Chapter 27 - Antitrust Laws

Define Monopoly.

a market in which there is a single seller or a firm that, although not the sole seller in the market, can nonetheless substantially ignore rival firms in a setting a selling price for its product or can in some way limit rivals from competing in the market.

Define Monopoly Power and Market Power and their difference.

Monopoly - the power to control prices or exclude competition in a relevant market (broader)

Market - the ability to raise prices above those that would be charged in a competitive market (specific)

Are all monopolies illegal?

No, illegal monopolization requires:

1. Monopoly power

2. power was acquired/maintained/enhanced by using exclusionary conduct. 

What are the two purposes on Anti-Trust Laws?

1. regulate business conduct to promote forms of competition that benefit society

2. Rein in the unrestrained exercise of market power.

Explain the historical need for antitrust laws. 

post civil war businesses were tying themselves together in business trusts. 

John D. Rockefeller → Standard Oil Trust

Explain Section 1 and 2 of the Sherman Antitrust Act.

1. Stoping companies that yield unchecked market power. 

2. Stopping companies from yielding unchecked monopoly power. 

What are the 4 specific differences between section 1 and 2?

1. Section 1 - requires two or more persons joining together to exclude others. (can’t conspire with yourself)

2. Section 1 - cases are often concerned with finding an agreement that leads to a restraint of trade.

3. Section 2 - can be violated by either one or more persons because it refers to “every person”

4. Section 2 - cases deal with the structure of a monopoly that exists in the marketplace. Or the so-called misuse of monopoly power. 

Explain Per Se Violations

Per Se - means in and of itself a violation of the law. Court will not consider any redeeming aspects of the case. Ex. Grocery store price fixing

Explain Rule of Reason Violations

The court balances the reasons for the agreement against its potentially anticompetitive effects. 

What are the 4 factors used by the court for Rule of Reason Violations. 

1. the purpose of the agreement

2. the parties power to implement the agreement to achieve the purpose

3. The effect or potential effect of the argument on competition

4. wether the parties could have relied on a less restrictive means to achieve their purpose

Explain Horizontal Restraints.

restrains competition between rival firms competing in the same market. Companies at the same level of operation. 

Ex. Retailers or manufacturers at the same level

List the 5 types of Horizontal Restraints. 

1. Price Fixing

2. Group Boycotts

3. Horizontal Market Divisions

4. Trade Associations

5. Joint Ventures

Define price fixing violations and how they are judged. 

restricting output by eliminating price competition in which companies seek to sell more by charging less than their rivals.

It is always per se under section one of the Sherman Act

Define Group Boycotts and how they are judged. 

an agreement by 2 or more sellers to refuse to deal with another person or company. Per Se violation.

Define Horizontal Market Divisions and how they are judged. 

agreements to divide up the market between rival companies. This includes dividing up the territory or dividing up types of customers. 

Generally per se violations

Define Trade Associations and how they are judged. 

Business in the same general industry or profession organizing to pursue common interests like ad campaigns, lobbying congress, etc. 

Judged by Rule of Reason because they could be valid. 

Define Joint Ventures and and how they are judged. 

Two or more INDIVIDUALS in business entities join together in a particular commercial enterprise. 

Judged by rule of reason. 

What Horizontal Restrictions are Per Se vs Rule of Reason? 

Per Se: Price Fixing, Group Boycotts, Horizontal Market Divisions

Rule of Reason: Trade Associations, Joint Ventures

Define Vertical Restraints.

Any agreement between firms at different levels in the manufacturing and distribution process. Different steps in the supply chain of production. 

There are 6 Vertical Restraints, but list the two we are focused on. 

1. Territorial or Customer Restrictions

2. Resale Price Maintenance Agreements

Explain Territorial or Customer Restrictions and how they are judged. 

Manufacturers instituting territorial restrictions or attempting to prohibit wholesalers or retailers from reselling the products to certain classes of buyers such as competing retailers. 

Judged by Rule of reason. 

Explain Resale Price Maintenance Agreements and how they are judged. 

an agreement between a manufacturer and a distributor or retailer in which the manufacturer specifies what the retail prices of its products must be. (Ex. Amazon)

Judged by Rule of Reason

Explain the two types of behavior that violate section 2 of the Sherman Act. 

1. conduct pursued by a firm that is already a monopolist if it interferes with free trade and intends to preserve the firms monopoly power. 

2. conduct intended to capture monopoly power is condemned as an attempt to monopolize. 

Example: Predatory Pricing

Explain Predatory Pricing. 

One firm drives its competitors from the market by setting prices substantially below the normal costs of production. Once the competition is eliminated, the predator raises prices well above the normal competitive level to earn higher profits. 

what two things does a plaintiff have to prove for a violation of section 2 of the Sherman Act? 

1. Monopoly Power

2. Intent to monopolize

How does a plaintiff prove a firm has Monopoly Power?

Plaintiff usually has to show that firm has dominant share of relevant market, and there are significant barriers for new companies entering that market.

What two things makeup a relevant market?

1. Product Market

2. Geographic Market

How does a Plaintiff prove the Intent Requirement?

Intent is usually seen in a powerful act to acquire or maintain monopoly power through anti-competitive means.

Give the examples of when monopolization is not based on an effort to keep your competitors out of the market. 

You gain market share from good business, development of a superior product, or a historical accident. 

What two examples were used in the video as violations of Section 2 of the Sherman Act? 

1. Whole Foods merger with Wild Oats Outlet

2. Microsoft exclusionary conduct concerning internet browsers. 

What 3 things have to be proven for an ATTEMPT of monopolization to be a violation of the Sherman Act? 

1. Anti-competetive Behavior

2. Specific intent to exclude competition and garner monopoly power

3. “Dangerous” probability of success in achieving monopoly power

What are the 4 specific activities made illegal under the Clayton Act? 

1. Price Discrimination (between buyers) 

2. Exclusionary Practices

3. Corporate Mergers

4. Interlocking Directorates

IF they substantially tend to lessen competition or create a monopoly power. 

What are the 3 defenses that can be used against the Clayton Act violations? 

1. Cost justification

2. Meeting a competitors prices

3. Changing market conditions. 

What is the role of the DOJ and FTC in Antitrust Cases? 

• Enforce Federal antitrust laws

• DOJ can prosecute civil and criminal Sherman Act violations

• DOJ & FTC can enforce the Clayton Act as civil cases

• Civil penalties may include divestiture of assets and dissolution of companies

Do private lawsuits exist for antitrust cases?

Yes, about 90% today are private plaintiffs(co. sues co.). Private parties injured fur to violations can sue for: treble damages(triple), Attorneys fees, injunctions

What are the 4 important Exemptions to Antitrust Laws?

1. Labor Unions have bargaining power

2. Insurance companies can bargain

3. Exporters

4. Businessperson’s joint efforts to seek government action