1. Antitrust Law and Unfair Trade Practices
Chapter 22
Antitrust Law and Unfair Trade Practices

2. Antitrust Laws A series of laws enacted to: Federal antitrust law
Limit anticompetitive behavior in almost all industries, businesses, and professions operating in the United States
Federal antitrust law
Comprises several major statutes that prohibit certain anticompetitive and monopolistic practices
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3. Federal Antitrust Statutes
Sherman Act
Makes certain restraints of trade and monopolistic acts illegal
Clayton Act
Regulates mergers and prohibits certain exclusive dealing arrangements
Federal Trade Commission Act (FTC Act)
Prohibits unfair methods of competition
Robinson-Patman Act
Prohibits price discrimination
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4. Government Actions
The federal government is authorized to bring actions to enforce federal antitrust laws
May seek civil damages, including treble damages, for violations of antitrust laws
Treble damages: Damages that may be awarded in a successful civil antitrust lawsuit, in an amount that is triple the amount of actual damages
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5. Private Actions
Section 4 of the Clayton Act: A section which provides that anyone injured in his or her business or property by the defendant’s violation of any federal antitrust law (except the Federal Trade Commission Act) may
Bring a private civil action
Recover from the defendant treble damages plus reasonable costs and attorneys’ fees
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6. Effect of a Government Judgment
Government judgment: A judgment obtained by the government against a defendant for an antitrust violation
It may be used as prima facie evidence of liability in a private civil treble-damages action
Section 16 of the Clayton Act
Permits the government or a private plaintiff to obtain an injunction against anticompetitive behavior that violates antitrust laws
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7. Restraints of Trade: Section 1 of the Sherman Act
A section that prohibits contracts, combinations, and conspiracies in restraint of trade
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8. Restraints of Trade: Section 1 of the Sherman Act
Rule
Description
Rule of reason
Requires a balancing of pro- and anticompetitive effects of the challenged restraint. Restraints that are found to be unreasonable are unlawful and violate Section 1 of the Sherman Act. Restraints that are found to be reasonable are lawful and do not violate Section 1 of the Sherman Act.
Per se rule
Applies to restraints that are inherently anticompetitive. No justification for the restraint is permitted. Such restraints automatically violate Section 1 of the Sherman Act.
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9. Exhibit 22.1 Horizontal Restraint of Trade
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10. Price Fixing A restraint of trade that occurs when
Competitors in the same line of business agree to set the price of the goods or services they sell
Thus, raising, depressing, fixing, pegging, or stabilizing the price of a commodity or service
Price fixing is a per se violation of Section 1 of the Sherman Act
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11. Division of Markets
A restraint of trade in which competitors agree that each will serve only a designated portion of the market
Also known as market sharing
It is a per se violation of Section 1 of the Sherman Act
Group boycott (refusal to deal)
A restraint of trade in which two or more competitors at one level of distribution agree not to deal with others at another level of distribution
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12. Exhibit 22.2 Group Boycott by Sellers
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13. Exhibit 22.3 Group Boycott by Purchasers
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14. Other Horizontal Agreements
Some horizontal agreements entered into by competitors at the same level of distribution examined using the rule of reason
Unreasonable restraints violate Section 1 of the Sherman Act
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15. Exhibit 22.4 Vertical Restraint of Trade
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16. Resale Price Maintenance
A per se violation of Section 1 of the Sherman Act
Occurs when a party at one level of distribution enters into an agreement with a party at another level to adhere to a price schedule that either sets or stabilizes prices
Also known as vertical price fixing
U.S. Supreme Court has held that setting minimum resale prices is a per se violation of Section 1 of the Sherman Act as an unreasonable restraint of trade
However, there is insufficient economic justification for per se invalidation of vertical maximum price fixing
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17. Nonprice Vertical Restraints
Restraints of trade that are unlawful under Section 1 of the Sherman Act
If their anticompetitive effects outweigh their procompetitive effects
Nonprice vertical restraints include situations in which a manufacturer:
Assigns exclusive territories to retail dealers
Limits the number of dealers that may be located in a certain territory
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18. Unilateral Refusal to Deal
A unilateral choice by one party not to deal with another party
This does not violate Section 1 of the Sherman Act because there is not concerted action
Conscious parallelism
A doctrine which states that if two or more firms act the same but no concerted action is shown:
There is no violation of Section 1 of the Sherman Act
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19. Noerr Doctrine A doctrine which says Section 2 of the Sherman Act
Two or more persons can petition the executive, legislative, or judicial branch of the government or administrative agencies to enact laws or take other action without violating antitrust laws
Section 2 of the Sherman Act
A section that prohibits monopolization and attempts or conspiracies to monopolize trade
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20. Monopolization: Section 2 of the Sherman Act
Element
Description
Relevant product or service market
The market that includes substitute products or services that are reasonably interchangeable with the defendant’s products or services.
