What is a monopoly? What is market power? How do these concepts relate to each other? What is a monopoly? What is market power? How do these concepts relate to each other? What type of activity is prohibited by Section 1 of the Sherman Act? What type of activity is prohibited by Section 2 of the Sherman Act?  What type of activity is prohibited by Section 1 of the Sherman Act? What type of activity is prohibited by Section 2 of the Sherman Act?  © 2012 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. 2

What are the four major provisions of the Clayton Act, and what types of activities do these provisions prohibit? 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? What agencies of the federal government enforce the federal antitrust laws? What are four activities that are exempt from the antitrust laws? What are four activities that are exempt from the antitrust laws? © 2012 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. 3

Common law actions intended to limit restraints on trade and regulate economic competition. Common law actions intended to limit restraints on trade and regulate economic competition. Embodied almost entirely in: Embodied almost entirely in: – The Sherman Antitrust Act of – The Clayton Act of © 2012 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. 4

Major Provisions of the Sherman Act. Major Provisions of the Sherman Act. – Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal [and a felony punishable by fine and/or prison].  © 2012 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. 5

Major Provisions of the Sherman Act (cont’d). Major Provisions of the Sherman Act (cont’d). – Every person who monopolizes, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. © 2012 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. 6

Differences Between Sections 1 & 2. Differences Between Sections 1 & 2. – Section 1: requires 2 or more persons, finding an agreement to restrain trade. – Section 2: requires only 1 person, and concerned with “monopoly power” in the marketplace. What is a monopoly? What is market power? © 2012 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. 7

Jurisdictional Requirements. Jurisdictional Requirements. – Any activity that substantially impacts interstate commerce. – Also extends to U.S. nationals working abroad who are engaged in activities that have an effect on U.S. foreign commerce. © 2012 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. 8

Section 1 regulates “horizontal” and “vertical” restraints. Section 1 regulates “horizontal” and “vertical” restraints. Per Se Violations versus the Rule of Reason. Per Se Violations versus the Rule of Reason. – Per se violations are blatant and substantially anticompetitive. – Rule of reason agreements do not unreasonably restrain trade.  © 2012 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. 9

Per se Violations versus the Rule of Reason (cont’d). Per se Violations versus the Rule of Reason (cont’d). American Needle, Inc. v. National Football League – CASE 39.1 American Needle, Inc. v. National Football League (2010). What was the ‘concerted activity’ between the NFL teams and NFLP? © 2012 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. 10

Horizontal Restraints: agreements among Sellers (or Buyers) that restrain competition between rival firms competing in the same market. Horizontal Restraints: agreements among Sellers (or Buyers) that restrain competition between rival firms competing in the same market. Buyer © 2012 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. 11

Horizontal Restraints (cont’d). Horizontal Restraints (cont’d). – Price Fixing. An agreement between competing firms in the market to set an established price for the goods or services they offer. – Price fixing is a per se violation of the Act. © 2012 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. 12

Horizontal Restraints (cont’d). Horizontal Restraints (cont’d). – Group Boycotts. Agreement between two or more sellers to refuse to deal with a particular person or firm. – Group boycotts are per se violations of the Act. © 2012 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. 13

Horizontal Restraints (cont’d). Horizontal Restraints (cont’d). – Horizontal Market Division. Occurs when competitors in the same market agree that each will have exclusive rights to operate in a particular geographic area. – Horizontal market divisions are per se violations of the Act. © 2012 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. 14

Horizontal Restraints (cont’d). Horizontal Restraints (cont’d). – Trade Associations. Industry specific organizations. Rule of reason is applied to determine if a violation of the Act has occurred. Concentrated Industry: small firms control large percentage of market sales. © 2012 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. 15

Vertical Restraints. Vertical Restraints. – Agreements between firms at different levels of the manufacturing and distribution process, that includes affiliates in the entire supply chain of production.  Buyer © 2012 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. 16

Vertical Restraints (cont’d). Vertical Restraints (cont’d). – May restrain competition among firms that occupy the same level in chain. – Vertical restraints that significantly affect competition may be per se violations. Buyer © 2012 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. 17

Vertical Restraints (cont’d). Vertical Restraints (cont’d). – Territorial or Customer Restrictions. Imposed by manufacturers on the sellers of the products, to insulate dealers from direct competition with each other. Territorial and customer restrictions are judged under the rule of reason. © 2012 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. 18

Vertical Restraints (cont’d). Vertical Restraints (cont’d). – Resale Price Maintenance Agreements: between a manufacturer and a distributor or retailer in which the manufacturer specifies the retail price at which retailers must sell products furnished by the manufacturer or distributor. Normally a per se violation. © 2012 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. 19

Section 2 of the Sherman Antitrust Act deals with: Section 2 of the Sherman Antitrust Act deals with: – Monopolization.  – Attempts to Monopolize.  Predatory Pricing: Attempt to drive a competitor from the market by selling products at prices substantially below the normal costs of production. Predatory Pricing: Attempt to drive a competitor from the market by selling products at prices substantially below the normal costs of production. © 2012 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. 20

Monopolization: requires two elements: Monopolization: requires two elements: – The possession of monopoly power and – The willful acquisition and maintenance of the power.  © 2012 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. 21

Monopolization (cont’d). Monopolization (cont’d). – Monopoly Power: Not defined in Sherman Act. Exists when one firm has sufficient market power to affect or control prices and output.  © 2012 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. 22

