R8.6 – Anti-Trust Regulation

Question 0

Sherman Act

Answer 0

2 sections:

1. Prohibits contracts, combinations, and conspiracies that restrain trade
2. Prohibits monopolies and attempts to monopolize

Sherman Act only applies to activities that have a significant impact on interstate commerce

Sherman Act criminal in nature: Violations are crimes

Question 1

4 Antitrust Laws

Answer 1

1. Sherman act
2. Clayton act
3. Robinson-Patman act
4. Federal Trade Commission act

Question 2

Sherman Act Section 1 & 2: Unilateral vs concerted actions

Answer 2

Section 1violations requires concerted action between at least two parties
– Note: A corporation and its wholly owned subsidiary viewed as one entity

Section 2 violations can be by unilateral action or by multiple parties acting together

Question 3

Sherman Act Section 1: Per Se Violations

Answer 3

– Horizontal restraints
– Horizontal price fixing
– Horizontal market allocations
– Horizontal agreements to boycott a product, manufacturer, distributor
– tying agreements where seller has considerable economic power

Question 4

Sherman Act Section 1: Judged under Rule of Reason

Answer 4

– Vertical restraints
– Veertical price fixing
– Veertical market allocations
– Non-horizontal agreements to boycott a product, manufacturer, distributor
– tying agreements where seller does not have considerable economic power
– Joint ventures and trade associations not formed to fix prices or divide markets
– Joint ventures in the research and development of new technology

Question 5

Sherman Act Section 2: Monopoly

Answer 5

Company has 70%+ market share = monopoly

Company has < 40% market share = not a monopoly

Company has 40% - 70% market share = may or may not be monopoly

Question 6

Sherman Act Section 2: Illegal Monopoly

Answer 6

Courts require two elements to establish an illegal monopoly

1. Monopoly power, and
2. Achieve the power unfairly or abuse the power once achieved

Question 7

Sherman Act Section 2 & Patents

Answer 7

A patent grants a limited monopoly to the patent holder.

The patent holder can sell item at whatever price without violating the Sherman Act

Question 8

Sherman Act Enforcement

Answer 8

– Justice Department can file criminal and civil actions in federal court

- Violations are felonies and may be punished by fines and imprisonment
- injunctions prohibiting violations
- Compel divestiture of subsidiaries
- Canceling contracts
- Divide the company's assets to create a competing entity.

– States can also bring suits on behalf of the citizens for treble damages.

– Infividuals can bring civil suit to recover treble damages and attorney fees
- Must show direct injury caused by anti-competitive behavior

– Participants in anti-competitive behavior case cannot sue

Question 9

Clayton Act: Purpose

Answer 9

Clayton Act aims to stop anticompetitive behaviours in the incipiency (i.e. stop them before they become Sherman Act violations)

Clayton Wct civil in nature

Question 10

Clayton Act: Relevant Sections

Answer 10

Section 2 – Price-fixing
Section 3 – Exclusive dealing contracts and tying arrangements
Section 7 – Mergers & Acquisitions
Section 8 – interlocking directorates

Question 11

Clayton Act Section 2 – price-fixing

Answer 11

Altered by Robinson-Patnam act

Applies to price discrimination of commodities of like grade and quality

Does not cover price discrimination involving services, real estate, or intangibles

Prohibits sellers and buyers from price discrimination it substantially lessons competition attends to create a monopoly

Prohibits buyers from inducing and sellers from granting discounts of any type

Question 12

Types of Anti-competitive effects

Answer 12

Primary-line injury = injuries to a seller’s competitors

Secondary-line injury = injuries to seller’s customers

Tertiary-line injury = injury to customers of a seller’s customer

Question 13

Defenses to Section 2 of the Clayton Act

Answer 13

Cost justification – passing cost savings onto customers
– Discount must be given to all buyers in that group

Changing conditions

Meeting (but not beating) competition

Question 14

Clayton Act Section 3 – Exclusive dealing contracts and tying arrangements

Answer 14

Tying arrangements are illegal if seller has a considerable amount of economic power in the tying product market

Exclusive dealing arrangements = seller of goods requires the buyer to promise not to dealing goods of a competitor
– Clayton Act violation if it tends to create monopoly or substantially lessons competition

Question 15

Clayton Act Section 7 – Mergers & Acquisitions

Answer 15

Prohibits merger or acquisition of the company if effect is to substantially lessen competition

Question 16

Types of Mergers

Answer 16

Horizontal mergers = merges between competitors
– Most stringently judged

Vertical mergers
– Forward vertical merger = Firm acquires a customer
– Backward vertical merger = Firm acquires supplier

Conglomerate merger = firm acquires company in a completely different business

Question 17

Failing Company Exception to Clayton Act Section 7

Answer 17

If acquired firm is in danger of becoming insolvent and no other purchasers are available, merger can still be lawful even if the effect is to lessen competition

Question 18

Clayton Act Section 8 – Interlocking Directorates

Answer 18

Prohibits COMPETING corporations engaged in interstate commerce from having common directors

Interlocking directorates in competing companies is permissible if the overlap in competition is insignificant

Section 8 does not apply to 
– Banks
– Banking associations
– Trust companies
– Common carriers

Question 19

Enforcement of Clayton Act (& Robinson-Patnam Act)

Answer 19

The Federal Trade Commission and Justice Departnment enforce Clayton Act and Robinson-Patman Act through civil, not criminal, actions
– Ask courts to order divestiture or dissolution
– Seek injunctions to prevent further violations
– Issues cease and desist orders

Private parties directly harmed can sue for treble damages and attorney fees

Firms taking part in anti-competitive behavior may not sue

Question 20

Federal Trade Commission Act

Answer 20

Created the Federal Trade Commission (FTC).

Makes illegal unfair methods of competition, and prohibits unfair or deceptive practices

Question 21

Enforcement of Federal Trade Commission Act

Answer 21

No private-party lawsuits

Enforcement by FTC only

FTC has power to
– Seek preliminary and permanent injunctions
– Issues cease and desist orders
– Require advertisers to make affirmative disclosures
– Require corrective ads

Question 22

Exemptions from Anti-Trust Laws

Answer 22

Labor unions

Agricultural associations

Insurance business (partial exemption)

American exporters may engage in joint export activities as long as the activities do not restrain trade within the US

Cooperative research among small businesses is exempt

Business people may join together to obtain legislative or executive action

Professional baseball