Antitrust Laws

Antitrust law 

• regulates conduct of businesses in order to promote competition and prevent unjustified monopolies 

• Consists of federal statutes and state statutes, and case law interpreting them 

Overview: 

1. Sherman Antitrust Act (1890) 

2. Federal Trade Commission Act (1914) 

3. Clayton Antitrust (1914) 

4. Robinson-Patman Act (1936) 

• Department of Justice and Federal Trade Commission enforce at the federal level 

  • DOJ can: 

    • Bring action in federal court 

    • Initiate criminal proceedings 

  • FTC can: 

    • Bring administrative action 

    • Bring action in federal court 

• One anticompetitive behavior can violate multiple antitrust statutes (and often does) 

• Private parties are also authorized to bring suit in certain circumstances 

• Antitrust laws regulate competition 

Types of competition: 

• Horizontal: between competitors 

• Vertical: along supply chain 

• Conglomerate: among firms in different industries 

Sherman Antitrust Act: (1890) federal statute prohibiting combinations and contracts in restraint of interstate trade  

Section 1 – prohibits unreasonable restraint of trade 

• Step 1: is this a per se violation? 

  • I.e. Price fixing (prohibits competitors from fixing prices and exchanging price information) - "the supreme evil of antitrust" 

    • Dividing markets, 

    • Rigging bids, and 

    • Boycotts (competitors are not permitted to agree to not deal with certain buyers) 

     

• Step 2: if NOT, apply the rule of reason to alleged violations 

  • Under this rule, if any anticompetitive harm would be outweighed by the practice's procompetitive effects, the practice is not unlawful 

Section 2: prohibits monopolization (but not all monopolies are illegal!) 

A violation of Section 2 requires: 

1. Possession of monopoly power in the relevant market 

   Determining monopoly power: 

   1. Ability to control price + exclude competitors 

   2. Are alternative products available if business raises prices? 

   3. Does the firm have significant and durable market power? 

   4. Market share 

2. The willful acquisition or maintenance of that power as distinguished from growth/development due to superior product, business acumen, or historic accident 

   1. Was the market position gained or maintained through improper conduct designed to exclude competitors? 

Sherman Act Case Law: 

Ohio v. American Express Co., 138 S.Ct. 2274 (2018) -- anti-steering 

Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) -- resale price maintenance 

Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006) - price tying 

**Tying: the anticompetitive practice of requiring buyers to purchase one product in order to get another 

• Occurs when seller makes buyer who wants to purchase one product buy additional product they don't want 

Federal Trade Commission Act (1914) 

• Established the FTC  

• Prohibits: 

  • Unfair methods of competition  

  • Unfair or deceptive acts or practices 

Clayton Antitrust Act (1914)   

Prohibits: 

1. Anticompetitive mergers and acquisitions 

2. Interlocking directorates 

• Prohibits certain mergers between competitors (horizontal) and certain mergers along supply chain (vertical) 

• Prohibited where effect may be substantially to lessen competition or tend to create a monopoly 

  • Companies must notify government of proposed mergers 

   

• Companies can issue a divestiture order:  

  • typically requires the sale of only a portion of the acquired or acquiring firm to a third party 

Robinson-Patman Act (1936) 

• Amended the Clayton Act to strengthen prohibition on discriminatory pricing 

…  

Price discrimination: 

• Unlawful price discrimination occurs when seller: 

  1. charges different prices to different buyers  

  2. for commodities of like grade and quality 

  3. With the result of reduced competition or tendency to create a monopoly 

--> Prohibited by the Clayton Act and Robinson Patman Act 

Price discrimination is permitted when: 

1. Difference in grade, quality, quantity 

2. Cost of transportation 

3. Good-faith effort to meet competition 

4. Deterioration of goods/close-out sales  

Utah Pie Co. v. Continental Baking Co., 386 U.S. 685 (1967) 

• This case also has a predatory pricing element 

Predatory Pricing 

• Unlawful predatory pricing occurs when: 

  1. Seller sets price below cost 

  2. Strategy to eliminate competitors 

  3. Result = creating monopoly so that the discounting firm can then increase prices in the future 

   

• Courts are generally skeptical of predatory pricing claims because low prices are good for consumers 

  • Selling below cost to beat a competitor is not always a violation