Monopolization (cont’d). Monopolization (cont’d). – Relevant Market: before court can determine whether firm has dominant market share, it must define the “relevant market.” Relevant Market consists of two elements: (1) relevant product market, and (2) relevant geographic market. © 2012 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. 23

Monopolization (cont’d). Monopolization (cont’d). – The Intent Requirement: Anticompetitive behavior must be “willful acquisition of power.” – Intent may be inferred from evidence that the firm had monopoly power and engaged in anticompetitive behavior. © 2012 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. 24

Monopolization (cont’d). Monopolization (cont’d). – Unilateral Refusals to Deal. Joint refusals to deal (group boycotts) are given close scrutiny. Unilateral refusals to deal violate the Sherman Act if: the firm refusing to deal has (or is likely to acquire) monopoly power, AND the refusal is likely to have an anticompetitive effect on a particular market. © 2012 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. 25

Attempts to Monopolize: intended to exclude competitors and garner monopoly power, and had a “dangerous” probability of success. Attempts to Monopolize: intended to exclude competitors and garner monopoly power, and had a “dangerous” probability of success. Weyerhaeuser Co. v. Ross- Simmons Hardwood Lumber Co. – CASE 39.2 Weyerhaeuser Co. v. Ross- Simmons Hardwood Lumber Co. (2007). What does predatory pricing have to do with this case? © 2012 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. 26

The Clayton Act deals with: The Clayton Act deals with: – Price Discrimination.  – Exclusionary Practices.  – Mergers.  – Interlocking Directorates.  © 2012 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. 27

Section 2 – (Robinson-Patman Act) Price Discrimination. Section 2 – (Robinson-Patman Act) Price Discrimination. – Price Discrimination – the Act prohibits buyers from inducing or sellers from giving different prices to buyers of commodities of similar grade and quality.  © 2012 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. 28

Section 2 – (Robinson-Patman Act) Price Discrimination (cont’d). Section 2 – (Robinson-Patman Act) Price Discrimination (cont’d). – Requirements: plaintiff may prove injury to competitors of the seller (primary-line injury), to competitors of other buyers (secondary-line injury), or to purchasers from other secondary- line sellers (tertiary-line injury). © 2012 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. 29

Section 2 – (Robinson-Patman Act) Price Discrimination (cont’d). Section 2 – (Robinson-Patman Act) Price Discrimination (cont’d). – Defenses: (1) Cost Justification, (2) Meeting the Price of Competition, (3) Changing Market Conditions. © 2012 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. 30

Section 3 – Exclusionary Practices. Section 3 – Exclusionary Practices. – Exclusive Dealing Contracts: seller forbids a buyer to purchase products from the seller’s competitors, that will “substantially lessen competition or tend to create a monopoly.”  © 2012 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. 31

Section 3 – Exclusionary Practices (cont’d). Section 3 – Exclusionary Practices (cont’d). – Tying Arrangements: the conditioning of the sale of a product on the buyer’s agreement to purchase another product produced or distributed by the same seller. © 2012 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. 32

Section 7 – Mergers. Section 7 – Mergers. – Horizontal Mergers occur between firms at the same level in the production and distribution chain. Factors to Determine Legality. The Herfindahl-Hirschman Index: to determine market concentration. Chicago Bridge & Iron Co. v. FTC CASE 39.3 Chicago Bridge & Iron Co. v. FTC (2008). What was the court’s holding? © 2012 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. 33

Section 7 – Mergers (cont’d). Section 7 – Mergers (cont’d). – Vertical Mergers occur between firms at different levels in the production and distribution chain. Section 8—Interlocking Directorates. Section 8—Interlocking Directorates. – When an individual serves on the board of directors of two or more competing companies simultaneously.  © 2012 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. 34

Section 8—Interlocking Directorates. (cont’d). Section 8—Interlocking Directorates. (cont’d). – Prohibited if the two firms meet certain size requirements. If either of the corporations has capital, surplus, or undivided profits aggregating more than $26,161,000 or annual sales of more than $2,616,100. © 2012 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. 35

Federal Agencies: Federal Agencies: – The Department of Justice (DOJ). – The Federal Trade Commission (FTC) enforces the FTCA. FTCA provides that: “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are hereby declared illegal.” © 2012 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. 36

Agency Actions: Agency Actions: – Only the DOJ can prosecute violations of the Sherman Act, criminal or civil. – Either DOJ or FTC can enforce the Clayton Act. – DOJ and FTC can petition the court for divestiture (asking company to give up one or more of its operations). © 2012 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. 37

Private Actions. Private Actions. Treble Damages. Treble Damages. Exemptions: one of the most significant is joint efforts to obtain legislative, judicial, or executive action. Exemptions: one of the most significant is joint efforts to obtain legislative, judicial, or executive action. © 2012 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. 38

Extraterritorial Application of U.S. Antitrust Laws. Extraterritorial Application of U.S. Antitrust Laws. – Any foreign business conspiracy that has a substantial effect on U.S. commerce is within reach of the Sherman Act. – U.S. jurisdiction is automatically invoked when a per se violation occurs. © 2012 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. 39

Application of Foreign Antitrust Laws. U.S. firms may be subject to antitrust laws of other nations if the firm has a substantial effect. Application of Foreign Antitrust Laws. U.S. firms may be subject to antitrust laws of other nations if the firm has a substantial effect. – European Union Enforcement. – Increased Enforcement in Asia and Latin America. © 2012 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. 40