Economic Law in Global Age

Mid-term exam

Competition law

To keep free and fair competition in the market; keeping consumers happy

What does competition law prevent companies from doing?

1. Making anti-competitive agreements

2. Abusing market power

3. Carrying out harmful mergers

Economic law

Regulates economic activities, market relations, and government intervention in the economy

What does economic law do?

1. Ensures fair play between businesses

2. Protects consumers

3. Aligns private business practices with national and global policy

Antimonopoly law (独占禁止法 - Dokusen Kinshi Hō)

Specific legal framework used to prevent monopolies, ban unfair business practices, and maintaining a free and fair competition in the market

3 Most Common Cartel Behaviors

1. Price Fixing

2. Market Sharing/Allocation

3. Bid-rigging

Antitrust law

U.S equivalent of competition/antimonopoly law; consists of federal statues such as Sherman Act and Clayton Act; implemented to protect consumers from predatory business practices, price-fixing, and mega-mergers that destroy market competition

Sherman Act (1890)

Criminalizes monopolies and conspiracies that restrict trade

Sherman Act (1890) Section 1

Bans collusion (price-fixing, cartels, or agreements between competitors to restrict trade)

Sherman Act (1890) Section 2

Bans monopolization (predatory behavior used to gain or keep monopoly power, not just being a big company

Clayton Act (1914)

Supplementary US antitrust law passed to fix loopholes in the Sherman Act; stops anti-competitive behavior before it happens

Mergers & Acquisitions: gives government power to block mergers that would significantly lessen competition

Price

Price Discrimination & Tying: bans selling the same good to different people at different prices to kill competition; forcing byers to buy a second product to get the first

Global Competition Authorities

1. Japan - Japan Fair Trade Commission (JFTC)

2. US - FTC, Department of Justice (USDOJ)

3. EU - Directorate - General for Competition (DG COMP), the European Commission

4. China - Antimonopoly Commission in China

What does the JFTC do?

Enforces Japan’s competition laws and prevents monopolies, unfair trade practices, and anti-competitive behavior

EU Competition Law Article 101

Prohibits cartels and other agreements that could disrupt free competition

EU Competition Law Article 102

Prevent undertakings who hold a dominant position in a market from abusing that position

Council Regulation n. 139/2004

Gives main rules for the assessment of concentrations

What is the effect of competition?

• Lower price; better quality of goods/services

• Variety of good/services; broad choices

• Promote technical innovations

Substantive Rules

Legal rules that define what businesses can and cannot do (e.g, banning cartels or blocking bad mergers)

Ex-post Control

“After the fact” enforcement; government steps in to punish and fix illegal business behaviors after it has already happened

Concerted Practice

When two or more competing companies knowingly cooperate or collude instead of competing (price fixing or cartels); anti-competitive agreements

Unilateral Conducts

Anti-competitive behaviors by a single dominant company acting alone to bully or crush its smaller competitors; abusing market power

Ex-ante Control

Before the fact regulation; government steps in proactively to prevent harm to the market before it can happen

Merger and Acquisition

Joining together of two separate companies; under competition law, the government reviews these beforehand to ensure the new mega-company won’t destroy competition; carrying out harmful mergers

Procedural Rules

Rules that dictate how the government enforces the law (e.g, how they investigate companies, run trials, and calculate fines)

The substantive part of competition law…

1. Shows purpose

2. Gives regulations for companies behaviors

3. Prohibits particular actions

The procedure part of competition law…

gives instruction of processes to follow

Comparative law

Study of differences and similarities between systems laws of different countries

Common law

by past court decisions (precedents)

Civil law

set of written law as a code (codified)

Socialism Law

Promote socialist/communist ideology; maintain state control over economy

Islamic Law (Sharia)

Religious law system derived from sacred islamic texts (Quran or Hadith) that governs public and private life

Asian Law/ Indian Law

Unique legal system blending English Common Law with traditional personal laws (Hindu/Muslim laws) and modern written constitution

Anticompetitive Action

Business behavior that deliberately reduces, prevents, or eliminates competition in a market

Market Distortive Action

Any action that interferes with the natural economic forces of supply and demand causing prices, production, or market outcomes to become artificial

Restriction of Competition

Agreement or behavior between companies that limits or controls production, markets, technical development, or investment

Disrupt Free Competition

Act of breaking or undermining the “rules of the game” in a free market, where companies are supposed to compete fairly based on price, quality, and service

Distortion of Competition

Tilting the playing field so the game becomes unfair and certain companies get an unearned advantage over everyone else

Purpose of Antimonopoly Act (AMA)

• Promotes fair and free competition

• Stimulate creative initiative

• Encourage business activity

Antimonopoly Act prohibits:

• private monopolization

• unreasonable restraint of trade and unfair trade practices

• eliminating unreasonable restraints on production, sale, price, and technology, etc.

Article 2 - Unfair Trade Practices

Use of strong position to pressure another business into things that are unreasonable

Article 3 - No Monopolies or Trade Restrictions

Enterprises must not affect private monopolization or unreasonable restraint of trade

Article 19 - No Unfair Trade Practices

Companies prohibited from using unfair business tactics; no abuse of power

Concerted Refusal to Trade

Companies work together to refuse doing business with someone (group boycott)

Other Refusal to Trade

One company unfairly refuses to do business with another company

Discriminatory Consideration

Giving unfairly different prices or benefits to different businesses

Discriminatory Treatment in a Trade Association

Trade group unfairly excludes or disadvantages a member

Unjust Low Price Sales

Selling products extremely cheaply to destroy competitors (predatory pricing)

Deceptive Customer Inducement

Misleading customers through false claims or advertising

Customer inducement by Unjust Benefits

Using excessive rewards or benefits unfairly to attract customers

Tie-in Sales

Forcing customers to buy another product with the main product

Trading on Exclusive Terms

Forcing a business to deal only with one company

Trading on Restrictive Terms

Allowing trade only if strict conditions are accepted

Interference with Appointment of Officers

Trying to control who another company hires as managers/executives

Interference with a Competitor’s Transactions

Unfairly disrupting another company’s business deals

Interference with Internal Operations of a Competitor

Messing with how another company operates internally

What is leniency program?

System where companies involved in antitrust violations received reduced penalties if they report and cooperate early

JFTC Leniency Structure

• 1st company - 100% immunity

• 2nd - 20% reduction

• 3rd-5th - 10%

• 6th - 5%