CHAPTER 41

1. Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide. CHAPTER 41 Antitrust: Law and Competitive Strategy, Part II

2. Quote of the Day “Beware of that profound enemy of the free enterprise system who pays lip-service to free competition -- but also labels every anti-trust prosecution as a ‘persecution.’ You know, it depends a good deal on whose baby has the measles.” Franklin D. Roosevelt, United States President

3. Monopolization • Under §2 of the Act, it is illegal to monopolize or attempt to monopolize. • To tell if a monopoly is illegal, ask: • What is the market? • Does the company control the market? • No matter what your market shares, you do not have a monopoly unless you can exclude competitors or control prices. • How did they acquire or maintain control? • Possessing a monopoly is may not be illegal; using “bad acts” to acquire or maintain one is.

4. Predatory Pricing • Predatory pricing occurs when a company lowers its prices below cost to drive competitors out of business. • To prove predatory pricing, show: • The defendant is selling its products below cost. • The defendant intends that the plaintiff goes out of business, • If the plaintiff does go out of business, the defendant will be able to earn sufficient profits to recoup its prior losses.

5. Tying Arrangements • Selling a product on the condition that the buyer also purchases a different (or tied) product. • To determine if it is illegal, ask: • Are the two products clearly separate? • Is the seller requiring the buyer to purchase the two products together? • Does the seller have significant power in the market for the tying product? • Is the seller shutting out a significant part of the market for the tied product?

6. Controlling Distributors and Retailers • Allocating Customers and Territory • A vertical allocation of customers or territory is illegal only if it adversely affects competition in the market as a whole. • Exclusive Dealing Agreements • An exclusive dealing contract is one in which a distributor or retailer agrees with a supplier not to carry the products of any other supplier. These may be illegal if they severely limit the competition.

7. Resale Price Maintenance • Resale price maintenance (RPM) means that the manufacturer sets minimum prices that retailers may charge, eliminating discounting of certain products. • Manufacturers may want to set minimum prices to build loyalty with distributors or to maintain an upscale image or to reduce competition among its distributors.

8. Resale Price Maintenance(cont’d) • RPM is a per se violation of the law. A manufacturer may not enter into an agreement with distributors to fix prices. • Vertical Maximum Price-Fixing • Vertical maximum price fixing (manufacturer setting maximum retail price) is only illegal if it has an adverse effect on competition.

9. “Lawmakers are continually seeking the right balance between healthy competition and destructive aggression. In the end, antitrust laws benefit us all, as they ensure the fair and open competition necessary for a healthy economy.”