Chapter 7 Flashcards
Do individual firms like competition?
No
- expensive to compete with one another
- competition can force costly changes
What is the Smithian Model and who created it?
created by Adam Smith
- said capitalism motivates entreprenuers
- because of self-interest
- because of profits
-self-corrective forces take care of need for government
- said government had no place in business
- UNLESS competition is NOT present
How do you know when you have anticompetition?
- better products not produced
- more efficient production methods not being created
True or False:
The means of competition is just as important as the “ends” or products that comptetition creates
True
Why was Antitrust Law created in first place?
John D. Rockefeller created Standard Oil Trust
-creates monopoly
What did the Ohio Supreme Court do in response to John D. Rockefeller’s monopoly with the Standard Oil Trust?
Broke company up into two sections
- Standard Oil of New Jersey
- Standard Oil of California
Railroad Trusts 1880s?
- Railroad Company Monopolies
- raise prices making consumers made
- leads to Interstate Commerce Act
- preserves competitive railroad market
Sherman Antitrust Act of 1890s
- Only broke up Trusts in U.S.
- didn’t prevent anticompetitive behavior
- public gets made
- major factor in 1912 presidential debate
Because of the shortcomings of the Sherman Anti-Trust Act of 1890, it led to the creation of these two things.
Clayton Antitrust Act of 1914
Federal Trade Commission Act of 1914
What have the Standard Oil of New Jersey and Standard Oil of California turned into today
Standard Oil of New Jersey - Exxon-Mobil
Standard Oil of California - Chevron
How did the Clayton Antitrust Act of 1914 differ from the Sherman Antitrust Act of 1890s?
Sherman Antitrust Act of 1890
- dealt with both before and after outcomes
- the trusts and monopolies themselves
- broad
Clayton Antitrust Act of 1914
- dealt with “anticompetitive behavior” that would later lead to trusts and monopolies
- specific
Federal Trade Commission Act of 1914
- Deals with deceptive and anticompetitive behavior
- unfair methods of competition
- “catch all law” that Sherman and Clayton don’t cover
What does Section 1 of the Sherman Antitrust Act say?
- declares every combination in the form of trust(trust means monopoly) to be illegal
- criminal charges
- says rival firms must compete
- can’t enter into agreement to eliminate competition
- DOES not cover unilateral contracts
How did the Courts Interpret Section 1 of Sherman Antitrust Act?
- Per Se
- very narrowly
- if you broke the law, guilty
-but hesitant to destroy pre-exisitng contracts that violated Sherman because weren’t harming society
What is the Rule of Reason party of Section 1 of Sherman Antitrust Act
- opposite of Per Se
- allows violater to justify actions
- courts weigh evidence
What does Section 2 of Sherman Antitrust Act say?
- says ONLY an ANTICOMPETITIVE attempt to monopolize is illegal
- purpose to punish successful anticompetitive attempts to sustain monopoly
2 requirements for proving someone has violated Section 2 of Sherman Antitrust
- prove they have acquired monolistic power
- prove they willfully tried to gain that monolistic power
- or prove they willfully tried to maintain that monolistic power
In your own words, how is Section 1 and Section 2 of Sherman Antitrust Act different?
Section 1
-declares monopolies illegal
Section 2
- outlaws behavior that monopolies engage in after they have already monopolized
- outlaws anticompetitve attempts to monopolize
What are the 4 areas of Clayton Antitrust Act of 1914?
Price Discrimination
Exclusionary practices/Exclusionary Dealing
-only one firm has right to do this certain thing
Tying Arrangements
- when seller requires buy to buy another thing along with desired product
- “all or nothing” deals
Mergers
What are the 2 ways used to determine if a potential merger should be illegal because it will create a monopoly
Firm Concentration
- how big is company
- effect on competition?
Barriers to Entry
-ability of new firms to enter into market b/c of merger
EX: Licensing Requirements, Large-Scale plant development, etc.