Relevant geographic market
The geographic area in which the defendant and its competitors sell the product or service.
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21. Monopolization: Section 2 of the Sherman Act
Element
Description
Monopoly power
The power to control prices or exclude competition. If the defendant does not possess monopoly power, it cannot be held liable for monopolization. If the defendant possesses monopoly power, the court will determine whether the monopolist has engaged in an act of monopolizing.
Act of monopolizing
The defendant’s engagement in a willful act of monopolizing trade or commerce in the relevant market
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22. Attempts and Conspiracies to Monopolize
Firms that attempt or conspire to monopolize a relevant market may be found liable
Under Section 2 of the Sherman Act
Defenses to monopolization
Innocent acquisition
Natural monopoly
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23. Merger: Section 7 of the Clayton Act
Element
Description
Line of commerce
The market that will be affected by a merger. It includes products or services that consumers use as substitutes for those produced or sold by the merging firms.
Section of the country
The geographic market that will be affected by a merger.
Probability of a substantial lessening of competition
A probability of a substantial lessening of competition after a merger, in which case the merger may be prohibited. The statute deals with probabilities; actual proof of the lessening of competition is not required.
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24. Horizontal Merger
A merger between two or more companies that compete in the same business and geographical market
Such mergers are subjected to strict review under Section 7 because they clearly result in an increase in concentration in the relevant market
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25. Vertical Merger
A merger that integrates the operations of a supplier and a customer
It does not create an increase in market share because the merging firms serve different markets
It may cause anticompetitive effects such as foreclosing competition
Backward vertical merger: A vertical merger in which a customer acquires a supplier
Forward vertical merger: A vertical merger in which a supplier acquires a customer
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26. Market Extension Merger
A merger between two companies in similar fields whose sales do not overlap
Conglomerate merger
A merger that does not fit into any other category
A merger between firms in totally unrelated businesses
The unfair advantage theory holds that
A conglomerate merger may not give the acquiring firm an unfair advantage over its competitors in finance, marketing, or expertise
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27. Defenses to Section 7 Actions
The failing company doctrine
A competitor may merge with a failing company if
There is no other reasonable alternative for the failing company
No other purchaser is available
The assets of the failing company would completely disappear from the market if the merger is not allowed
The small company doctrine
Two or more small companies are allowed to merge without liability under Section 7
If the merger allows them to compete more effectively with a large company
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28. Premerger Notification
Hart-Scott-Rodino Antitrust Improvement Act (HSR Act)
An act that requires certain firms to notify the Federal Trade Commission and the Justice Department in advance of a proposed merger
Unless the government challenges a proposed merger within thirty days, the merger may proceed
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29. Section 3 of the Clayton Act
An act that prohibits tying arrangements involving sales and leases of goods
Tying arrangement: A restraint of trade in which:
A seller refuses to sell one product to a customer unless the customer agrees to purchase a second product from the seller
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30. Section 2 of the Clayton Act
A federal statute that prohibits price discrimination in the sale of goods if certain requirements are met
Section 2(a) of the Robinson-Patman Act
Prohibits direct and indirect price discrimination by sellers of a commodity of a like grade and quality, where the effect of such discrimination may be
To substantially lessen competition
To tend to create a monopoly in any line of commerce
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31. Direct Price Discrimination
Necessary elements to prove a violation of Section 2(a) of the Robinson-Patman Act
Commodities of like grade and quality
Sales to two or more purchasers
Injury to the plaintiff
Indirect price discrimination: A form of price discrimination that is less readily apparent than direct forms of price discrimination
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32. Defenses to Price Discrimination
Description
Cost justification
A defense in a Section 2(a) action which provides that a seller’s price discrimination is not unlawful if the price differential is due to “differences in the cost of manufacture, sale, or delivery” of the product.
Changing conditions defense
A price discrimination defense that claims prices were lowered in response to changing conditions in the market for or the marketability of the goods.
Meeting the competition defense
A defense provided in Section 2(b) of the Robinson-Patman Act that says a seller may lawfully engage in price discrimination to meet a competitor’s price.
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33. Federal Trade Commission Act
Federal Trade Commission: A federal government administrative agency that is empowered to enforce the Federal Trade Commission Act
Section 5 of the FTC Act
Prohibits unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce
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34. Exemptions from Antitrust Laws
Type of Exemption
Description
Statutory exemptions
Exemptions from antitrust laws that are expressly provided in statutes enacted by Congress.
Implied exemptions
Exemptions from antitrust laws that are implied by the federal courts.
State action exemption
Business activities that are mandated by state law and are therefore exempt from federal antitrust laws.
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35. State Antitrust Laws
State antitrust statutes are usually patterned after federal antitrust statutes
They are used to attack anticompetitive activity that occurs in intrastate commerce
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