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Question 1

LO:
1. What is a monopoly? What is market power? How do these concepts relate to each other?
2.What anticompetitive activities are prohibited by Section 1 of the Sherman Act?
3.What type of activity is prohibited by Section 2 of the Sherman Act?

Answer 1

antitrust is how we regulate monopoly’s

antitrust and securities are regulated by statutes

we will list 2 different statutes ,leading to covering 3 of them

securities have 2 statutes

Question 2

LO: 1.What are the four major provisions of the Clayton Act, and what types of activities do these provisions prohibit?
2.What agencies of the federal government enforce the federal antitrust laws?

Answer 2

antitrust is how we regulate anti competitive behavior

Question 3

Major Provisions of the Sherman Act (2 sections quotes) ,what punishments do they have

Answer 3

section 1. “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 is a felony punishable by a fine and/or imprisonment].”

section 2. “Every person who shall monopolize, 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 [and is similarly punishable].”

both fall under commerce clause ,have same punishments,section 1 requires 2 or more persons to violate, section 2 can be done by 1 person

Question 4

what are the Differences between Section 1 and 2

Answer 4

•Section 1: requires 2 or more persons, finding an agreement to restrain trade

•Section 2: requires only 1 person and is concerned with “monopoly power” in the marketplace

Question 5

violation requirements of section 1 vs section 2

Answer 5

section 1violation requirements :An agreement between two or more parties that unreasonably restrains competition and affects interstate commerce.

section 2 violation requirements: The possession of monopoly power in the relevant market, and willful acquisition or maintenance of that power as distinguished from its growth or development as a consequence of a superior product business acumen, or historic accident.

Question 6

START OF SECTION 1 OF THE SHERMAN ACT ;
Per Se Violations vs the Rule of Reason

Answer 6

(antitrust promotes fair competition in marketplace,all of business are anticompetitive )
(each type of activity is either :)

-Per se violations are blatant and substantially anticompetitive (you just have to prove they engaged in the behavior.

-Rule of reason agreements do not necessarily unreasonably restrain trade (so plaintiff must show effect). (justify anticompetitive behavior, establishes that a business practice is illegal if it unreasonably restricts trade. )

Question 7

Horizontal Restraints

Answer 7

Agreements that restrain competition between rival firms in the same market

(horizontal agreements raise eyebrows,why should y’all help eachother out?since y’all are direct competitors?)

Question 8

Price fixing (under horizontal restraints )(what does it violate)

Answer 8

when did suppliers come up with 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.

(ex: airlines,the heads of airlines had weekly calls agreeing what their flight prices would be ,got in trouble by department of justice,you eliminate competition,making it be a per se violation)

Question 9

Group boycotts(what does it violate)

Answer 9

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.

(ex: all groceries go to apple farmers and bully suppliers or else they boycott,farmer would be forced to have contract.its anticompetitive )

Question 10

when does Horizontal market division occur (what does it violate,which services are examples that do not count as violations) (example )

Answer 10

•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. (utility or internet service providers don’t count as it)
•Discussion – utility companies

(ex: fast food chain in LB draw boundaries on map so they don’t have competition,anticompetitive due to location differences)

Question 11

Trade Associations(what does it being concentrated industry mean,why would rule of reason get applied,who do they try to protect,example )

Answer 11

•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

(governs who allowed to practice within an industry,example of rule of reason. a benefit is that it protects consumers to have ppl have licensing for their quality of services)

(ex: american dental association with teeth whitening, kiosks didnt but now are allowed to have them as teeth whitening is not considered as practicing dentistry)

Question 12

Vertical Restraints(what type of agreements are they,between who)

Answer 12

• Anticompetitive agreements that may include affiliates in the entire supply chain of production (some per se, some judged under rule of reason)

•Agreements between firms at different levels of the manufacturing and distribution process
-May restrain competition among firms that occupy the same level in chain.
-Vertical restraints that significantly affect competition may be per se violations

Question 13

other types of vertical restraints (cont)(who imposes territorial or customer restrictions imposed by who to prevent what)(resale price maintenance agreements,who specifies ,type of violation, __ price?)

Answer 13

•Territorial or customer restrictions
-Imposed by manufacturers on the sellers of the products to insulate/protect dealers from direct competition with each other
-Judged under the rule of reason

•Resale price maintenance agreements
-Agreements where the manufacturer specifies the retail price at which retailers must sell products furnished by the manufacturer or distributor
-This is a type of vertical restraint and is normally a per se violation (compare minimum price to maximum price).
(ex: kleenex tells stores how much their product should cost. MSRP isn’t considered resale price maintenance. there can be a max but not min set price)

Question 14

START OF SECTION 2 OF THE SHERMAN ACT ; Monopolization, (Monopolization requires 2 elements:)

Answer 14

1.The possession of monopoly power
Monopoly power: Occurs when a firm has a great deal of market power
•Remember from economics: HHI, CR
•Ability to set price > mc (subject to demand

2.The willful acquisition and maintenance of the power(what actually did u do to gain or maintain market power)

Question 15

Monopoly power:

Answer 15

When a firm has sufficient market power to affect or control prices and output

Question 16

Relevant market of monopoly - Consists of 2 elements: (___ market and __ market , example towards starbucks)

Answer 16

•Relevant product market
•Relevant geographic market

(starbucks have it better when compared in coffee industry but not on to go markets, also location matters)

Question 17

what is Willful acquisition of power or the Intent requirement of monopoly

Answer 17

May be inferred from evidence that the firm had monopoly power and engaged in anticompetitive behavior.

