Ch. 17-Antitrust Law

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Concepts and terms for quiz #2 and the final exam

Market Failure

Economic theory that allocation of goods are services in free market may become inefficient and pursuit of self-interest may lead to social harms in certain situations.

Antitrust Law

Largely a response to regulating abuses of Market Power

Sherman Act-Section 1

Prohibits contracts, combinations, and conspiracies in restraint of trade.

Sherman Act-Section 2

Prohibits monopolization and attempted monopolization.

Sherman Act-Section 5

Prohibits unfair methods of competition.

Prima Facie Case

Plaintiff must prove:
-There is a contract, combination, or conspiracy among separate entities.
-That unreasonably restrains trade.
-Affects interstate commerce.
-Causes an antitrust injury.

Horizontal Agreements

Agreements between firms (or brands) that directly compete with each other, such as retailers selling the same range of products.
-Courts will not infer an agreement or conspiracy unless plaintiff shows additional "plus factors."

Vertical Agreements

Agreements between firms at different levels of production or distribution, such as a retailer and its manufacturer.
-Courts look favorably on reduction in intrabrand competition when there is healthy interbrand competition.

Per Se Violations

Practices that are completely void of redeeming competitive rationales. The number of truly per se violations of the antitrust laws has declined.

The Rule of Reason

Whether, on balance, the activity promotes or restraints competition, or to put it differently, helps or harms customers.

Horizontal Price Fixing

*"Per se" violation of section 1
*The Justice Department views price-fixing as "hard crime" punished by jail sentences whenever possible.
Agreement between retailers to set a common price for a product such as:
-Setting prices (including maximum prices).
-Setting the terms of sale, such as customer credit terms.
-Setting the quality or quantity of good to be manufactured or made available for sale.
-Rigging bids (agreements between or among competitors to rig contract bids).

Group Boycotts

Agreement between or among competitors that derives another competitor of something it needs to compete affectively. May be (but not always) a per se violation of section 1.

Trade Associations

Courts do not look favorably upon attempts at self-regulation by trade and professional associations, particularly when such attempts result in group boycotts. May be per se violation of Section 1.

Vertical Restraints

Restraints between firms at different levels in the chain of distribution, include price-fixing, market division, tying arrangements, and some franchise agreements.

Vertical Price Fixing

Agreements on prices between firms at different levels of production or distribution.
-Also known as resale price maintenance when the agreement fixes minimum prices.

"Per Se" Violations of Section 1

-Price Fixing
-Horizontal Market Allocations
-Group Boycotts
-Tying Arrangements
-Vertical Resale Price Maintenance Agreements

Exclusive Distributorships

Manufacturer limits itself to a single distributor in a given territory or, perhaps, line of business.

Territorial and Customer

Prevent a dealer or distributor from selling outside a certain territory or to a certain class of customers.

Dual Distributors

Manufacturers that sell their goods at both wholesale and retail.

Product Bundling/Tying Arrangements

Tying occurs when a seller agrees to sell product A (the tying, or desired product) to the customer only if the customer agrees to purchase product B (the tied product) from the seller.

Monopolization

deliberate acquisition or maintenance of power to control prices or foreclose access to a market.

Market (Monopoly) Power

The power to control prices or exclude competition in a relevant market. Monopoly power is marked by prices that are higher than they would be in a competitive market over an extended period of time and the unavailability of substitute goods or services.

Multiple-Brand Product Market

Product or service offerings by different manufacturers or sellers that are economically interchangeable and may therefore be said to compete.

Single-Brand Product Market

Market dominated by one brand and parts are controlled by that manufacturer.

Geographic Market Competition

Also affected by geographical restraints on product movement. The contours of geographic markets may also be affected by government regulations that confine firms to certain regions.

Determining Market Share

Once the relevant market is determined, the plaintiff must show that, within this market, the defendant possessed monopoly power, that can be inferred from a firm's predominant share of the market, because a dominant share of the market often carries with it the power to control output pacross the market and thereby control prices.

Barriers to Entry

Plaintiff must also show that there are significant barriers to entry in the market.

Predatory Pricing

The attempt to eliminate rivals by undercutting their prices to the point where they lose money and go out of business so that they monopolist can then raise its prices because it is no longer restrained by competition.

Exclusionary Conduct

Above-cost pricing, coupled with exclusionary conduct, can show intent.

Derivative Markets

A firm with monopoly power in one market can use that power to gain an advantage in a separate market, thus violating section 2.

Price Discrimination

Selling the same product to different purchasers at the same level of distribution at different prices, is illegal under the Clayton Act. Generally, only private individuals are involved in litigation.

Horizontal Mergers

Between actual or prospective competitors at the same level of distribution.

Vertical Mergers

Between firms at different points along the chain of production.

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