Chapter 27 Antitrust Law I The Sherman Antitrust Act a A response to what was seen as a reduction in competition in the American marketplace b Act criminalizes agreements that wrongfully restrict trade Section 1 and the misuse of monopoly power in the marketplace Section 2 i Section 1 deals with 1 Acts involving two or more people who combined conspired or contracted to restrain trade 2 Agreements that restrain trade ii Section 2 deals with 1 Structure of a monopoly a market in which there is a single seller or very limited number of sellers 2 Cases where the threshold or necessary amount of monopoly power already exists c Jurisdictional Requirements i Federal courts have exclusive jurisdiction over Sherman Act cases ii Any activity that substantially affects interstate commerce falls under the Sherman Act II Section 1 of the Sherman Act a Based on the assumption that a restraint of trade through a consolidation of market power is harmful to society b Per Se Violations restraints of trade that are substantially anticompetitive are inherently illegal c Rule of Reason a judicial analysis that seeks to determine whether an anticompetitive agreement is actually a reasonable restraint of trade courts will look at i Agreement s purpose ii Parties ability to implement the agreement to achieve the purpose iii Effect potential effect of the agreement on competition iv Could the parties have relied on less restrictive means to achieve their purpose d Horizontal Restraints any agreement that restrains competition between rival firms in the same market i Price fixing an agreement among competitors to artificially set prices is unlawful per se ii Group boycotts an agreement by two or more sellers to refuse to deal with or boycott a particular person or firm is a per se violation 1 Plaintiff must prove that the boycott was undertaken with the intention of eliminating competition 2 A boycott against a supplier for political reasons may be protected speech under the First Amendment iii Horizontal Market Division it is a per se violation for competitors to divide up territories or customers iv Trade Associations frequently involved in setting regulatory standards to govern the industry or profession 1 Rule of reason is applied if a trade association practice that restrains trade benefits the association AND the public it may be deemed reasonable 2 Concentrated industries one where a single firm or small number of firms control a large percentage of market sales possibly facilitating anticompetitive acts e Vertical Restraints arise from agreements between firms at different levels in the distribution process i Territorial or Customer Restrictions manufacturer may institute territorial restrictions or attempt to ban wholesalers or retailers from reselling the product to a certain class of buyers judged under the rule of reason ii Resale Price Maintenance Agreements agreement by which a manufacturer tells a retailer at what price the retailer can sell the manufacturer s product subject to the rule of reason III Section 2 of the Sherman Act a Proscribes monopolization predatory pricing and attempts to monopolize b Monopolization a Section 2 violation has two elements 1 Possession of monopoly power in the relevant market and 2 Willful acquisition or maintenance of monopoly power i e intent to monopolize i Monopoly power a dominant share of the relevant market and significant barriers for new competitors entering the market ii Relevant market made up of two things 1 Relevant product market in determining the relevant product market the question is the degree of products interchangeability 2 Relevant geographic market section of the country within which a firm can increase its price a bit without attracting new sellers or without many customers to alternative suppliers outside that area iii Intent Requirement if a firm possesses market power as a result of some intentional act to acquire or maintain power through anticompetitive means it is a violation of Section 2 iv Unilateral Refusals to Deal occurs when manufacturers refuse to deal with retailers or dealers who cut prices to levels substantially below the manufacturer s suggested retail price might violate Section 2 depending on the monopoly power of the firm refusing to deal does NOT violate Section 1 c Attempts to Monopolize also prohibited under Section 2 requires proof of i Anticompetitive conduct ii Specific intent to exclude competitors and garner monopoly power iii A dangerous probability of success in achieving monopoly power IV The Clayton Act a Targets specific practices that substantially reduce competition or could lead to monopoly power but are not clearly prohibited by the Sherman Act must always show that the effect of the contested action was to substantially lessen competition tend to create a monopoly or otherwise injure competition b Price Discrimination occurs when a seller charges different prices to competitive buyers i Required elements 1 Seller must be engaged in interstate commerce 2 The goods must be of like grade or quality 3 The good must have been sold to two or more buyers 4 The effect of the price discrimination must be to substantially lessen competition or create a competitive injury ii Defenses 1 Cost Justification A buyer s purchases saved the seller costs in producing and selling the goods 2 Meeting a competitor s prices When a lower price is charged temporarily and in good faith to meet another seller s equally low price to the buyer s competitor 3 Changing market conditions changing conditions affected the market for or marketability of the goods c Exclusionary Practices sellers or lessors cannot sell or lease on condition that the buyer or lessee not use or deal in the goods of the seller lessor s competitor i Exclusive Dealing Contracts a contract under which a seller forbids a buyer to purchase products from the seller s competitors prohibited if the effect is to qualitatively and substantially harm competition ii Tying Arrangements when a seller conditions the sale of a product on the buyer s agreement to purchase another product produced or distributed by the same seller legality depends on the agreement s likely effect on competition in the relevant markets d Mergers a person or business organization is forbidden to hold stock or assets in another business if the effect may be to substantially lessen competition must consider market concentration when evaluating mergers i Horizontal mergers mergers