© 2004 West Legal Studies in Business, a Division of Thomson Learning 20.1 Chapter 20 Antitrust Law

20.2 Emergence of Antitrust Law Appearance of large corporations and industries in the late 1800s Rise of natural monopolies Public outcry against “trusts” Sherman Act of 1890 Clayton Act of 1914 Federal Trade Commission Act of 1914 Robinson-Patman Act of 1936

20.3 Debate Over Antitrust Policy Chicago School view Antitrust should promote economic efficiency Maximizes economic welfare of consumers Traditional view Antitrust should promote other views in addition to efficiency Ideal economy is based on small entrepreneurs

20.4 Sherman Act Act extends to Activities that interfere with flow of commerce among states Activities inside a state that affect commerce among different states Also extends to Foreign firms within the U.S. Foreign firms outside the U.S. American firms outside the U.S.

20.5 Civil Suits Under the Sherman Act DissolutionDivestitureDivorcement Treble damages arising from antitrust injury Standing

20.6 Sherman Act Section 1 Joint or concerted action Requires collaboration between two or more parties Difficult to prove an illegal contract, combination, or conspiracy  Courts must sometime infer or imply concerted action of parties Conscious parallelism does not prove an agreement to engage in illegal conduct

20.7 Rule of Reason and Per Se Rules Rule of reason Only unreasonable restraint of trade is considered Enables courts to make case-by- case determinations Per se rules Anticompetitive actions are conclusively presumed to be illegal

20.8 Per Se Violations Vertical price-fixing Consignments Suggested retail prices Territorial restraints Horizontal price fixing Horizontal division of markets Group boycotts Tying contracts

20.9 Tying Contracts Seller conditions buyer’s purchase of one product to the purchase of another product Tying per se illegal if Tying and tied products are distinct items Seller requires buyer to buy tied product to obtain the tying product Seller has market power in the tying product market Tie-in affects substantial amount of commerce in the tied product market

20.10 Sherman Act Section 2 Monopolization Occurs when firm has monopoly power Refers to relevant product and territorial market Firm acquired or maintained monopoly power with intent to monopolize

20.11Monopolization Monopoly power Product market Territorial market Intent to monopolize Attempt to monopolize Predatory conduct specifically intended to monopolize with the dangerous probability of achieving monopoly power

20.12 Clayton Act Section 3 Forbids selling or leasing of commodities such that it lessens competition Tying contracts Exclusive dealing Requirements contract Rule of reason violations under Sherman Act Section 1

20.13 Clayton Act Section 7 Forbids acquisition of stock or assets where the effect is to lessen competition General policy considerations Courts exercise discretion in merger cases Factors considered individually

20.14 Types of Mergers Horizontal merger Between two or more competitors Vertical merger Between firm and customer or supplier Conglomerate merger All other combinations of firms

20.15 Horizontal Mergers Threaten competition by Eliminating competition between merging firms Resulting firm may have enough market power to distort competition May increase possibility of collusion

20.16 Vertical Mergers Threaten competition by Blocking competitors’ access to a share of the market Eliminates potential competitor from acquired firm’s market Eliminates benefits of competition Affects competition by discouraging new competitors from entering the market

20.17 Conglomerate Mergers Two factors to consider Eliminates possibility that the acquiring firm may have entered the acquired firm’s market on its own, thereby increasing competition in that market Possibility exists for the acquiring firm’s potential entry to keep the acquired firm and competitors from colluding to raise prices

20.18 Robinson-Patman Act Concerned with price discrimination Secondary line price discrimination Tertiary line price discrimination Primary line price discrimination

20.19 Price Discrimination Section 9(a) liability requires the following: A sale Of commodities Of like grade and quality To different competing consumers at a different price Resulting in probable injury to competition

20.20 Defenses to Price Discrimination Cost justification Meeting competition

20.21 Antitrust Exemptions State action exemption Petitioning the government Union activity Other exemptions such as regulated industries

20.22 Recap – Rules to Know Sherman Act Section 1 Sherman Act Section 2 Sherman Act Section 3 Clayton Act Section 7 Clayton Act Section 8 Robinson-Patman Act