Chapter 7 Flashcards
Do individual firms like competition?
No
- expensive to compete with one another
- competition can force costly changes
What is the Smithian Model and who created it?
created by Adam Smith
- said capitalism motivates entreprenuers
- because of self-interest
- because of profits
-self-corrective forces take care of need for government
- said government had no place in business
- UNLESS competition is NOT present
How do you know when you have anticompetition?
- better products not produced
- more efficient production methods not being created
True or False:
The means of competition is just as important as the “ends” or products that comptetition creates
True
Why was Antitrust Law created in first place?
John D. Rockefeller created Standard Oil Trust
-creates monopoly
What did the Ohio Supreme Court do in response to John D. Rockefeller’s monopoly with the Standard Oil Trust?
Broke company up into two sections
- Standard Oil of New Jersey
- Standard Oil of California
Railroad Trusts 1880s?
- Railroad Company Monopolies
- raise prices making consumers made
- leads to Interstate Commerce Act
- preserves competitive railroad market
Sherman Antitrust Act of 1890s
- Only broke up Trusts in U.S.
- didn’t prevent anticompetitive behavior
- public gets made
- major factor in 1912 presidential debate
Because of the shortcomings of the Sherman Anti-Trust Act of 1890, it led to the creation of these two things.
Clayton Antitrust Act of 1914
Federal Trade Commission Act of 1914
What have the Standard Oil of New Jersey and Standard Oil of California turned into today
Standard Oil of New Jersey - Exxon-Mobil
Standard Oil of California - Chevron
How did the Clayton Antitrust Act of 1914 differ from the Sherman Antitrust Act of 1890s?
Sherman Antitrust Act of 1890
- dealt with both before and after outcomes
- the trusts and monopolies themselves
- broad
Clayton Antitrust Act of 1914
- dealt with “anticompetitive behavior” that would later lead to trusts and monopolies
- specific
Federal Trade Commission Act of 1914
- Deals with deceptive and anticompetitive behavior
- unfair methods of competition
- “catch all law” that Sherman and Clayton don’t cover
What does Section 1 of the Sherman Antitrust Act say?
- declares every combination in the form of trust(trust means monopoly) to be illegal
- criminal charges
- says rival firms must compete
- can’t enter into agreement to eliminate competition
- DOES not cover unilateral contracts
How did the Courts Interpret Section 1 of Sherman Antitrust Act?
- Per Se
- very narrowly
- if you broke the law, guilty
-but hesitant to destroy pre-exisitng contracts that violated Sherman because weren’t harming society
What is the Rule of Reason party of Section 1 of Sherman Antitrust Act
- opposite of Per Se
- allows violater to justify actions
- courts weigh evidence
What does Section 2 of Sherman Antitrust Act say?
- says ONLY an ANTICOMPETITIVE attempt to monopolize is illegal
- purpose to punish successful anticompetitive attempts to sustain monopoly
2 requirements for proving someone has violated Section 2 of Sherman Antitrust
- prove they have acquired monolistic power
- prove they willfully tried to gain that monolistic power
- or prove they willfully tried to maintain that monolistic power
In your own words, how is Section 1 and Section 2 of Sherman Antitrust Act different?
Section 1
-declares monopolies illegal
Section 2
- outlaws behavior that monopolies engage in after they have already monopolized
- outlaws anticompetitve attempts to monopolize
What are the 4 areas of Clayton Antitrust Act of 1914?
Price Discrimination
Exclusionary practices/Exclusionary Dealing
-only one firm has right to do this certain thing
Tying Arrangements
- when seller requires buy to buy another thing along with desired product
- “all or nothing” deals
Mergers
What are the 2 ways used to determine if a potential merger should be illegal because it will create a monopoly
Firm Concentration
- how big is company
- effect on competition?
Barriers to Entry
-ability of new firms to enter into market b/c of merger
EX: Licensing Requirements, Large-Scale plant development, etc.
What are the 4 types of Mergers and Explain what they are
Horizontal Mergers
EX: merger between competitors
Vertical Mergers
EX: apparel apartment and Department store merger
Market Extension Mergers (2 Types)
- Geographic Market Extension Merger
- merger with 2 firms selling same product but in diff geographical locations
- Product Market Extension Merger
- two different business of SIMILAR fields begin to sell the same product
Conglomerate or Diversification Mergers
-mergers between businesses that are of UNRELATED fields
What is an Interlocking Directorate
-same board of directors for competing corporations
What are the names of the Agencies that are responsible for the Enforcement of Antitrust
Department of Justice (DOJ)
Federal Trade Commission (FTC)
Can private entities like businesses sue violators of Sherman and Clayton Antitrusts?
Yes
-normal receive treble damages, attorney fees, and court costs
