Chapter 46
Antitrust Law
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Introduction
Common law actions intended to limit restraints on
trade and regulate economic competition.
Embodied almost entirely in:
 The Sherman Antitrust Act of 1890.
 The Clayton Act of 1914.
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§ 1: The Sherman Antitrust Act
Section 1 and 2 contain the main provisions of
the Sherman Act.
 Section 1:
• Requires two or more persons, as a person cannot contract,
combine, or conspire alone.
• Concerned with finding an agreement.
 Section 2:
• Applies both to an individual person and to several people,
because it refers to every person.
• Deals with the structure of monopolies in the marketplace.
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§ 2: Section 1 of the Sherman Act
Section 1 regulates what are called “horizontal”
and “vertical” restraints.
Per se violations vs. the Rule of Reason
 Per se are blatant and substantially anticompetitive.
 Rule of reason agreements do not unreasonably
restrain trade.
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Horizontal Restraints
Horizontal restraints are agreements among
Sellers (or Buyers) that restrain competition
between rival firms competing in the same
market .
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Seller
Seller
Seller
Buyer
Buyer
Buyer
Price Fixing
An agreement between competing firms in the
market to set an established price for the goods or
services they offer.
Price fixing is a per se violation of the Act.
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Group Boycotts
Agreement between two or more sellers to refuse
to deal with a particular person or firm.
Group boycotts are per se violations of the Act.
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Horizontal Market Division
Occurs when competitors in the same market
agree that each will have exclusive rights to
operate in a particular geographic area.
Horizontal market divisions are per se violations
of the Act.
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Trade Associations
Trade Associations are industry specific
organizations created to provide for the
exchange of information, representation of the
business interests before governmental bodies,
advertising campaigns, and setting of regulatory
standards to govern their industry or profession.
Rule of reason is applied to determine if a
violation of the Act has occurred.
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Joint Ventures
A joint venture is an undertaking by two or more
individuals or firms for a specific purpose.
The rule of reason is applied to analyze the
agreement if the venture has first been found not
to involve price fixing or market divisions.
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Vertical Restraints
Vertical restraints are
per se anticompetitive
agreements imposed
by Sellers upon Buyers
(or vice versa) that
may include affiliates
in the entire supply
chain of production.
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Seller
Buyer
Buyer
Buyer
Vertical Restraints [2]
Agreements between firms at different levels of
the manufacturing and distribution process.
Vertical restraints may restrain competition
among firms that occupy the same level in chain.
Vertical restraints that significantly affect
competition may be per se violations.
Case 46.1: Continental TV Inc. v. GTE Sylvania,
Inc. (1977).
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Territorial or Customer Restrictions
Imposed by manufacturers on the sellers of the
products, to insulate dealers from direct
competition with each other.
Territorial and customer restrictions are judged
under the rule of reason.
Case 45.2: T.V., Inc. v. GTE Sylvania, Inc.(1997).
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Resale Price
Maintenance Agreements
An agreements between a manufacturer and a
distributor or retailer in which the manufacturer
specifies the retail price at which retailers must
sell products furnished by the manufacturer or
distributor.
This is a type of vertical restraint and is normally
a per se violation.
Case 46.2: State Oil Co. v. Khan (1997).
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Refusals to Deal
Unlike a group boycott, a refusal to deal is an
action by one firm against another, and this is
usually legal, unless:
 the firm refusing to deal has, or is likely to acquire,
monopoly power, and
 the refusal is likely to have an anticompetitive effect
on a particular market.
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§ 3: Section 2 of the
Sherman Antitrust Act
Section 2 of the Sherman Antitrust Act deals
with:
 Monopolization.
 Attempts to monopolize.
Predatory pricing.
 Attempt by a firm to drive its competitor from the
market by selling its product at prices substantially
below the normal costs of production.
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Monopolization
Monopolization in violation of the act requires
two elements:
 The possession of monopoly power and
 The willful acquisition and maintenance of the power.
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Monopoly Power
Exists when one firm has sufficient market
power to control prices and exclude competition.
Market power is often assessed by the use of the
Market-Share Test.
 As a rule of thumb, if a firm has 70% or more of a
relevant market, it is regarded as having monopoly
power.
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The Intent Requirement
The intent to monopolize is difficult to prove.
Intent may be inferred from evidence that the
firm had monopoly power and engaged in
anticompetitive behavior.
Case 46.3: U.S. v. Microsoft Corp. (2001).
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Attempts to Monopolize
Firm actions are scrutinized to determine
whether they were intended to exclude
competitors and garner monopoly power and had
a “dangerous” probability of success.
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§ 4: The Clayton Act
The Clayton Act deals with:




Price Discrimination.
Exclusionary Practices.
Mergers.
Interlocking Directorates.
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Price Discrimination
 Price discrimination is the charging of different
prices to competing buyers for identical goods.
 Exceptions:
 Charge of lower price was temporary and in good faith
to meet another seller’s equally low price to the buyer’s
competitor.
 A particular buyer’s purchases saved the seller costs in
producing and selling the good.
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Exclusionary Practices
Exclusive Dealing Contracts.
 A contract under which a seller forbids a buyer
to purchase products from the seller’s
competitors.
 Prohibited if the effect of the contract is to
“substantially lessen competition or tend to
create a monopoly.”
Tying Arrangements.
 The conditioning of the sale of a product on the
buyer’s agreement to purchase another product
produced or distributed by the same seller.
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Mergers
Horizontal Mergers occur between firms at
the same level in the production and
distribution chain.
Vertical Mergers occur between firms at
different levels in the production and
distribution chain.
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Mergers
Conglomerate Mergers occur when a firm seeks
to:
 Extend its product into a new market by merging with
a firm in that market.
 Extend its product line by merging with a firm
already producing that product.
 Diversify by acquiring a firm that deals in unrelated
products.
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Interlocking Directorates
Occurs when an individual serves on the board of
directors of two or more competing companies
simultaneously.
These are prohibited if the two firms meet certain
size requirements.
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§ 5: Enforcement of
Antitrust Laws
U.S. Department of Justice.
The Federal Trade Commission enforces the
FTCA. FTCA provides that:
 “Unfair methods of competition in or affecting
commerce, and unfair or deceptive acts or practices in
or affecting commerce are hereby declared illegal.”
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Private Actions
Private party injured under the Sherman or
Clayton Act can:
 Sue for damages and attorneys fees.
 Plaintiff must prove:
• Antitrust violation either caused or was a substantial factor
in plaintiff’s injury, and the unlawful actions of Defendant
affected Plaintiff’s business protected by antitrust laws.
 Treble Damages.
• Case 46.4: Paper Systems v. Nippon Paper (2002).
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§ 6: Exemptions from
Antitrust Law
 Most statutory exemptions to the antitrust laws apply to
the following areas:







Labor.
Agricultural associations and fisheries.
Insurance.
Foreign trade.
Professional baseball.
Cooperative research and production
Joint efforts y businesspersons to obtain legislative or
executive action.
 And Others.
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§ 7: U.S. Antitrust Laws
in the Global Context
U.S. laws may be applied to protect foreign
consumers from U.S. company violations in
foreign nations.
Foreign “persons” (including governments) may
sue U.S. companies in domestic courts.
Issue is: substantial effect on U.S. commerce?
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Law on the Web
Antitrust Division of the U.S. Department of
Justice.
American Bar Association’s Antitrust Website.
The Federal Trade Commission’s “Plain English
Guide to Antitrust Law.”
Legal Research Exercises on the Web.
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