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Clayton Act 1914I. Came along 24 years after the Sherman acta. Intended to…make it easier to prove a violation (then the Sherman act)b. Sanctionsi. Injunction- stop orderii. Treble damages- still allowed. Competitors, customers, attorney general iii. Not criminal (because it is easier to prove) 1. Allow Clayton Act to make it easier to prove businesses wrong, but you can’tput people in jailiv. Made it so that antitrust laws (clayton act/ Sherman act) do not apply to labor unions v. Said that the Federal Trade Commission can bring charges up against companies (forClayton Act only) 1. The Department of Justice helps for the Sherman act and Clayton act2. FTC is for Clayton Act onlyc. The Clayton act is a more specific defining of practicesd. Violations include things that “might substantially lessen competition” or “tend to create a monopoly”i. Don’t need to prove that an actual monopoly happened, need only prove the probability or possibility of a monopolyii. (future visions are relatively easy to prove) iii. The government needs only to prove “might” or “trending to” in order to winII. Major Sections of the Clayton Acta. 8 – interlocking directoratesb. 2 – price discriminationc. 3 – exclusive and trying contractsd. 7- ownership of stockIII. Clayton Act section 8 a. Interlocking directoratesb. Says that you may not be on the board of two corporations if one has capital in excess of 1,000,000if they are or have been competitors. (if they ARE or WERE competitors then you can’t serve on the board) c. Example (sears/Goodrich case) i. These two companies have one director which could result in price fixing. One person cannot be on the board for both companies. Goodrich and sears tires were made by the same company; the name brand printed on the tires was the only difference. If someone sat on the board of one then knew what price Sears was going to charge, then they could go tell Goodrich what they were going to charge and this could lead to price fixing.IV. Clayton Act section 2a. Price discriminationi. (this was not an effective section because congress didn’t word it well) b. One seller selling an identical product to two buyers at different prices. This makes the person buying at the higher price discriminated against. i. Look from seller’s perspectiveii. **It is unlawful to discriminate in price where it might substantially lessen competition or tend to create a monopoly iii. It might not be “unlawful” if it doesn’t “substantially lessen competition or tend to create a monopoly”c. What to ask to test if it violates Section 2i. Is there “price discrimination”? ii. Might it substantially lessen competition or tend to create a monopoly? 1. If both yes, then it is unlawfuld. Section 2 amendmenti. **The Robert-Patmen Act- this is where you find price discrimination rules. 1. This is an amendment to section 2 of the clayton act because the Clayton act was written poorly e. EX: Henry Ford wanted everyone to be able to afford a car and so he made the assembly line, this changed how people bought groceries. People used to get groceries at a “corner store” and after the car was made people could go to supermarkets and have more options at better prices. A group of people opened grocery stores right outside town (where land was cheap) and sold people items at lower prices and people drove to these grocery stores. A & P (Atlantic and Pacific Tea Company) started the first supermarkets. Mom and Pop grocery “corner stores” went out of business because they couldn’t compete. Then A & P had no competition and they raised prices. A & P killed competition and then raised prices…and repeats. Is this legal?i. NO this is not legal because…1. it is price discrimination (in-town people with expensive milk and out-of town people with cheap milk)2. Predatory Pricing- pricing designed to kill off competition3. This illegal under Clayton Act section 2: predatory pricing (unlawful sales at falsely low prices to drive out competitors)ii. Why is it legal for Wal-Mart to do this?1. Wal-Mart does not have “predatory pricing” they have low prices ALWAYS.f. EX 2: FTC vs Borden. They sold evaporated milk under different labels at different prices. Borden’s labeled milk- higher price. i. This is PRICE DISCRIMINATION1. This is illegal because it causes Borden’s milk to get a monopoly on the market (they have both the spends customers and the generic customers)2. You may not charge different prices unless the price difference is justified. For example if one has higher quality control, then that is a justified reason to charge more. g. EX 3: Water Pick example Fort Collins New York Price Discrimination?$20 $22 No- shipping costs$22 $22 Yes- ft. Collins discriminated b/c no shipping needed for them$23 $22` Yesh. Affirmative Defensesi. Defenses against allegations of price fixingii. Cost1. Shipping2. Manufacturing- make in bulk costs less (so bulk is not price discrimination)3. Administrative costs- costs to send invoices or separate transactions 4. Changing conditions- day-old donuts are less=allowed 5. Perishability6. Obsolete- old car model 7. Distress- sell for cheap because lost lease and need to sell quick/ going out of business sale8. Good faith marketing competition- as long as they aren’t chatting with one another it’s okay V. Clayton Act Section 3: Tying Contractsa. Tying the sale of one product to another, getting people to have to but a stupid product thatnobody wants because it is packaged with the product they actually want. b. “Unlawful to sell or lease a product tied to another” when the effect “may substantially lessen competition tend to create a monopoly.”c. It’s generally unlawful (tying contract) when one of the goods is patentedi. Because they already have a monopoly on the market for that product, and the patent gives you a “government granted monopoly” 1. People are allowed to have patents because…a. Encourages innovationb. Encourages research2. EX: Pharmaceutical companies need patents as an incentive to put the initialinvestment money into developing new medicines 3. EX: International Salt Company had a special processing machine that they had invented to process salt. They patented the salt processing machine andwould only allow people to buy/lease the machines IF they purchased all of their raw salt from International Salt.a. Tying contract?…………..yesb. Significantly lessen competition


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CSU BUS 260 - Clayton Act 1914

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