CH16 Antitrust

Question 1

Allocative efficiency

Answer 1

This occurs when there is an optimal distribution of goods and services, taking into account consumer’s preferences.

Allocative efficiency exists when scarce societal resources are allo­cated to the production of various goods and services up to the point at which the cost of producing each good or service equals the benefit society reaps from its use.

Question 2

sustained

Answer 2

continuing for an extended period or without interruption.

Question 3

cartel

Answer 3

a group of competitors at the same distribution level that agree to price-fix E.g. OPEC

Question 4

Conglomerate merger

Answer 4

The merging of firms that prior to the merger were not direct competitors

Question 5

Conscious parallelism

Answer 5

Conscious parallelism is a term used in competition law to describe pricing strategies among competitors in an oligopoly that occurs without an actual agreement between the players. Instead, one competitor will take the lead in raising or lowering prices.

Question 6

Customer restrictions

Answer 6

Restrictions that prevent a distributor from selling to a particular class of customer

Question 7

Dual distributor

Answer 7

a manufacturer selling as both wholesaler and a retailer

Question 8

Essential facility

Answer 8

A resource that is essential to a company’s rivals’ survival that they cannot reasonably duplicate

Question 9

Group boycott

Answer 9

An agreement between competitors to refuse to deal with another competitor

Question 10

Herfindahl-Hirschman Index (HH)

Answer 10

The sum of squares of the individual market shares in an industry. It is used to determine the anticompetitive effect of a potential merger.

Question 11

Horizontal

agreement

Answer 11

Agreements between firms who compete at the same level of production/distribution. Courts are more willing to rule on circumstantial evidence when horizontal agreements are present

Question 12

Horizontal market divison

Answer 12

A violation of antitrust laws, involving firms at the same production/distribution level agreeing on dividing markets by consumer class or by geographic area.

Question 13

Horizontal price fixing

Answer 13

A violation of antitrust law, involving firms at the same production/distribution level agreeing on a set price and other terms of sale

Question 14

Illegal per se

Answer 14

An activity that is illegal irrespective of its market impact or procompetitive justification

Question 15

market power/ monopoly power

Answer 15

is the ability to control prices or exclude competition from the market

Question 16

multi-brand product market

Answer 16

a market including products and services offered by different, interchangeable sellers. This creates a competitive environment.

Question 17

natural monopoly

Answer 17

absence of competition due to structural or other factors, preventing competition between firms from being feasible

Question 18

No-poaching agreement

Answer 18

An agreement between companies to not solicit each other’s employees.

Question 19

solicit

Answer 19

ask for or try to obtain (something) from someone.

Question 20

Parens patriae action

Answer 20

Parens patriae is Latin for “parent of the nation”
In law, it refers to the public policy power of the state to intervene against an abusive or negligent parent, legal guardian, or informal caretaker, and to act as the parent of any child, individual or animal who is in need of protection.

In U.S. litigation, parens patriae can be invoked by the state to create its standing to sue; the state declares itself to be suing on behalf of its people. For example, the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (15 USC 15c), through Section 4C of the Clayton Act, permits state attorneys general to bring parens patriae suits on behalf of those injured by violations of the Sherman Antitrust Act.

Question 21

Hart–Scott–Rodino Antitrust Improvements Act

HSR Act

Answer 21

is a set of amendments to the antitrust laws of the United States, principally the Clayton Antitrust Act.

The HSR Act provides that parties must not complete certain mergers, acquisitions or transfers of securities or assets, including grants of executive compensation, until they have made a detailed filing with the U.S. Federal Trade Commission and Department of Justice and waited for those agencies to determine that the transaction will not adversely affect U.S. commerce under the antitrust laws.

Question 22

Clayton Antitrust Act

Answer 22

That regime started with the Sherman Antitrust Act of 1890, the first Federal law outlawing practices considered harmful to consumers (monopolies, cartels, and trusts). The Clayton Act specified particular prohibited conduct, the three-level enforcement scheme, the exemptions, and the remedial measures.

• price discrimination
• exclusive dealing; tying
• M&A where the effect may substantially lessen competition
• any person from being a director of two or more competing corporations,

Question 23

Sherman Antitrust Act

Answer 23

The Sherman Act broadly prohibits

1) anticompetitive agreements and
2) unilateral conduct that monopolizes or attempts to monopolize the relevant market.

