Antitrust Law

Horizontal Restraint of Trade: When two competitors in same market make an agreement to restrain trade

 

Price Fixing: When two or more competitors agree to set prices for a product/service

 

Horizontal Division of Markets: Agreement between two or more competitors to divide among themselves markets by geography, customers, or products

 

Vertical Restraint of Trade: When two parties at different levels in manufacturing and distribution process make an agreement that retrains trade

 

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Chapter 47Antitrust LawCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.47-2Exhibit 47-1: Antitrust Law RationaleTraditional Antitrust TheoriesTo foster competition, a few powerful sellers should not dominate the economy; there should be many buyers and sellers in the marketAccumulation of economic power leads to accumulation of political power, which leads to political consequences for consumersEfficiency should not be the only or most important goal of antitrust lawChicago SchoolTheoriesDo not argue that concentrated economic power leads to political consequencesIf a company held great economic power and if the power led to efficiency, company should be left alonePurpose of antitrust law is to encourage economic efficiencyThe Sherman Antitrust ActApplies to business practices that restrain trade/commerce47-347-4Sherman Antitrust Act “Section 1” ViolationsElements of violation:Agreement between partiesUnreasonable restraint on tradeRestraint affects interstate commerce47-5Sherman Antitrust Act Section 1 ViolationsHorizontal Restraint of Trade: When two competitors in same market make an agreement to restrain tradePrice Fixing: When two or more competitors agree to set prices for a product/serviceHorizontal Division of Markets: Agreement between two or more competitors to divide among themselves markets by geography, customers, or productsVertical Restraint of Trade: When two parties at different levels in manufacturing and distribution process make an agreement that retrains trade47-6Sherman Antitrust Act “Section 2” ViolationsOccur when companies with monopoly power use their economic power to limit production and raise prices“Monopolization”: Occurs when company:Possesses market power; andUnfairly achieved this market power/uses this market power for abuse“Attempt to Monopolize”: Occurs if company intends its behavior to:Exclude competitors; andAllow company to gain monopoly power47-7The Clayton ActSection 2: Prohibits price discrimination: Occurs when company sells same goods to competing buyers for different pricesSection 3: Prohibits exclusionary practices, including exclusive dealing and tying arrangementsSection 7: Prohibits Anti-competitive mergers and acquisitionsHorizontal Merger: Merger between two or more companies producing same/similar productsVertical Merger: Occurs when one company at one level of manufacturing-distribution system acquires company at another level of systemConglomerate Merger: Occurs when company merges with another company that is not a competitor or a buyer/seller to the companySection 8: Prohibits person from becoming director in two or more competing companies47-8The Federal Trade Commission ActProhibits unfair and deceptive methods of competitionAny anti-competitive behavior not prohibited by Sherman Act/Clayton Act is potentially illegal under Federal Trade Commission Act47-9The Robinson-Patman ActAs originally written, the Clayton Act did not apply to buyersIn effort to limit buyers’ power (in addition to sellers’), Congress adopted The Robinson-Patman Act

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