Chapter 42: Antitrust Law

Business Law, Sixth Edition
© 2019 BVT Publishing. All rights reserved.
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Chapter 42:
Antitrust Law

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Learning Objectives
• Compare the schools of thought regarding
antitrust law.
• Describe the basic principles of antitrust law.
• Explain the concept of monopolization.
• Discuss the basic provisions regarding
restraint of trade.
• Discuss the advanced provision regarding
restraint of trade.
• Recognize international considerations
regarding antitrust law.

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42.0 In the News
Newspapers want anti-trust pass to
handle Facebook, Google
http://bvtlab.com/F3h68
Newspaper publishers want anti-trust exemption to
better negotiate with their Internet rivals. News
Media Alliance is proposing the exemption to
bargain collectively with the online platforms.
• What is meant by an anti-trust exemption?
• How would this help the newspaper industry?

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42.1a History (Slide 1 of 2)
• Nature of the free enterprise theory
– Provides the ultimate freedom for
businesses to compete
– Unethical behavior undermines free
market
• Need for governmental regulation
– Concentration of power by a wealthy few
– Trusts and other unfair competition
– Rising prices unchecked

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42.1a History (Slide 2 of 2)
• Federal legislation:
Sherman Act: antitrust law aimed at restraints of
trade and monopolization
Clayton Act: antitrust law focusing on exclusive
dealing contracts and mergers
Federal trade Commission Act: created the
FTC, the principal administrative agency charged
with enforcing antitrust laws
Robinson-Patman Act: antitrust law focusing
on price discrimination

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42.1b Schools of Thought
• Traditional School
– Believes the primary goal of antitrust laws should
be to protect competitors
• Chicago School
– Believes the primary goal of antitrust laws should
be to promote competition
• U.S. Supreme Court Justices
– Tend to embrace either the Traditional School or
the Chicago School

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42.1c Basic Principles
Jurisdiction
– Article I of the U.S. Constitution allows
Congress to create antitrust laws.
Exemptions
– Congress or the courts have granted certain
activities and industries an exemption from
federal antitrust laws.

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42.1d Enforcement
• Criminal
– Individuals may face a fine of up to $1 million
per violation and 10 years in prison.
– A corporation may be fined as much as $100
million per violation.
• Civil Sanctions
– Injunction
– Consent decree
– Divesture order
• Private Actions
– “Private attorney general” approach

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42.2a Nature of a Monopoly
Section 2 of the Sherman Act makes
monopolies a felony.
• Monopoly power
– The ability for one firm to fix prices unilaterally
– No true competitors
• Violation of Sherman Act based on:
– Relevant product or service
– Relevant market, and
– Intent

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42.2b Monopoly Power
General rule:
• Firm deemed to have monopoly power if
its share of the relevant market is 70% or
greater.
• Monopoly may be found if the share is
between 51% to 61%
- Structure of the industry
- Market concentration
- Degree of difficulty for new firms to enter
the industry
- Nature of the industry

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42.2c&d Relevant Market & Intent
Relevant market
• Appropriate product (or service)
- Determine what goods or services are
interchangeable
- “Substitutability” or “functional interchangeability”
• Appropriate geographic area
- Area in which a business can increase its price
without attracting new competitors and without
losing sales to competitors located beyond the
boundaries of the area
Intent
• Established by examining the conduct of a firm

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42.2d Critical Thinking
CASE: Weyerhaeuser Company
Question is whether the facts of this case
supported a predatory bidding scheme, where a
purchaser “bids up” market price of a critical input
such that competitors cannot survive.
• What is the difference between monopoly power
and monopsony power?
• Why are predatory pricing and predatory bidding
“rarely tried, and even more rarely successful”?
• Why does the Court find that predatory bidding is
often the “essence of competition”?

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42.2e Attempting to Monopolize
• Section 2 expressly makes illegal the
attempt to monopolize.
• U.S. Supreme Court has determined that an
attempt to monopolize requires:
– Predatory or anticompetitive conduct
– A specific intent to control prices or destroy
competition, and
– A “dangerous probability” of success

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42.3 Restraints of Trade—
Basic Provisions
• Concerted action
– Contract, Combination, or Conspiracy
• Per se
– Specific anticompetitive behavior is
conclusively presumed to be unreasonable.
• Rule of reason violations
– Courts make the determination that specific
behavior is an unreasonable restraint on trade
on a case-by-case basis.

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42.3b Per Se and Rule of
Reason Violations
Per Se Rule of Reason
Horizontal price-fixing (Sherman Act) Vertical price-fixing (Sherman Act)*
Horizontal division of the markets (Sherman Act)* Vertical division of the markets (Sherman Act)
Horizontal group boycotts (Sherman Act)* Vertical boycotts (Sherman Act)
Tying arrangements (Sherman Act and Clayton Act)
Reciprocal dealing arrangements (Sherman Act)
Exclusive dealing arrangements (Sherman Act and
Clayton Act)
* Indicates the general trend, although it is possible for the alternative characterization to apply in selected
situations.

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42.3c Horizontal Restraints Under the
Sherman Act
Horizontal price-fixing
• Concerted action where competitors establish the
price instead of the market
Horizontal division of the market
• Competitors at the same level sign agreement
creating horizontal division of the market.
Horizontal group boycotts
• Two or more competitors agree to refuse to
purchase products from a specific business.

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42.3d Vertical Restraints Under the
Sherman Act
Vertical price-fixing
• Section 1 of Sherman Act does allow a
manufacturer to suggest the price.
• Colgate doctrine
Vertical division of the markets
• Arrangements between a manufacturer and its
wholesalers that limit their ability to market the
product
Vertical group boycotts

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CASE: Continental T.V. Inc.
This case is judged under the rule of reason
standard because there are some virtues to
consumers associated with vertical restrictions
that promote intrabrand competition.
• What is the difference between interbrand and
intra-brand competition?
• Why did the court reverse the Schwinn decision?
• What impact does the case have on business?
• Regarding the business community, is the decision
more restrictive or more liberal? Why?

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42.4 Restraints of Trade
Advanced Provisions
• Exclusionary contracts under the Clayton Act
– Tying arrangement
– Exclusive dealing agreements
• Mergers under the Clayton Act
• Price discrimination fundamentals
• Price discrimination defenses
– Cost justification
– Notion of meeting competition

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CASE: Water Craft Management
This case questions whether a proper defense
of meeting competition was established.
• What is needed in order to establish the
meeting competition defense?
• What factors influenced the court to agree with
the trial court that the defense was established?

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42.5 International Considerations
• Reach of United States Laws
– Anticompetitive conduct can occur outside
the U.S., yet U.S. antitrust law still applies.
• Reach of Foreign Laws
– Outside the U.S., countries are starting to
take a more vigorous stand to extend their
antitrust laws beyond their national borders.

Chapter 42: Antitrust Law

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Chapter 42: Antitrust Law