Understanding Antitrust Laws and Their Implications

Antitrust laws

To foster competition and prevent businesses from controlling the economy through monopolies or restraints of trade.

Trust in antitrust law

A legal arrangement where companies combined market power to eliminate competition; typically involves a trustor, trustee, and beneficiaries.

Monopoly power

The ability of one company to control market prices and exclude competitors; often arises with a single seller or few sellers.

Market power

The ability to affect/control the price or supply of a product or service in the marketplace.

Restraints of trade

Actions or agreements that reduce competition in the market, such as fixing prices or dividing markets.

Section 1 of the Sherman Act

Agreements between two or more firms that result in an unreasonable restraint of trade.

Conditions for Section 1 violation

1) Two or more parties 2) Agreement or cooperation 3) Wrongful purpose 4) Resulting restraint on trade.

Horizontal restraint

An agreement between competitors at the same level (e.g., two retailers) that restricts competition.

Price fixing

A per se illegal agreement where competitors agree to set prices rather than compete.

Market division

A per se illegal agreement where competitors divide customers or territories to avoid competition.

Group boycott

A per se illegal agreement by two or more firms to refuse to deal with a particular company.

Rule of Reason

A test used to evaluate whether an agreement unreasonably restrains trade, based on intent and competitive effect.

Factors under the Rule of Reason

Intent of the agreement, its actual impact on competition, and whether there were less restrictive alternatives.

Vertical restraints

Agreements between firms at different levels of the supply chain (e.g., manufacturer and retailer) that may affect competition.

Section 2 of the Sherman Act

Misuse of monopoly power and attempts to monopolize a market.

Predatory pricing

Selling below cost to eliminate competitors, with the intention to raise prices later.

Elements to prove monopolization

Possession of monopoly power and willful acquisition/maintenance of that power by wrongful means.

Clayton Act

Seeks to prevent business practices that may substantially lessen competition or create a monopoly.

Price discrimination under the Clayton Act (Section 2)

Selling the same product to different buyers at different prices without justification.

Valid defenses to price discrimination

1) Not interstate commerce 2) Meeting competitor's price 3) Changing market conditions 4) Cost justification (e.g., bulk buying).

Exclusive dealing contract

A seller forbids a buyer from purchasing from competitors.

Tying agreement

A seller requires the buyer to purchase a second product to get the desired one; illegal if it reduces competition.

Section 7 of the Clayton Act

Prohibits mergers that may substantially lessen competition or tend to create a monopoly.

Types of mergers violating Section 7

Both horizontal (same industry) and vertical (different production stages).

Section 8 of the Clayton Act

Prohibits one person being a director on the boards of two competing firms (interlocking directorates).

Agencies enforcing antitrust laws

U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC).

Private parties harmed by antitrust violations

Can sue for treble (triple) damages, attorney fees, and get an injunction.

Major exemptions from antitrust laws

1) Labor unions 2) Professional baseball 3) Agricultural organizations 4) Insurance (limited) 5) Political activity.