Question 24

Sherman Act Section 1

Answer 24

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 declared to be illegal.

Question 25

Sherman Act Section 2

Answer 25

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

Question 26

State attorney general

Answer 26

The state attorney general in each of the 50 U.S. states, of the federal district, or of any of the territories is the chief legal advisor to the state government and the state’s chief law enforcement officer.

Question 27

Per se analysis

Answer 27

Under the per se rule, certain

categories of agreements are presumed to violate antitrust laws, and any procompetitive arguments are not entertained

Question 28

Plus factors

Answer 28

Parallel behavior that would appear to be contrary to the economic interests of the defendants, were they acting independently; supports an inference of conspiracy.

Circumstantial evidence of an agreement, such as a meeting between two defen-
dants, may be considered a plus factor. Increasing prices and persistent profits despite a decline in demand for the good or service may also be plus factors.

Question 29

Primary line violation

Answer 29

A violation when a manufacturer/distributor uses price discrimination and causes injury to its competitors serving the same market.

Question 30

Productive efficiency

Answer 30

Reaching economic equilibrium as a result of only the lowest cost producers surviving

Question 31

Quick-look analysis

Answer 31

A type of rule of reason analysis in which an obviously anticompetitive action is not illegal per se, allowing for inquiry into procompetitive justifications.

Courts employ quick-look analysis when someone with “even a rudimentary understanding of economics” could understand that the practice would negatively affect customers and markets.

Question 32

Resale price maintenance (RPM)

Answer 32

A supplier that obligates its distributors to charge fixed or minimum prices runs the risk of breaching the cartel prohibition. Such an obligation is also known as resale price maintenance (RPM).
A price-fixing agreement made vertically between firms at different levels of production. It is not illegal per se, and is evaluated as per the rule of reason.

Question 33

Rule of

impossibility

Answer 33

Rejecting a claim of predation due to the nature of the marketplace in consideration preventing it from being monopolized

Question 34

Rule of reason

Answer 34

Taking into account the defendant’s actions and the market structure to determine whether an action promotes or hinders competition

Question 35

Secondary line

violation

Answer 35

When favored customers of a supplier are given a price advantage over competing customers, causing injury at the buyer level

Question 36

Size-of-person test

Answer 36

If the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less, the size of person test is met, and no exemption applies, an HSR filing must be made and the parties must wait until the statutory waiting period has expired before closing the deal.

A test under the Hart–Scott–Rodino Antitrust Improvements Act that focuses on the annual net sales and total assets of both the buyer and the target in a proposed merger (or other acquisition) and the companies or individuals in the chain of control.

Question 37

Size-of-transaction test

Answer 37

A test under the Hart–Scott–Rodino Antitrust Improvements Act that focuses on the size of a proposed merger (or other acquisition) in terms of the transaction value.

If the transaction is valued at $50 million (as adjusted) or less, no filing is required.
If the transaction is valued at more than $200 million (as adjusted), and no exemption applies, an HSR filing must be made and parties must wait until the statutory waiting period has expired before closing the deal.
If the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less, only those transactions that also meet the size of person test require a filing.

Question 38

Standing

Answer 38

The requirement that a party must have sufficient interest and stakes in the suit, and benefit from a favourable ruling

Question 39

Trusts

Answer 39

A combination of competitors who act together to fix prices, resulting in reduced competition

Question 40

Tying

arrangement

Answer 40

A seller’s terms stating that they will only sell a customer Product A (tying product) if they also purchase Product B (tied product). This restricts freedom of choice of consumers

Question 41

Vertical

agreement

Answer 41

Agreements between firms who compete at different levels of production/distribution. Courts are less willing to rule on circumstantial evidence when vertical agreements are present, compared to horizontal agreements.

Question 42

Vertical market

division

Answer 42

A violation of antitrust law, involving firms at different production/distribution levels agreeing on dividing markets by consumer class or by geographic area

Question 43

Vertical restraint

Answer 43

Unlawful restraint (such as price-fixing, market division, exclusivity, tying, etc.) between firms at
different levels in the chain of distribution

Question 44

Per se

Answer 44

‘Per se’ is a Latin term which literally means, “by itself”, “in itself” or “of itself”.