chapter 20 antitrust and regulation of competition copyright © 2015 mcgraw-hill education. all...

Chapter 20

Antitrust and Regulationof Competition

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Background, Purpose, and Source of Antitrust Law

• Antitrust laws are federal statutes and the agencies charged with enforcement of these laws are the Department of Justice and the Federal Trade Commission.

• Violators of antitrust laws are subject to both civil penalties and criminal sanctions, including incarceration.

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Sherman Antitrust Act

• Sherman Act is divided into two parts:

• First, the act provides prohibitions against restraints of trade. The Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”

• The second part of the act covers monopolization. The Sherman Act provides a remedy against “[e]very person who shall monopolize, or attempt to monopolize . . . any part of the trade or commerce among the several States

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Rule of Reason

Under this standard, a business alleged to have committed a violation may offer evidence that their actions were reasonable because they were justified and necessitated by economic conditions.

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Per Se Sherman Act Violations: Restraints

The U.S. Supreme Court and other federal appellate courts have developed a body of case law that deems certain actions or transactions as a per se, or automatic, violation of the Sherman Act.

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Horizontal Restraints

• Meeting of the Minds

• Price-fixing

• Market Allocation

• Boycotts

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Vertical Restraints

Vertical price-fixing occurs when a seller attempts to control the resale price of a product at a lower level in the supply chain.

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Nonprice Restraints

• The per se standard does not apply to nonprice vertical restraints.

• Rather, a court applies the rule of reason standard (discussed earlier in this section).

• Vertical restraints that do not involve price-fixing generally refer to some type of restraint on the distribution of a product in the marketplace.

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Tying Agreements

• Tying agreements occur when a seller refuses to sell a certain product (the tying product) unless the buyer also purchases a different product (the tied product) from the seller.

• Typically, this occurs where a seller has a substantial share of the market for the tying product, and is attempting to leverage the power of the tying product to gain market share for another of the seller’s products.

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Antitrust Law and Professional Sports

One particularly difficult question under antitrust law is whether professional sports leagues, such as the National Football League, are a legitimate joint venture or whether sports leagues are a conspiracy to restrain trade that is prohibited by the Sherman Act.

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Monopolization

The Sherman Act does not prohibit a business entity from becoming a monopoly, but it does outlaw affirmative action toward monopolizing or attempting to monopolize a part of trade or commerce.

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Clayton Act

The Clayton Act (and its amendments) curb certain anticompetitive practices that are not specifically covered by the Sherman Act.

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Mergers and Acquisitions

• The Clayton Act was designed to prevent this monopoly strategy.

• The act prohibits business entities from acquiring the stock or assets of their competitors where the action will substantially lessen competition or tend to create a monopoly.

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Hart-Scott-Rodino Act

• Preventative statute that requires business entities that are contemplating mergers involving dollar amounts of a certain size to give advance notice to the FTC and the Department of Justice of their intention.

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Robinson-Patman Act

• Enacted in 1936, amended the Clayton Act provisions to provide for broader regulatory authority to curb price discrimination

• To violate law, a business entity must have made two or more sales to different purchasers at different prices.

• This means that quoting a discriminatory price or refusal to sell except at a discriminatory price are not violations of the act.