What are the 4 types of Mergers and Explain what they are
Horizontal Mergers
EX: merger between competitors
Vertical Mergers
EX: apparel apartment and Department store merger
Market Extension Mergers (2 Types)
- Geographic Market Extension Merger
- merger with 2 firms selling same product but in diff geographical locations
- Product Market Extension Merger
- two different business of SIMILAR fields begin to sell the same product
Conglomerate or Diversification Mergers
-mergers between businesses that are of UNRELATED fields
What is an Interlocking Directorate
-same board of directors for competing corporations
What are the names of the Agencies that are responsible for the Enforcement of Antitrust
Department of Justice (DOJ)
Federal Trade Commission (FTC)
Can private entities like businesses sue violators of Sherman and Clayton Antitrusts?
Yes
-normal receive treble damages, attorney fees, and court costs
U.S. v. Trenton Potteries
- Trenton creates monopoly
- says it doesn’t hurt consumer
- Guilty b/c of Per Se
Appalachian Coal v. U.S.
- Creates monopoly during Great Depression
- doesn’t lose single employee and customers get coal
- case DISMISSED (no precedent) b/c Rule of Reason
U.S. v. Socony-Vaccum Oil
- creates monopoly
- one company set prices and rest followed
- guilty b/c Per Se
- sets Precedent
CBS v. Broadband Music
- Broadband Music setting fines for stolen music on Intellectual property
- setting prices so it is monopoly
- not guilty b/c Rule of Reason
- prices of fines set on basis of popularity
Arizona v. Maricopa County Medical Society
- Maricopa telling doctors what to charge patients
- price setting so Monopoly
- guilty b/c Per Se
Explain the Leegin case and its significance
Made Vertical price fixing under Rule of Reason
- Kay’s Closet were selling Leegin’s products for 20% off
- Leegin says they need to sell their products for more
- Leegin stops selling to Kay’s Closet
- Kay’s Closet sues for Vertical Price Fixing
United States v. Suntar
Made Horizontal Market divisions per se illegal
What is a horizontal Boycott? Is it under Per Se or Rule of Reason
- competitors agree not to do business with other competitor
- hurts other competitors business
- Per Se Illegal
Explain Predatory pricing and what law makes it illegal?
- you lower your businesses prices in an area to drive out competiton
- you higher your prices back up after competition leaves
-illegal by Robinson-Patman of Clayton Section 2
4 Defenses to Price Discrimination?
Weather
-“my prices changed because weather changed demand for my product”
Meeting the Competition
-“my prices changed because I was matching a competitor stores’s prices”
Volume Discounts
Cost Justification
-“I charge higher prices for those shoes in this area because it costs me more to ship them there in the first place”
What are tying arrangements?
-sale of one product is conditioned upon the sale of another
International Business Machines Corp. (IBM) v. United States
- IBM sold separate cards to run their machines
- was a Tying Arrangement
- Court rules Per Se illegal
-“having market power in that product would “Substantially” lessen competition”
illegal under Clayton
Norhtern Pacific Railway Company v. United States
- Railroad sold land to people
- made ppl promise to ship their produced goods using railway if they couldn’t find cheaper way (tying arrangement)
- Illegal under Sherman Act Section 1
Required pre-merger notification?
- applies to mergers over 70M
- have to notify DOJ and FTC
- purpose is to give government time to oppose merger if necessary
- have 30 days to oppose
The ___ established the pre-merger notification
Hart-Scott-Rodino Antitrust Imporvement Act of 1976
3 Defenses when firms are allowed to merge?
Failing Firm Defense
Lack of Power in Industry
Power-Buyer Defense
How do you determine who has market power (regarding a merger)?
Rules to determine are constant being changed
-by the DOJ and FTC
Look at relevant market
- product market
- Geographical market
also Determined by Herfindahl-Hirschman Index (HHI)
- used numbers and squares of relelvant market to calculate
- under 1000 = merger allowed
- between 1000-18000 = not allowed
United States v. General Dynamics
Allowed Merger due to “Lack of Power in Industry”
- merger would form coal company monopoly
- coal was failing industry
- government said it wouldn’t matter then who buyers bought from
-approved merger
What are some exceptions to AntiTrust Law?
Labor Unions Agricultural Cooperative or Associations State Actions Foreign Trades Baseball Politics
