BUS260-Exam3Government Regulation of Business Activities- Antitrust law-Sherman Act 1890o Competitive system Ethical issues: robber barons?o Reasons for competition Prices that reflect demand and cost for the most productive useof resources Encourages price reductions- Sale today! Encourage innovation in new products- New and improved!o Rather remain private company vs. public because can keep information secretiveo Purposes of antitrust laws Encourage a large number of competitors Equitable distribution of income Efficiency  Prevent monopolies  Provide workable competition- Oligopoly: more than one company, but not severalo Only 2-3 competitors, limited workable competitiono All that is workable is some cases Prevent accumulation of economic power- Ethical issues- Sherman acto Two basic provisions Prevent a monopoly  Illegally enter into a contract in restraint tradeo Used against Microsoft, Intel, etc. o Kept simple because they recognized they had very little knowledge about subjecto Claritin example: pay off generic competitor so it gets ride of themo Microsoft: windows only Gave away explorer for free- Sanctions of Sherman acto Criminal 1,000,000 fine: corporation 100,000 fine: individual 3 years in prisono Equitable injunction/divestiture Injunction- court order to stop Divestiture- divest yourself of company, break up, separate yourself from companyo Law: treble damages by  Competitors Customers State attorney-general- 17 sued Microsoft *point: government doesn’t pay anything if a firm is caught cheatingo Pleas Guilty, not guilty, nolo contendre Plea of guilty or a conviction are prima facie cases for treble damages- Price fixingo Rule of reason, 1911: Not every contract in restraint of trade is illegal. Only prevent those that are an “unreasonable” restraint of tradeo Sherman Act applies to labor union: sets wageso Antitrust-sherman act competitive system price fixingo Sherman Act Says: o Price fixing: (always illegal) Illegal per se, whether the prices are fair and reasonable, or not. Always be illegal - Includes dividing up market territories or limiting the supplyo *barriers for entry- Introduction to Clayton Act 1914o Sherman act 1890 Must show ACTUAL monopoly Not very specific Applied to labor unionso Clayton Act 1914 Easier to prove a violation Sanctions: injunction, treble damages, not criminal Federal Trade Commission may enforce as well as the Justice Department Antitrust laws do NOT apply to labor unions- Neither can Sherman act Sherman act changed twice: Rule of reason/Clayton act More specific in defining practices Where the effect “might substantially lessen competition” or “tend to create a monopoly”, need NOT prove actually dido Major Sections of Clayton Act Section 8: Interlocking directorates- May not be on the board of two corporations if one has capital in excess of $1,000,000; if are or have been competitors - Landmark caseo Sears: Goodrich had one common director; couldresult in price fixing whether it had in the past ornot Section 2: Price discrimination- Unlawful for a seller to discriminate in price where effect was to substantially lessen competition or tend to create a monopoly---not an effective section- Unlawful sales at low prices to drive out competitorso Can still have walmart because they don’t raise their prices when competition leaves/shutdown A & M raised pirces after driving away competitiono The Robinson-Patman Act amended section 2 of the Clayton Act- Ethical issueso Prohibit practices of A & P and others in forcing competitors out of business with illegal practices- Have equal opportunity to smaller retailers- FIC vs. Bordeno Evaporated milk under different labels at different priceso May not charge different prices unless cost is justified—could include quality control- Affirmative defenseso Costo Shippingo Manufactureo Administrative o Changing conditions Perishable (fruit) Seasonal: xmas décor Fire Obsolete- Newest IPOD, 2011 cars Distress - Going out of business, lost lease Good faith meets competition: gas stations Section 3: Exclusive and tying contracts- Tying contracts: unlawful to sell or lease a product tied to another where effect may be to “substantially lessen competition” or “trend to create a monopoly”- Generally unlawful when one of the products is patentedo Ski grab (swap): sports authority Board good, boots shit etc (packages) Yes tying contract=package Legal cuz it’s not going to make a monopolyo Must buy helmets with bike CO has no law of helmet Ethics code: must buy helmet Violation? No - Landmark case: International salt caseo Patent on salt processing machineo Lease salt processing machines only if lessee would purchase salt from international salt companyo Tends to create monopoly in raw salto Said they could only buy raw salt from them or they wouldn’t put it in machine- “Full-line forcing”: requires purchaser to purchase full line products in order to get major producto KFC: want open your own Must buy 11 secret blend of spices and chicken from KFC- Consistency Section 7: Ownership of stock in competing corporations- Ownership of stock in competing corporations: i.e. mergers, consolidations, acquisitions- Clayton Act-Mergerso No company may acquire the stock or assets of another if: substantially lessen competition, or tend to create a monopoly Aluminum producers: Alcoa, Reynolds, & Kaiser are all foil converters companies- Arrow- florist foil Reynolds tried to buy arrow, but was shutdown- They would get competitive advantage and better prices for florist foilo “Geographic” market Might substantially lessen competition or tend to create monopoly? How to define geographic market Whether restraint of competition exists depends upon the geographic market- One established, still some question whether “tend to create” monopoly- Philadelphia National Banko Too many locations= domination- Clayton act- Conglomerate Mergers 11/30/10o Conglomerate company- (single ownership) that owns lots of other companies all of which are unrelated (different businesses)o Where a company is acquiring another companyo ITT second challenge: owned… Canteen Corp., Avis, Continental Banking, Sheraton Hotels, Aetna Insurance, “Who’s Who”; then acquired Hartford Insurance Were challenged on