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Section 1 of Sherman Act regulates “horizontal” and “vertical” restraints. Per Se vs. 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. 2
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Rule of Reason—court will consider several factors: Purpose of the Agreement. Parties’ power to implement. Effect (potential) on competition. CASE 28.1 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. 3
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Horizontal restraints are 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. 4
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Price Fixing. 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. 5
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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. 6
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Horizontal Market Divisions. 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. 7
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Trade Associations. Industry specific organizations. Concentrated Industry: small firms control large percentage of market sales. Rule of reason is usually applied to determine if a violation of the Act has occurred. © 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
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Per se anticompetitive agreements imposed by Sellers upon Buyers (or vice versa) that may include 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. 9
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May restrain competition among firms that occupy the same level in chain. Vertical restraints that significantly affect competition may be per se violations. © 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
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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. 11
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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. © 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
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This is a type of vertical restraint and is normally a per se violation. CASE 28.2 Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007). Why did the Court apply the rule of reason to 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. 13
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In contrast to group boycotts, manufacturers are free to deal with whomever they wish, rather than in concert. But in some cases, a refusal to deal will violate antitrust laws: Firm refusal to deal has, or will have, monopoly power, and Refusal is likely to be anticompetitive. © 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
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Occurs when a seller charges different buyers different prices for identical goods, and may violate Section 2 (Robinson- Patman Act). Customer Preferences. Time and Cost Considerations. © 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
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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. 16
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Tying Arrangements: sale of a product is conditioned on buyer’s agreement to purchase another product produced or distributed by the same seller. CASE 28.3 Illinois Tool Works, Inc. v. Independent Ink, Inc. (2006). What factors did the court consider 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. 17
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Horizontal Mergers occur between firms at the same level in the production and distribution chain. Factors to Determine Legality. The Her fi ndahl-Hirschman Index: to determine market concentration. © 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
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Vertical Mergers: occur between firms at different levels in the production and distribution chain. Conglomerate Mergers: between firms that do not compete with each other because they are in different markets. © 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
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