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Flashcards in Ch 18 Deck (53):

Business trust

Corporations tied themselves together in business trusts
To thwart competition

Form of business organization where trustees hold title
To property for benefit of others


Antitrust laws

Laws protecting commerce from unlawful restraints

Objective is to foster competitiom


Sherman Act: section 1

Every contract, combination in form of trust or otherwise,
Or conspiracy in restraint of trade or commerce among
Several states/foreign nations is illegal

Felony punishable by fine or imprisonment


Sherman Act: section 2

Every person who shall monopolize, or attempt to, or
Combine or conspire with others to monopolize any
Part of trade/commerce

among states/foreign countries is deemed guilty of felony


Main ways section 1 of Sherman Act differs from section 2

Section 1 requires 2 or more persons

Section 2 can be unilateral conduct


Section 1 cases of Sherman act involve?
Section 2 cases?

Section 1: Finding written/oral agreement that leads to a
restraint Of trade

Section 2: cases deal with structure of monopoly that
Already exists in marketplace (misuse of monopoly power)



Market in which there is single seller or very limited # of


Monopoly power

Ability of monopoly to dictate what takes place in a given


Market power

Power of firm to control market price of its product

Monopoly has greatest degree of market power


Jurisdictional requirements of Sherman Act

Restraints that apply to interstate commerce

US nationals abroad that engage in activities that affect
US foreign commerce


Per se violation

Type of anticompetitive agreement that is considered injurious
To public

No need to determine whether it injures market competition
Naturally considered violation of Sherman Act


Rule of reason

Test where court balances positive effects (ex. Economic
Efficiency) of agreement against anticompetitive effects

In antitrust litigation, many practices are analyzed under
Rule of reason


Horizontal restraint

Any agreement that restrains competition between rival
Firms competing in same market


Horizontal restraint: Price-fixing agreement

Agreement btw competitors to fix prices of products and
Services at certain levels

Per se violation of section 1


Horizontal restraint: group boycott

Refusal by group of competitors to deal with person or

Prohibited by the Sherman act, per se violation of section 1


Horizontal restraint: Horizontal market division

When competitors divide up territories or customers

Per se violation of section 1 of Sherman act


Trade associations

Organized to pursue common interests


4 Joint activities of trade associations

1 exchange info
2 representation of business interest in front of governmental bodies
3 advertising campaigns
4setting regulatory standards to govern profession/industry


Concentrated industry

Industry where large percentage of market sales is controlled
By single firm or small number of firms


Vertical restraint

Any restraint on trade created by agreements btw firms at
Different levels in manufacturing and distribution process


How are vertical restraints different from horizontal restraints

Vertical restrains encompass entire chain of production

While horizontal restraints occur at same level of operation


Vertically integrated firm

Firm that carries out 2 or more functional phases of chain
Of production

(Ex. Manufacture, Distribution and retailing)


Vertical restraint: territorial or customer restrictions

Manufacturing firm institutes territorial restrictions

Prevents wholesalers or retailers from reselling product to
Certain classes of buyers (competing retailers)


Resale price maintenance agreement

Agreement btw manufacturer and retailer where manufacturer
Specifies what retail prices of its product must be

Judged under rule of reason whether they violate Sherman


Predatory pricing

Pricing product below cost with intent to drive competitors
Out of market

Violets section 2 of Sherman act


Monopolization 2 elements

1 possession of monopoly power in relevant market

2 willful acquisition or maintenance of power as distinguished
From growth or development as consequence of superior
Product, business acumen, historic accident


2 elements of relevant market

1 relevant product market

2 relevant geographic market


Relevant product market

Includes products with identical attributes

Ex. Sugar made by different producers


Intent requirement (for monopoly power)

Evidence firm intentionally engaged in anticompetitive


Unilateral refusals to deal: 2 conditions for violation of section 2

1 firm has monopoly power that refuses to deal

2 refusal to deal has anticompetitive effect on market


Attempted monopolization

Prohibited by section 2, any actions by firm to eliminate
Competition and gain monopoly power

Ex. Engaging in predatory pricing or predatory bidding


Predatory bidding

Firm deliberately bids up price of inputs to prevent
competitors from obtaining sufficient supplies to manufacture


Clayton Act: Section 2 Price Discrimination

Setting prices in such a way that 2 competing buyers pay
2 different prices for identical product or service

Ex. Arise from favorable credit terms, discounts, rebates, offsets, allowances, freight charges


4 elements required to violate section 2 price discrimination

1 seller engaged in interstate commerce
2 goods = same quality
3 sold to 2 or more purchasers
4 effect of price discrimination decreases competition


3 statutory defenses to price discrimination

1 cost justification

2 meeting the price of competition

3 changing market condition


Defense: cost justification

Seller can justify price reduction by demonstrating particular
Buyer's purchases saved seller cost in producing goods


Defense meeting price of competition

If seller charged lower price in good faith to meet equal low
Price competitor, they won't be liable


Defense changing market condition

Sellers can readjust prices to meet realities of market


Clayton Act Section 3: Exclusive dealing contract

Agreement where seller forbids buyer to purchase products
From seller's competitors

Violation of section 3 of Clayton act when it harms competition


Clayton Act Section 3: Tying Arrangement

Agreement btw buyer and seller where buyer of specific
Product/service becomes obligated to purchase additional
Products or services from seller

Violation of section 3 of Clayton act if it decreases competition


Clayton Act: Section 7 Mergers

Person or business organization can't hold stock/assets
Or other entity where effect may be to substantially lessen


Market concentration

Degree in which small number of firms control large %
Share of relevant market

Determined by calculating percentages held by largest firms
In that market


Horizontal mergers

Merger between 2 firms that are competing in same

If creates entity with large percentage market share it's


3 other factors in considering legality of horizontal merger

1 overall concentration of relevant product market

2 relevant market's history in trending toward concentration

3 whether design of merger is to establish market power
Or restrict competition


Vertical merger

Acquisition by a company at 1 level in marketing chain
Of company at higher or lower level in chain

Ex. Company merging with one of its suppliers or retailers


Interlocking directorates

Practice of having individuals serve as directors on boards
Of 2 or more companies simultaneously


How does section 8 of Clayton act deal with interlocking directorates?

No person may be director in 2 or more competing
corporations at same time

If corporation has capital, surplus or undivided profits
aggregating more than $26,161,000 or competitive sales
Of over $2,616,100 (2009 amounts) federal trade commission
Adjusts amounts each year


What 2 federal agencies enforce federal antitrust laws

US department of Justice (DOJ)

Federal Trade Commission (FTC)


Section 5 of Federal Trade Commission Act

Covers all anticompetitive behavior including conduct that
Doesn't violate Sherman Act or Clayton Act

Therefore broader in scope than other antitrust laws


what laws can the DOJ and FTC prosecute

DOJ can prosecute violations of Sherman Act

FTC and DOJ can both enforce Clayton Act



Act of selling 1 or more of company's divisions or parts
(Such as subsidiary or plant)

Often mandated by courts in merger or monopolization
Cases as a remedy


FTC has sole authority to enforce violations of

Section 5 of Federal Trade Commission Act


Treble damages

Damages by statute are 3 times amount of what fact finder
Determines is owed

Can be recovered by private plaintiffs in antitrust suits