Law and Ethics Chapter 19 Antitrust of Competition

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  1. Purpose of antitrust laws
    to prevent, punish and deter certain anticompetitive conduct and unfair business practices.

    history: trust: business entities that resulted in one company being able to manipulate prices that resulted in limited choices and high prices for consumers.
  2. antitrust laws
    exclusively federal statutes and the agencies charged with enforcement of these laws are the Department of justice (US Attorneys office) and the Federal Trade Commission

    violators are subject to both civil penalties and criminal sanctions, including jail
  3. statutory scheme of federal antitrust law
    • sherman act
    • clayton act
    • robinson patman act
    • celler-kefauver antimerger act
    • federal trade commission act
  4. Sherman Act
    • central piece of the federal antitrust law
    • provides prohibitions against restrainst of trade
    • and covers monopolization (if acquired or maintained through prohibited conduct it is illegal)
    • both civil and criminal penalties
  5. Per se standard vs per se rule of reason
    • statute only applies to those parties who have actually acted in some unreasonable manner that resulted in an identifiable anticompetitive behavir
    • if so blatantly anticompetitive= per se violation (price fixing)
    • per se standard- developed into a comparatively complicated body of law and tests for federal courts to apply. Promotes consistent enforcement by regulatory authorities
    • per se rule- means if a company has committed a per se violation of the act, as articulated in the body of the case law, the violator has no defense.
  6. Rule of Reason
    • even if a transaction is not considered a per se violation, the actions or transaction in question must also meet the alternate standard
    • requires that a fact finder embark on an examination into market complexities and industry practices in order to determine whether or not the parties have violated the Sherman Act
    • if a court finds that any anticompetitive harm caused was outweighed by marketwise benefits of their actions, it DOES NOT violate the Sherman Act
  7. Horizontal Restraints
    restraining trade through one company partnering with a competing company to take action resulting in the elimination or reduction of competition from other competitors

    most common are: price fixing, allocation of markets or customers (meeting of the minds), and boycotts
  8. verticle restraint
    takes form when one company colluding with another company (other than a competitor) along the chain of commercial supply, such as a manufacturer colluding with a retailer on the price of a product
  9. meeting of the minds
    requires the conspiring parties to agree to and then commit an overt act

    ex: used esp in illegal agreements as they are not in writing or explicitly stated
  10. price fixing
    • some instances when conduct by competitors with respect to price policies does not constitute price fixing
    • price leading (cutting or increasing based on actions of a competitor) is commonplace..this is allowed because the competitors are not taking the actions in concert
  11. market allocation
    • agreements among competitors dividing markets by territory or by customers are anticompetitive and illegal per se
    • they leave no room for competition of any kind
  12. boycotts
    • when competing firms agree to a concerted refusal to deal with a third party (whether it be buying or selling to the party), may be considered a per se Sherman Act violation
    • must truely be unilateral with no other party having direct or indirect involvement
  13. verticle price fixing
    • occurs when a seller attempts to control the resale price of a product at a lower level in the supply chain
    • unlike horizontal agreements to fix a price, the per se rule does NOT apply to verticle agreements that only affect price
    • the pivotal element to establish a per se verticle price fixing violation is an agreement to a specific retail price. (that is why dealers and retailers will generally use the phrase MSRP, manufactureres suggested retail price in marketing literature, advertising and so on)
  14. Non price restraints
    • the per se standard does NOT apply to nonprice verticle restrainst
    • restraint on distribution of a product in the marketplace
    • restraints are frequently an attempt to control intrabound competition (setting of prices by different distributors for the same product)
    • sellers products among various distributors with the intent of boosting the product's relative competitiveness with similiar products made by other sellers (interbound competition)
  15. Tying Agreements
    • - occur when a seller refuses to sell a certain product (the tying product) unless the buyer also purchases a different product (the tied product) from the seller
    • - can also be a violation of the Clayton Act

    • 4 part test to see if it is illegal
    • 1. agreement involves 2 seperate and distinct items rather than integrated components of a larger product, service, or business system
    • 2. the tying product cannot be purchased unless the tied product is also purchased
    • 3. the seller has sufficient economic power in the market to appreciably restrain competition
    • 4. a "not insubstantial" amount of commerce in the tied product is affected by the seller's tying agreement
  16. Horizontal Restraints
    • acting in concert with a competitor on same level of distribution, includes:
    • 1. price fixing. Agreement between competitors to fix actual prices and agreements that affect prices are generally illegal per se
    • 2. market allocation. Agreement between competitors to divide up markets or geographic regions is illegal per se
    • 3. Boycotts. Concerted refusal to sell or buy from an individual, firm, or group. May be illegal per se or by use of the rule of reason, depending on specific facts.
  17. Vertical Restraints
    • acting in concert with another party on a different distributional level, includes:
    • 1. Verticle Price Fixing. Agreement between buyer and seller with respect to the price of resale of the product is illegal per se
    • 2. Exclusive selling, territorial, and dealing agreements. Relationship between buyer and seller related to an exclusive franchise and/or a specified territory is governed by the rule of reason and the Clayton Act.
    • 3. Tie Ins. Sellers that tie in a second product to the first product are acting illegal per se if the seller possesses sufficient market power as to render the tie in as coercive.
  18. Monopolization
    • inherent power in setting prices without any chance of losing market share due to competition
    • antitrust laws designed to combat this problem are known as structural offenses because they generally do not involve a behavioral aspect (such as price fixing)
    • the willful acquisition or maintenance of power in a relevant market as opposed to growth as a consequece of superior product, business acumen or historical accident
  19. monopoly power
    a business entity that has the power to fix prices or to exclude competitors in a given market
  20. consent order
    an agreement between the government and a party that spells out detailed conditions and compliance measures that the party agrees to take in exchange for the government not pursuing a court action
  21. attempted monopolization
    when a business does not yet have monopoly power pursues an anticompetitive course of conduct designed to achieve it

    • 3 part test
    • - entity must have had a demonstrable and specific intent to achieve a monopoly
    • - entity must have acted in a anticompetitive manner designed to injure its actual or potential competition
    • - a dangerous probability that monopoly power would in fact be achieved exists
  22. Clayton Act
    • curb certain anticompetitive practices that are not specifically covered by the Sherman Act
    • used as a preventative statute
  23. Tying Arrangements and Exclusive Dealing
    • one important provision of the Clayton Act prohibits tying arrangements and exclusive dealing agreements involving the sale or leasing of commodities
    • any agreement that involves services, real estate, or intangible property must be attacked under the Sherman Act
    • not all such agreemtns violate the Clayton Act (franchise agreements for example are exclusive dealing arrangements that don't violate antitrust laws)
    • only agreements that may "substantially lessen the competition or tend to create a monopoly" violate the act
  24. Mergers and Acquisitions
    The Clayton Act was designed to prevent monopolies by merging companies with a competitor or acquiring the competitor through a buyout
  25. Hart-Scott-Rodino Antitrust Improvements Act of 1976
    • a preventative statute that requires business entities that are contemplating mergers involving dollar amounts of a certain size to give advance notice to the FTC and the department of justice on their intention
    • this provides the dept of justice with veto power on a proposed merger if the transaction would violate any of the antitrust laws
  26. Robinson-Patman Act
    enacted in 1936, amended the Clayton Act provisions to provide for broader regulatory authority to curb price discrimination

    enforced almost exclusively by the FTC
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Law and Ethics Chapter 19 Antitrust of Competition
2012-12-01 06:18:06
Law Ethics Chapter 19 Antitrust Competition

Law and Ethics Chapter 19 Antitrust of Competition
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