Chapter 27Antitrust LawI. The Sherman Antitrust Acta. A response to what was seen as a reduction in competition in the Americanmarketplaceb. 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 trade2. 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 existsc. Jurisdictional Requirementsi. Federal courts have exclusive jurisdiction over Sherman Act casesii. Any activity that substantially affects interstate commerce falls under the Sherman ActII. Section 1 of the Sherman Acta. Based on the assumption that a restraint of trade through a consolidation of market power is harmful to societyb. Per Se Violations: restraints of trade that are substantially anticompetitive are inherently illegalc. 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 purposeii. Parties’ ability to implement the agreement to achieve the purposeiii. Effect/potential effect of the agreement on competitioniv. 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 marketi. Price fixing: an agreement among competitors to artificially set prices is unlawful per seii. 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 violation1. Plaintiff must prove that the boycott was undertaken with the intention of eliminating competition2. A boycott against a supplier for political reasons may be protected speech under the First Amendmentiii. 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 thatrestrains trade benefits the association AND the public it may be deemed reasonable2. Concentrated industries: one where a single firm or small number of firms control a large percentage of market sales, possibly facilitating anticompetitive actse. Vertical Restraints: arise from agreements between firms at different levelsin the distribution processi. 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 reasonii. 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 reasonIII. Section 2 of the Sherman Acta. Proscribes monopolization, predatory pricing, and attempts to monopolizeb. 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 marketii. Relevant market: made up of two things1. Relevant product market: in determining the relevant product market the question is the degree of products’ interchangeability2. 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 areaiii. 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 2iv. 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 conductii. Specific intent to exclude competitors and garner monopoly poweriii. A “dangerous” probability of success in achieving monopoly powerIV. The Clayton Acta. 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 competitionb. Price Discrimination: occurs when a seller charges different prices to competitive buyersi. Required elements:1. Seller must be engaged in interstate commerce2. The goods must be of like grade or quality3. The good must have been sold to two or more buyers4. The effect of the price discrimination must be to substantially lessen competition or create a competitive injuryii. 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 competitor3. Changing market conditions: changing conditions affected the market for or marketability of the goodsc. 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 competitori. 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 competitionii. Tying Arrangements: when a seller conditions the sale of a producton 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 marketsd. Mergers: a person or business organization is forbidden to hold stock or assets in another business if the effect “may be to