Chapter 16: Regulating Competition—Antitrust Laws

Flashcards covering the historical development, key statutes (Sherman, Clayton, FTC Acts), legal standards, and specific prohibited practices of U.S. antitrust law.

Trusts

A legal arrangement where a fiduciary holds legal title to property for another's benefit; historically used by groups of corporations to eliminate competition by having a trustee control operations and policymaking.

Antitrust laws

Regulatory measures designed to promote and regulate competition, ensuring the functionality of the competitive economic system.

Sherman Act of $1890$

The foundational framework for business regulation that seeks to preserve competition by prohibiting unreasonable restraints of trade and monopolization.

Sherman Act, Section $1$

Prohibits contracts, combinations, and conspiracies that unreasonably restrain trade or commerce.

Sherman Act, Section $2$

Prohibits monopolization or attempts and conspiracies to monopolize a market.

Clayton Act of $1914$

An amendment to the Sherman Act that clarifies provisions and declares specific enumerated practices in interstate commerce illegal.

Federal Trade Commission Act ($1914$)

Legislation that created the FTC, an independent agency charged with keeping competition free and fair via enforcement of the Clayton Act and Section $5$ of the FTC Act.

Department of Justice (DOJ)

Federal entity that shares civil antitrust enforcement with the FTC but holds the exclusive power to bring criminal proceedings.

Horizontal competitors

Firms that compete for the same customers within the same market.

Horizontal restraints

Agreements between horizontal competitors regarding products or pricing levels; these face high scrutiny and are often deemed illegal.

Vertical restraints

Agreements between parties in a supply chain (e.g., manufacturers and retailers) that may be permitted if the net impact benefits consumers.

Rule of reason

A standard established in Standard Oil Co. v. United States ($1911$) stating that contracts are illegal only if they constitute undue or unreasonable restraints of trade.

Per se illegality

A standard for agreements so harmful to competition that they are conclusively presumed illegal without further inquiry into their reasonableness.

Interstate commerce element

A requirement for Sherman Act cases where the activity must have a substantial and adverse effect on commerce between states.

Horizontal price fixing

An agreement between competitors to fix prices, which is illegal regardless of whether the prices are fair or if the competitors are small.

Vertical price fixing

Attempts by manufacturers to control the ultimate retail price of their products, also known as resale price maintenance; typically analyzed under the rule of reason.

Horizontal territorial agreement

An agreement where competing businesses allocate exclusive geographical territories to each other; such agreements are illegal per se.

Vertical territorial agreement

An arrangement between a manufacturer and a dealer assigning exclusive territories; these are usually subject to the rule of reason.

Concerted activities

Situations where competitors share activities or perform functions together, such as joint research efforts.

National Cooperative Research and Production Act

A law providing that joint production ventures are subject to the rule of reason rather than per se illegality, provided they notify the DOJ and FTC.

Monopoly power

One of two elements required to prove a Section $2$ violation; the other is the willful acquisition or maintenance of that power.

Predatory conduct

Seeking to increase market share by injuring competitors through means other than improved performance.

Predatory pricing

Selling products below cost to drive out competition, with the likelihood of recouping losses later through higher prices.

Relevant market

The product and geographic market used by courts to evaluate monopoly power; it is the smallest area where outside products cannot effectively compete.

Triple-damage sanction

A provision in Section $4$ of the Clayton Act allowing victims of antitrust violations to collect $3 \times$ the damages suffered plus costs and legal fees.

Nolo contendere

A legal plea that resolves a criminal case without a trial, preventing civil plaintiffs from using a criminal conviction as evidence to collect triple damages.

State action exemption

A doctrine from Parker v. Brown ($1943$) stating that federal antitrust laws do not apply to state governments acting in their sovereign capacity.

Noerr-Pennington doctrine

An exemption based on the First Amendment that protects concerted efforts to lobby government officials, even if the intent is anticompetitive.

Robinson-Patman amendment ($1936$)

An amendment to Section $2$ of the Clayton Act intended to prevent large buyers from securing unfair price advantages over smaller competitors.

Tying contract

An arrangement where a product is sold or leased only on the condition that the buyer also purchases a different product or service.

Full-line forcing

A practice where a seller compels a buyer to purchase a complete line of products.

Reciprocal dealing

An arrangement where two parties act as both buyer and seller to each other, conditioned on mutual purchases.

Exclusive dealing

A contract provision where a party agrees to deal only with the other party for certain goods.

Requirements contract

An agreement where a buyer commits to purchasing all of its needs for a specific product from a single seller for a set period.

Horizontal merger

A merger combining two businesses that operate in the same industry or field.

Market extension merger

A merger where the acquiring company expands into new products (product extension) or new geographic areas (geographic extension).

Vertical merger

A merger between a company and its customer or supplier in the line of commerce.

Conglomerate merger

A merger between businesses that are neither competitors nor related as customer and supplier.

Herfindahl-Hirschman Index (HHI)

A measure of market concentration calculated by squaring the market share of each firm and summing the results; a score over $2,500$ points indicates high concentration.

Hart-Scott-Rodino Antitrust Improvements Act ($1976$)

Requires parties to notify the DOJ and FTC before completing a merger, initiating a $30$-day review period.

Divestment

The process of selling off assets to address government antitrust concerns and allow a merger to proceed.

Wheeler-Lea amendment ($1938$)

An amendment to the FTC Act that expanded prohibited conduct to include unfair or deceptive acts or practices in commerce.

Abuse of a dominant position

The term used in European Union antitrust law to describe illegal monopolization.