What is a monopoly? What is market power? How do these concepts relate to each other? What is a monopoly? What is market power? How do these concepts

• What is a monopoly? What is market What is a monopoly? What is market power? How do these concepts relate power? How do these concepts relate to each other?to each other?• What type of activity is prohibited by What type of activity is prohibited by

Section 1 of the Sherman Act? What Section 1 of the Sherman Act? What type of activity is prohibited by Section type of activity is prohibited by Section 2 of the Sherman Act? 2 of the Sherman Act?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

• What are the four major provisions of What are the four major provisions of the Clayton Act, and what types of the Clayton Act, and what types of activities do these provisions prohibit?activities do these provisions prohibit?• What agencies of the federal What agencies of the federal

government enforce the federal antitrust government enforce the federal antitrust laws?laws?• What are four activities that are exempt What are four activities that are exempt

from the antitrust laws?from the antitrust laws?© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

• Common law actions intended to Common law actions intended to limit restraints on trade and regulate limit restraints on trade and regulate economic competition.economic competition.• Embodied almost entirely in:Embodied almost entirely in:–The Sherman Antitrust Act of 1890.–The Clayton Act of 1914.


• Major Provisions Major Provisions of the Sherman Act. of the Sherman Act. –Every contract, combination in the form

of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal [and a felony punishable by fine and/or prison].


• Major Provisions Major Provisions of the Sherman Act of the Sherman Act (cont’d). (cont’d). –Every person who monopolizes, or

attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.


• DifferencesDifferences Between Sections 1 & 2. Between Sections 1 & 2. –Section 1: requires 2 or more persons,

finding an agreement to restrain trade.–Section 2: requires only 1 person, and

concerned with “monopoly power” in the marketplace.•What is a monopoly?•What is market power?


• Jurisdictional RequirementsJurisdictional Requirements..–Any activity that substantially impacts

interstate commerce.–Also extends to U.S. nationals working

abroad who are engaged in activities that have an effect on U.S. foreign commerce.


• Section 1 regulates “horizontal” and Section 1 regulates “horizontal” and “vertical” restraints. “vertical” restraints. • Per SePer Se Violations versus the Rule of Violations versus the Rule of

ReasonReason..–Per se violations are blatant and

substantially anticompetitive.–Rule of reason agreements do not

unreasonably restrain trade. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

• Per sePer se Violations versus the Rule of Violations versus the Rule of ReasonReason (cont’d). (cont’d).–CASE 39.1 American Needle, Inc. v. American Needle, Inc. v.

National Football League National Football League (2010). What was the ‘concerted activity’ between the NFL teams and NFLP?


• Horizontal RestraintsHorizontal Restraints: agreements among : agreements among Sellers (or Buyers) that restrain Sellers (or Buyers) that restrain competition between rival firms competition between rival firms competing in the same market.competing in the same market.

BuyerBuyer BuyerBuyer BuyerBuyer


• Horizontal Restraints Horizontal Restraints (cont’d).(cont’d).–Price Fixing. An agreement between

competing firms in the market to set an established price for the goods or services they offer.–Price fixing is a per se violation of the

Act.


• Horizontal Restraints Horizontal Restraints (cont’d).(cont’d).–Group Boycotts. Agreement between

two or more sellers to refuse to deal with a particular person or firm.–Group boycotts are per se violations of

the Act.


• Horizontal Restraints Horizontal Restraints (cont’d).(cont’d).–Horizontal Market Division. Occurs

when competitors in the same market agree that each will have exclusive rights to operate in a particular geographic area.–Horizontal market divisions are per se

violations of the Act.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

• Horizontal Restraints Horizontal Restraints (cont’d).(cont’d).–Trade Associations. Industry specific

organizations.•Rule of reason is applied to

determine if a violation of the Act has occurred. •Concentrated Industry: small firms

control large percentage of market sales.


• Vertical Restraints.Vertical Restraints.–Agreements between firms at different levels of the manufacturing and distribution process, that includes affiliates in the entire supply chain of production.

BuyerBuyer

BuyerBuyerBuyerBuyer


• Vertical Restraints Vertical Restraints (cont’d).(cont’d).–May restrain competition

among firms that occupy the same level in chain.–Vertical restraints that

significantly affect competition may be per se violations.

BuyerBuyer

BuyerBuyerBuyerBuyer


• Vertical RestraintsVertical Restraints (cont’d). (cont’d).–Territorial or Customer Restrictions.• Imposed by manufacturers on the

sellers of the products, to insulate dealers from direct competition with each other.• Territorial and customer restrictions

are judged under the rule of reason.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

• Vertical RestraintsVertical Restraints (cont’d). (cont’d).–Resale Price Maintenance Agreements:

between a manufacturer and a distributor or retailer in which the manufacturer specifies the retail price at which retailers must sell products furnished by the manufacturer or distributor. Normally a per se violation.


• Section 2 of the Sherman Antitrust Section 2 of the Sherman Antitrust Act deals with:Act deals with:–Monopolization. –Attempts to Monopolize.

• Predatory PricingPredatory Pricing: : Attempt to drive a Attempt to drive a competitor from the market by selling competitor from the market by selling products at prices substantially products at prices substantially belowbelow the the normal costs of production.normal costs of production.


• MonopolizationMonopolization: requires two : requires two elements:elements:–The possession of monopoly power

and–The willful acquisition and

maintenance of the power.


