Chapter 47 Antitrust Law McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Exhibit 47-1: Antitrust Law Rationale Traditional Antitrust Theories To foster competition, a few powerful sellers should not dominate the economy; there should be many buyers and sellers in the market Accumulation of economic power leads to accumulation of political power, which leads to political consequences for consumers Efficiency should not be the only or most important goal of antitrust law Chicago School Theories Do not argue that concentrated economic power leads to political consequences If a company held great economic power and if the power led to efficiency, company should be left alone Purpose of antitrust law is to encourage economic efficiency 47-2

The Sherman Antitrust Act Applies to business practices that restrain trade/commerce 47-3

Sherman Antitrust Act “Section 1” Violations Elements of violation: Agreement between parties Agreement between parties Unreasonable restraint on trade Unreasonable restraint on trade Restraint affects interstate commerce Restraint affects interstate commerce 47-4

Sherman Antitrust Act Section 1 Violations Horizontal Restraint of Trade: When two competitors in same market make an agreement to restrain trade Horizontal Restraint of Trade: When two competitors in same market make an agreement to restrain trade Price Fixing: When two or more competitors agree to set prices for a product/service Price Fixing: When two or more competitors agree to set prices for a product/service Horizontal Division of Markets: Agreement between two or more competitors to divide among themselves markets by geography, customers, or products Horizontal Division of Markets: Agreement between two or more competitors to divide among themselves markets by geography, customers, or products Vertical Restraint of Trade: When two parties at different levels in manufacturing and distribution process make an agreement that retrains trade Vertical Restraint of Trade: When two parties at different levels in manufacturing and distribution process make an agreement that retrains trade 47-5

Sherman Antitrust Act “Section 2” Violations Occur when companies with monopoly power use their economic power to limit production and raise prices Occur when companies with monopoly power use their economic power to limit production and raise prices “Monopolization”: Occurs when company: “Monopolization”: Occurs when company: Possesses market power; and Possesses market power; and Unfairly achieved this market power/uses this market power for abuse Unfairly achieved this market power/uses this market power for abuse “Attempt to Monopolize”: Occurs if company intends its behavior to: “Attempt to Monopolize”: Occurs if company intends its behavior to: Exclude competitors; and Exclude competitors; and Allow company to gain monopoly power Allow company to gain monopoly power 47-6

The Clayton Act Section 2: Prohibits price discrimination: Occurs when company sells same goods to competing buyers for different prices Section 2: Prohibits price discrimination: Occurs when company sells same goods to competing buyers for different prices Section 3: Prohibits exclusionary practices, including exclusive dealing and tying arrangements Section 3: Prohibits exclusionary practices, including exclusive dealing and tying arrangements Section 7: Prohibits Anti-competitive mergers and acquisitions Section 7: Prohibits Anti-competitive mergers and acquisitions Horizontal Merger: Merger between two or more companies producing same/similar products Horizontal Merger: Merger between two or more companies producing same/similar products Vertical Merger: Occurs when one company at one level of manufacturing-distribution system acquires company at another level of system Vertical Merger: Occurs when one company at one level of manufacturing-distribution system acquires company at another level of system Conglomerate Merger: Occurs when company merges with another company that is not a competitor or a buyer/seller to the company Conglomerate Merger: Occurs when company merges with another company that is not a competitor or a buyer/seller to the company Section 8: Prohibits person from becoming director in two or more competing companies Section 8: Prohibits person from becoming director in two or more competing companies 47-7

The Federal Trade Commission Act Prohibits unfair and deceptive methods of competition Prohibits unfair and deceptive methods of competition Any anti-competitive behavior not prohibited by Sherman Act/Clayton Act is potentially illegal under Federal Trade Commission Act Any anti-competitive behavior not prohibited by Sherman Act/Clayton Act is potentially illegal under Federal Trade Commission Act 47-8

The Robinson-Patman Act As originally written, the Clayton Act did not apply to buyers As originally written, the Clayton Act did not apply to buyers In effort to limit buyers’ power (in addition to sellers’), Congress adopted The Robinson-Patman Act In effort to limit buyers’ power (in addition to sellers’), Congress adopted The Robinson-Patman Act 47-9