Question 18

how Attempts to Monopolize determined (intention,what’s predatory pricing,unilateral refusals to deal (when and what does it violate )

Answer 18

•Intended to exclude competitors and garner monopoly power, and had a “dangerous” probability of success

•Predatory pricing: Attempt to drive a competitor from the market by selling products at prices substantially below the normal costs of production (walmart first lowers prices to reduce business but raises prices again )

•Unilateral refusals to deal(supplier agrees terms and conditions to sell)
-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.

Question 19

Section 2 – Price Discrimination Of The Clayton Act ,(when does it occur,3 degrees that causes price differences, 3 defenses for price discrimination)

Answer 19

•Occurs when a seller charges different buyers different prices for identical goods
•Degrees of price discrimination (remember economics?,1st:charges ppl differently,2nd:memberships and belts give discounts, 3rd:senior/student discounts)

Defenses:
-Cost justification: if the seller can demonstrate that a particular buyer’s purchases saved the seller costs in producing and selling the goods
-Meeting competitor’s prices: if there was a good faith effort to match a competitor(all museums give student discounts as it drives students in)
•Changing market conditions: if the price of a good fluctuates because of a change in marketability for a product

Question 20

Section 3 – Exclusionary Practices Of The Clayton Act/not allowed (Exclusive-dealing contract, Tying arrangement)

Answer 20

•Exclusive-dealing contract: Seller forbids a buyer to purchase products from the seller’s competitors, that will “substantially lessen competition or tend to create a monopoly”(prohibited by section 3)

•Tying arrangement: Conditioning the sale of a product on the buyer’s agreement to purchase another product produced or distributed by the same seller (ex: microsoft got in trouble for tying arrangement ,microsoft laptops had explore which was owned by them and made it so other browsers would make laptop malfunction )

Question 21

Section 7 – Mergers Of The Clayton Act (Horizontal & Vertical Mergers)

Answer 21

•Horizontal mergers: occur between firms at the same level in the production and distribution chain(draft anticompetitive affect,reduces competition)

•Vertical mergers: occur between firms at different levels in the production and distribution chain(can still lead to reduction or supply chain efficiencies )

Question 22

Section 8 – Interlocking Directorates Of The Clayton Acts (what is it,when is it prohibited)

Answer 22

•When an individual serves on the board of directors of two or more competing companies simultaneously(obvious to not have 1 director between competing firms, violates duty of loyalty)
-Could also get you in trouble for fiduciary duty reasons

•Prohibited if the two firms meet certain size requirements

Question 23

START OF ENFORCEMENT AND EXEMPTIONS ; Enforcement by Federal Agencies(what does DOJ prosecute regards sherman act,who can enforce provisions of clayton act,who can petition the court for divestiture )

Answer 23

department of justice
federal trade commission
both can enforce clayton act

•The DOJ prosecutes both criminal and civil violations of the Sherman Act.

•Either the DOJ or FTC can enforce provisions of the Clayton Act.

•DOJ and FTC can petition the court for divestiture (asking company to give up one or more of its operations).

Question 24

Enforcement by Private Parties(what can they do and receive from damages ,what must u prove to receive compensation )

Answer 24

•A private party can sue for treble damages (three times the actual damages suffered) and attorneys’ fees.

Must prove that:
-The antitrust violation caused or was a substantial factor in causing the injury that was suffered
-The unlawful actions of the accused party affected business activities of the plaintiff that were protected by antitrust laws
(if they can prove it they can receive triple of what they were damaged with)

Question 25

START OF US ANTITRUST LAWS IN THE GLOBAL CONTEXT; The Extraterritorial Application of U.S. Antitrust Laws(what is it,when is US jurisdiction invoked)

Answer 25

•Any foreign business conspiracy that has a substantial effect on U.S. commerce is within reach of the Sherman Act.(even if it occurs outside of US,they can go after it if it affects US businesses,foreign union has gone after boeing)

•U.S. jurisdiction is automatically invoked when a per se violation occurs.

Question 26

The Application of Foreign Antitrust Laws (if US firm violate antitrust foreign laws)

Answer 26

U.S. firms may be subject to antitrust laws of other nations if the firm has a substantial effect on that nation’s commerce.