• MonopolizationMonopolization (cont’d). (cont’d). –Monopoly Power: Not defined in

Sherman Act. Exists when one firm has sufficient market power to affect or control prices and output.


• MonopolizationMonopolization (cont’d). (cont’d). –Relevant Market: before court can

determine whether firm has dominant market share, it must define the “relevant market.” • Relevant Market consists of two

elements: (1) relevant product market, and (2) relevant geographic market.


• MonopolizationMonopolization (cont’d). (cont’d). –The Intent Requirement:

Anticompetitive behavior must be “willful acquisition of power.” –Intent may be inferred from evidence

that the firm had monopoly power and engaged in anticompetitive behavior.


• MonopolizationMonopolization (cont’d). (cont’d). –Unilateral Refusals to Deal. Joint refusals

to deal (group boycotts) are given close scrutiny. Unilateral refusals to deal violate the Sherman Act if: the firm refusing to deal has (or is likely to acquire) monopoly power, AND the refusal is likely to have an anticompetitive effect on a particular market.


• Attempts to MonopolizeAttempts to Monopolize: : intended to intended to exclude competitors and garner exclude competitors and garner monopoly power, and had a “dangerous” monopoly power, and had a “dangerous” probability of success.probability of success.–CASE 39.2 Weyerhaeuser Co. v. Ross-Weyerhaeuser Co. v. Ross-

Simmons Hardwood Lumber Co. Simmons Hardwood Lumber Co. (2007). What does predatory pricing have to do with this case?


• The Clayton Act deals with:The Clayton Act deals with:–Price Discrimination. –Exclusionary Practices.–Mergers.–Interlocking Directorates.


• Section 2 – (Robinson-Patman Act) Section 2 – (Robinson-Patman Act) Price DiscriminationPrice Discrimination. . –Price Discrimination – the Act prohibits

buyers from inducing or sellers from giving different prices to buyers of commodities of similar grade and quality.


• Section 2 – (Robinson-Patman Act) Section 2 – (Robinson-Patman Act) Price DiscriminationPrice Discrimination (cont’d).(cont’d).–Requirements: plaintiff may prove

injury to competitors of the seller (primary-line injury), to competitors of other buyers (secondary-line injury), or to purchasers from other secondary-line sellers (tertiary-line injury).


• Section 2 – (Robinson-Patman Act) Section 2 – (Robinson-Patman Act) Price DiscriminationPrice Discrimination (cont’d). (cont’d). –Defenses: (1) Cost Justification, (2)

Meeting the Price of Competition, (3) Changing Market Conditions.


• Section 3 – Exclusionary Practices.Section 3 – Exclusionary Practices. –Exclusive Dealing Contracts: seller

forbids a buyer to purchase products from the seller’s competitors, that will “substantially lessen competition or tend to create a monopoly.”


• Section 3 – Exclusionary PracticesSection 3 – Exclusionary Practices (cont’d).(cont’d).–Tying Arrangements: the conditioning

of the sale of a product on the buyer’s agreement to purchase another product produced or distributed by the same seller.


• Section 7 – Mergers.Section 7 – Mergers. –Horizontal Mergers occur between firms

at the same level in the production and distribution chain.• Factors to Determine Legality. • The Herfindahl-Hirschman Index: to

determine market concentration.• CASE 39.3 Chicago Bridge & Iron Co. v. FTCChicago Bridge & Iron Co. v. FTC

(2008). What was the court’s holding?© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33

• Section 7 – MergersSection 7 – Mergers (cont’d).(cont’d).–Vertical Mergers occur between firms at

different levels in the production and distribution chain.

• Section 8—Interlocking Directorates.Section 8—Interlocking Directorates.–When an individual serves on the board

of directors of two or more competing companies simultaneously.


• Section 8—Interlocking Directorates. Section 8—Interlocking Directorates. (cont’d).(cont’d).–Prohibited if the two firms meet certain

size requirements. If either of the corporations has capital, surplus, or undivided profits aggregating more than $26,161,000 or annual sales of more than $2,616,100.


• Federal AgenciesFederal Agencies: : –The Department of Justice (DOJ).–The Federal Trade Commission (FTC)

enforces the FTCA. FTCA provides that: “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce are hereby declared illegal.”


• Agency ActionsAgency Actions: : –Only the DOJ can prosecute violations of

the Sherman Act, criminal or civil.–Either DOJ or FTC can enforce the

Clayton Act.–DOJ and FTC can petition the court for

divestiture (asking company to give up one or more of its operations).


• Private Actions.Private Actions.• Treble Damages.Treble Damages.• Exemptions: Exemptions: one of the most one of the most

significant is joint efforts to obtain significant is joint efforts to obtain legislative, judicial, or executive action.legislative, judicial, or executive action.


• Extraterritorial Application of U.S. Extraterritorial Application of U.S. Antitrust LawsAntitrust Laws..–Any foreign business conspiracy that

has a substantial effect on U.S. commerce is within reach of the Sherman Act. –U.S. jurisdiction is automatically invoked

when a per se violation occurs.


• Application of Foreign Antitrust LawsApplication of Foreign Antitrust Laws. . U.S. firms may be subject to antitrust U.S. firms may be subject to antitrust laws of other nations if the firm has a laws of other nations if the firm has a substantial effect.substantial effect.–European Union Enforcement.–Increased Enforcement in Asia and Latin

America.


Documents

What is a monopoly? What is market power? How do these concepts relate to each other? What is a monopoly? What is market power? How do these concepts