Chapter 8 Section 6: Antitrust Law Flashcards
(30 cards)
What do antitrust laws do?
Prohibit businesses from engaging in conduct that could stifle free competition
What is the Sherman Act?
It prohibits restraints of trade and monopolies
What is the Rule of Reason test in Section 1 of the Sherman Act?
Balance anticompetitive and competitive effects. Be realistic about what you’re calling anticompetitive by putting it into context
What are Per Se Violations in Section 1 of the Sherman Act?
Inherently illegal acts without legal justification
What are horizontal restraints in Section 1 of the Sherman Act?
Agreements between competitors
What are vertical restraints in Section 1 of the Sherman Act?
Agreements between those at different marketing levels (between a retailer and manufacturer)
What is the concerted action requirement in Section 1 of the Sherman Act?
It has to be an action between 2 or more parties. You can’t violate the Sherman Act by yourself.
What is price fixing, according to Section 1 of the Sherman Act?
Agreements to set prices for goods or services
Can be horizontal (between competitors) or vertical (manufacturers controlling the resale prices of their products - called resale price maintenance)
What are market allocations, according to Section 1 of the Sherman Act?
Agreements not to compete in specific markets.
Horizontal ones are a per se violation
What are boycotts, according to Section 1 of the Sherman Act?
Two or more firms agreeing not to deal with a third party
What are tying arrangements, according to Section 1 of the Sherman Act?
Where you must buy one product to get another
How do you per se rules and rule of reason apply to horizontal and vertical issues?
Most horizontal are per se violations, and most vertical are okay under the rule of reason
What does Section 2 of the Sherman Act regulate?
Monopolies and attempts to monopolize
What are the two requirements to establish and illegal monopoly?
Monopoly power
Power was achieved unfairly or abused once achieved
When does monopoly power exist?
When a firm has sufficient market power (70%) to control prices or exclude competition
How do patents impact monopolies?
They grant a limited monopoly, and that is okay.
What penalties are available under the Sherman Act?
Criminal and civil
What does the Clayton Act do?
Stops anticompetitive behavior not covered by the Sherman Act.
Stops activities in their incipiency (before they become violations of the Sherman Act)
What does Section 7 of the Clayton Act cover?
It prohibits the merger or acquisition of a company if the effect is to substantially lessen competition.
Which type of merger is judged most stringently under the Clayton Act?
Horizontal mergers
What is a forward merger?
A vertical merger where a firm acquires a customer
What is a backward merger?
A vertical merger where a firm acquires a supplier
What is a conglomerate merger?
When firms in different businesses merge
What is the failing company exception under Section 7 of the Clayton act?
If a company is failing an there is no other buyer, a merger can be lawful even if the effect is to lessen competition.
