
Agreement among participants at different stages of production process.
Types of Vertical Cooperative Strategies
- 1. Reciprocal dealing
- 2. Price discrimination
Buyer refuses to purchase goods from a supplier unless the supplier agrees to purchase items from the buyer. Rule of Reason violation
charging different prices to different purchasers if the items are the same or to lessen competition. RPA
Mergers and Joint ventures
The Clayton Act prohibits mergers that are anti competitive. Companies with substantial assets must notify the FTC before consummating a merger.
Companies that compete in the same market. Government has aggressively sought to prevent horizontal mergers that could lead to a monopoly or even a highly concentrated industry.
Merger of companies at different levels of the production process. These are challenged only if they are likely to increase entry barriers in a concentrated market.
A partnership for a limited purpose. Companies don't combine permanently only on a specific project, Government will usually permit.
The goal of an aggressive strategy is to gain an unfair advantage over competitors.
Aggressive business actions that are illegal as a violation of antitrust regulations
- Predatory Pricing
- Tying arrangements
- Controlling distributors and Retailers
- Resale price Maintenance
To monopolize means to acquire a monopoly in the wrong way. Having a monopoly is legal unless it is gained or maintained by using wrongful tactics. Illegal under S2 of the Sherman Act
3 questions to ask to determine if a company is guilty of monopolization.
- 1.What is the Market?
- 2.Does the company control the market?
- 3.How did the company acquire its control?
occurs when a company lowers its prices below cost to drive competitors out of business. the goal of a predatory pricing scheme is either to win control of a market or to maintain it. A ban on these schemes prevents monopolization and attempts to monopolize.
What 3 things must a plaintiff prove to win a predatory pricing case?
- 1.The defendant is selling the products below cost
- 2.The defendant intends that the plaintiff go out of business.
- 3.if the plaintiff goes out of business the defendant will be able to earn sufficient profit to recoup its prior losses.
A tying arrangement is an agreement to sell a product on the condition that the buyer also purchases a different (or tied) product.
When is a tying agreement illegal
If the two products are clearly separate. If the seller requires the buyer to purchase the two products together. if the seller has significant power in the market for the tying product. If the seller is shutting out a part of the market for the tied product.
Controlling distributors and retailers
A method for excluding competitors thru allocating customers and territory and exclusive dealing agreements.
Allocating customers and territory
An by manufacturers to assign customers and territories. subject to rule of reason, only illegal if they adversely affect competition in the market.
Exclusive dealing contract One in which a distributor or retailer agrees with a supplier not to carry the products of any other supplier. rule of reason
Resale price maintenance (RPM)
The manufacturer sets minimum prices that retailers may charge. In other words, it prevents retailers from discounting.