1. Chapter 22
Promoting Competition

2. The Sherman Antitrust Act
In 1890, Congress passed “An Act to Protect Trade and Commerce against Unlawful Restraints and Monopolies”—commonly known as the Sherman Act.
The Sherman Act was and remains one of the government’s most powerful weapons in the struggle to maintain a competitive economy.

3. Major Provisions of the Sherman Act
Section 1 - Prohibits contracts, combinations, and conspiracies in restraint of trade.
Horizontal restraints subject to Section 1 include price-fixing agreements, group boycotts, horizontal market division, trade association agreements, and joint ventures.
Vertical restraints subject to Section 1 include resale price maintenance agreements, territorial or customer restrictions, and refusals to deal.
Section 2 - Prohibits monopolies and attempts to monopolize.

4. Jurisdictional Requirements
The Sherman Act applies only to activities that have a “significant” impact on interstate commerce.

5. Section 1 of the Sherman Act
The underlying assumption of Section 1 of the Sherman Act is that society’s welfare is harmed if rival firms are permitted to join in an agreement that consolidates their market power or otherwise restrains competition.

6. Per Se Violations vs. the Rule of Reason
Per se Rule:
Applied to restraints on trade that are so inherently anticompetitive that they cannot be justified and are deemed illegal as a matter of law.
Rule of Reason:
Applied when an anticompetitive agreement may be justified by legitimate benefits.
Under the rule of reason, the lawfulness of a trade restraint will be determined by the purpose and effects of the restraint.

7. Section 1 - Horizontal Restraints
A horizontal restraint is any agreement that in some way restrains competition between rival firms competing in the same market.
Price Fixing: any agreement among competitors to fix prices is a per se violation.
Case Freeman v. San Diego Association of Realtors (2003).
Group Boycotts: agreement to not deal with a vendor or third party.
Case Nynex Corp. v. Discon, Inc.

8. Section 1 - Vertical Restraints
A vertical restraint of trade is one that results from an agreement between firms at different levels in the manufacturing and distribution process.
Vertical relationships encompass the entire chain of production: inventory, manufacturing, distribution, retail sales.
Retail Price Maintenance Agreements.
Case State Oil Co. v. Khan (1997).

9. Section 2 of the Sherman Act
Section 2 condemns “every person who shall monopolize, or attempt to monopolize.”
There are two distinct types of behavior that are subject to sanction under Section 2:
Monopolization
Attempts to Monopolize

10. Monopolization
The possession of market power in the relevant market and intentional acquisition or maintenance of the power, as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.
Case United States v. Microsoft Corp. (2001).
A violation of Section 2 of the Sherman Act requires that both of these elements be established.

11. Attempts to Monopolize
Definition:
Any activity by a firm to eliminate competition and gain monopoly power.

12. The Clayton Act
In 1914, Congress attempted to strengthen federal antitrust laws by enacting the Clayton Act.
The Clayton Act was aimed at specific anticompetitive or monopolistic practices that the Sherman Act did not cover such as:
Price Discrimination
Exclusionary Practices
Mergers
Interlocking Directorates

13. Section 2 – Price Discrimination
As amended in 1936 by the Robinson-Patman Act, prohibits price discrimination that substantially lessens competition and prohibits a seller engaged in interstate commerce from selling goods of similar grade and quality to two or more buyers at different prices when the result is a substantial lessening of competition or the creation of a competitive injury.

14. Section 3 – Exclusionary Practices
Prohibits exclusionary practices, such as exclusive-dealing contracts and tying arrangements, when the effect may be to substantially lessen competition.

15. Section 7 - Mergers
Prohibits mergers when the effect may be to substantially lessen competition or to tend to create a monopoly.

16. Horizontal Mergers
The acquisition by merger or consolidation of a competing firm engaged in the same relevant market.
Will be unlawful only when a merger results in the merging firms holding a disproportionate share of the market, resulting in a substantial lessening of competition, and if the merger does not enhance consumer welfare by increasing efficiency of production or marketing.

17. Vertical Mergers
The acquisition by a seller of one of its buyers or vice versa.
Will be unlawful if the merger prevents competitors of either merging firm from competing in a segment of the market that otherwise would be open to them, resulting in a substantial lessening of competition.

18. Conglomerate Mergers
The acquisition of a noncompeting business.

19. Section 8 – Interlocking Directorates
Prohibits individuals from serving as directors on the boards of two or more competing companies simultaneously.

20. The Federal Trade Commission Act
It provides: “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are hereby declared illegal.”

21. Enforcement of Antitrust Laws
Antitrust laws are enforced by:
Department of Justice.
Federal Trade Commission.
Private Parties, who may be awarded treble damages and attorneys’ fees.

22. Exemptions from Antitrust Laws
Labor unions
Agricultural associations and fisheries
Insurance—when state regulation exists
Export trading companies
Professional baseball
Oil marketing
Cooperative research and production
Joint efforts by businesspersons to obtain legislative or executive action
Other activities, including certain national defense actions, state actions, and actions of certain regulated industries