Essentials of the legal environment today, 5e ROGER LEROY MILLER © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Antitrust law and promoting competition CHAPTER 19 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives What is a monopoly? What is market power? How do these concepts relate to each other? What anticompetitive activities are prohibited by Section 1 of the Sherman Act? What type of activity is prohibited by Section 2 of the Sherman Act? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

LEARNING OBJECTIVES (CONT’D) What are the four major provisions of the Clayton Act, and what types of activities do these provisions prohibit? What agencies of the federal government enforce the federal antitrust laws? © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Introduction Laws regulating economic competition in the United States Embodied almost entirely in Sherman Antitrust Act Clayton Act Federal Trade Commission Act © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The sherman antitrust act Major Provisions of the Sherman Act Sections 1 and 2 contain the main provisions Differences between Section 1 and Section 2 Section 1 – concerned with finding an agreement leading to restraint of trade Section 2 – structure of a monopoly that exists in the marketplace © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Sherman Antitrust Act Monopoly – a market in which there is a single seller or a very limited number of sellers Monopoly power – the ability of a monopoly to dictate what takes place in a given market Market power – the power of a firm to control the market price of its product; monopoly has greatest degree of market power LO-1 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exhibit 19.1 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Sherman Antitrust Act Jurisdictional Requirements Only applies to restraints that have a substantial impact on interstate commerce. Also extends to U.S. nationals abroad engaged in activities that have an effect on U.S. foreign commerce. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Section 1 of the Sherman Act Section 1 prohibits horizontal and vertical restraints. Per Se Violations versus the Rule of Reason Per se violations are blatant and substantially anticompetitive. Why the rule of reason was developed Factors courts consider under the rule of reason LO-2 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Section 1 of the Sherman Act Horizontal Restraints Restrains competition between rival firms competing in same market Price fixing Group boycotts Horizontal market division Trade associations © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Section 1 of the sherman act Vertical Restraints Restraint of trade created by agreement between firms at different levels in manufacturing and distribution process Territorial or customer restrictions Resale price maintenance agreements © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Section 2 of the sherman act Monopolization and attempts to monopolize Monopolization Monopoly power Relevant market Relevant product market Relevant geographic market The intent requirement Unilateral refusals to deal LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Section 2 of the sherman act Attempts to Monopolize Proof of Anticompetitive conduct Specific intent to exclude competitors and garner monopoly power A “dangerous” probability of success in achieving monopoly power © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The clayton act 1914 Clayton Act passed: Sections 2, 3, 7, 8 Section 2—Price Discrimination Requirements Seller must be engaged in interstate commerce, goods must be of like grade and quality, goods must have been sold to two or more purchasers Defenses Several statutory defenses to liability for price discrimination LO-4 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The clayton act Section 3—Exclusionary Practices Sellers or lessors cannot condition the sale or lease of goods on the buyer’s or lessee’s promise not to use or deal in the goods of the seller’s competitor. Exclusive-dealing contracts Tying arrangements © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The clayton act Section 7—Mergers A person or business cannot hold stock and/or assets in another entity “where the effect…may be to substantially lessen competition.” Horizontal mergers Vertical mergers © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The clayton act Section 8—Interlocking Directorates The practice of having individuals serve as directors on the boards of 2+ competing companies simultaneously. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Enforcement and exemptions U.S. Department of Justice (DOJ) Federal Trade Commission (FTC) Enforcement by Federal Agencies Only DOJ can prosecute Sherman Act violations Violations of Clayton Act are not crimes but can be enforced by DOJ or FTC through civil proceedings LO-5 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Enforcement and exemptions Enforcement by Private Parties Can sue for treble damages Under Sherman Act must prove The antitrust violation either caused or was a substantial factor in causing the injury that was suffered. The unlawful actions of the accused party affected business activities of the plaintiff that were protected by the antitrust laws. Exemptions from Antitrust Laws © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exhibit 19.2 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

U.S. antitrust laws in the global context The Extraterritorial Application of U.S. Antitrust Laws Section 1 of Sherman Act Violation may occur outside United States Foreign persons including governments can be sued for violation of U.S. antitrust laws © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

U.S. antitrust laws in the global context The Application of Foreign Antitrust Laws EU has stepped up enforcement actions against antitrust violators Other nations have laws that promote competition and prohibit trade restraints. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.