Chapter 27 Antitrust and Restraint of Trade

1. Chapter 27 Antitrust and Restraint of Trade

2. Overview • Federal antitrust legislation is directed towards anticompetitive agreements between rival firms, involving, e.g., price fixing, restriction of output and division of markets. • This chapter will examine concerted behavior designed to impede competition and free market enterprise.

3. § 1: Restraints of Trade — Overview • Per se violations of Section 1 of the Sherman Act are those agreements deemed blatant and substantially anticompetitive. • Courts consider the “rule of reason” and the “soft” per se rule in determining whether a specific agreement is a restraint of trade under Section 1.

4. Seller Seller Seller Buyer Buyer Buyer § 2: Horizontal Restraints • Horizontal restraints are agreements among Sellers (or Buyers) that restrain competition between rival firms competing in the same market .

5. Horizontal Restraints [2] • Horizontal restraints include: • Price Fixing: the definitive case is U.S. v. Socony-Vacuum Oil Co (1940). • Identifying a Price-Fixing Agreement is not always easy. • Case 27.1: In Re Cardizem CD Antitrust Litigation (2003).

6. Horizontal Restraints [3] • Horizontal Market Divisions. • Agreements to control prices by dividing the market among rival firms where each firm has a monopoly in its geographical area. • Trade Associations. • A concentrated industry is controlled by one or a few firms that control a large percentage of market sales. • Case 27.2: Wilk v. AMA (1990).

7. Group Boycotts • Group Boycotts: Agreement between two or more firms to refuse to transact business with a particular firm or person. Purpose may be to enforce anticompetitive agreements or lock out competitors. • Case 27.3:NYNEX v. Discon, Inc. (1998).

8. Joint Ventures • Courts consider whether the JV is a violation of the Sherman Act and whether the purpose is permissible. An important factor is the JV’s market share.

9. Seller Buyer Buyer Buyer § 3: 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.

10. Vertical Restraints [2] • Territorial or Customer Restrictions. • Case 27.4:Continental TV v. GTE Sylvania (1977). • Resale Price Maintenance Agreements (or “fair trade” agreements). • Case 27.5:State Oil v. Khan (1997).

11. Refusals to Deal • Generally, firms have freedom to contract which allows them to refuse to deal with other firms. • Refusals to deal violate antitrust laws when: • 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.

12. Price Discrimination • Whenever a Seller charges different Buyers different prices for the same goods. • This is a per se violation when it injures competition. • What about “negligible” differences such as labeling or branding that result in customer preferences? • What about time and cost considerations?

13. Exclusionary Practices • Exclusive-Dealing contracts: Seller forbids the Buyer from purchasing products from the Seller’s competitors. • Tying Arrangements: Seller conditions the sale of a product on the Buyer’s agreeing to purchase another product produced or distributed by the same Seller.

14. Mergers • Horizontal Mergers are mergers between firms that compete with each other in the same market. • Vertical Mergers occur when a company at one stage of production acquires a company at a higher or lower stage of production. • Crucial consideration in mergers is the market concentration after the merger. • Case 27.6:FTC v. Libbey, Inc. (2002).

15. Conglomerate Mergers • The three types of conglomerate mergers are: • Market-Extension Merger. • Product-Extension Merger. • Diversification Merger.