After reading this chapter, you will be able to answer the following questions: What is the rationale for antitrust law? What is the Sherman Act? What is explored in Section 1 of the Sherman Act? What is explored in Section 2 of the Sherman Act? What is the Clayton Act? What is the Federal Trade Commission Act?
Chapter 47 Antitrust Law Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education Exhibit 471: Antitrust Law Rationale Traditional Antitrust Theories To foster competition, a few powerful sellers should not dominate the economy; there should be many buyers and sellers in the market Accumulation of economic power leads to accumulation of political power, which leads to political consequences for consumers Efficiency should not be the only or most important goal of antitrust law Chicago School Theories Do not argue that concentrated economic power leads to political consequences If a company held great economic power and if the power led to efficiency, company should be left alone Purpose of antitrust law is to encourage economic efficiency 472 The Sherman Antitrust Act Applies to business practices that restrain trade/commerce 473 Sherman Antitrust Act “Section 1” Violations Elements of violation: Agreement between parties Unreasonable restraint on trade Restraint affects interstate commerce 474 Sherman Antitrust Act Section 1 Violations Horizontal Restraint of Trade: When two competitors in same market make an agreement to restrain trade Price Fixing: When two or more competitors agree to set prices for a product/service Horizontal Division of Markets: Agreement between two or more competitors to divide among themselves markets by geography, customers, or products Vertical Restraint of Trade: When two parties at different levels in manufacturing and distribution process make an agreement that retrains trade 475 Sherman Antitrust Act “Section 2” Violations Occur when companies with monopoly power use their economic power to limit production and raise prices “Monopolization”: Occurs when company: Possesses market power; and Unfairly achieved this market power/uses this market power for abuse “Attempt to Monopolize”: Occurs if company intends its behavior to: Exclude competitors; and Allow company to gain monopoly power 476 The Clayton Act Section 2: Prohibits price discrimination: Occurs when company sells same goods to competing buyers for different prices Section 3: Prohibits exclusionary practices, including exclusive dealing and tying arrangements Section 7: Prohibits Anticompetitive mergers and acquisitions Horizontal Merger: Merger between two or more companies producing same/similar products Vertical Merger: Occurs when one company at one level of manufacturingdistribution system acquires company at another level of system Conglomerate Merger: Occurs when company merges with another company that is not a competitor or a buyer/seller to the company Section 8: Prohibits person from becoming director in two or more competing companies 477 The Federal Trade Commission Act Prohibits unfair and deceptive methods of competition Any anticompetitive behavior not prohibited by Sherman Act/Clayton Act is potentially illegal under Federal Trade Commission Act 478 The RobinsonPatman Act As originally written, the Clayton Act did not apply to buyers In effort to limit buyers’ power (in addition to sellers’), Congress adopted The RobinsonPatman Act 479 ... left alone Purpose of antitrust law is to encourage economic efficiency 472 The Sherman Antitrust Act Applies to business practices that restrain trade/commerce 473 Sherman Antitrust Act “Section 1” Violations...Exhibit 471: Antitrust Law Rationale Traditional Antitrust Theories To foster competition, a few powerful sellers should not ... power, which leads to political consequences for consumers Efficiency should not be the only or most important goal of antitrust law Chicago School Theories Do not argue that concentrated economic power leads to political