Trade Practices
• Common law– Covenant not to compete– Must be reasonable– Society demands laws against predatory
business practices• Legislation
– Laws are vague– Reliance on court interpretation
Antitrust Laws
• Views– Chicago School
• Promote economic efficiency• Large firm size derived from superior competition• Less concern about vertical restraints
– Traditionalists• Promote social goals• Favor more enforcement• Large firms possess economic & political power
Penalties
• Pleas– Guilty, not guilty, nolo contendre
• Nolo contendre same penalty as guilty, but cannot be used in civil cases
• Criminal penalties– Prison– Fines up to $10 million
Penalties
• Civil remedies– Treble damages– Attorney fees
• Equitable remedies– Injunction– Dissolution (cease business)– Divestiture– Divorcement (separate)– Contract cancellation
Sherman Act
• Monopoly– Monopoly power
• Relatively inelastic demand curve• Market share over 50%
– Relevant market• Geographic market• Submarket• Product market
– Purposeful or willful attempt to monopolize– Attempt does not need to be successful, but to have a dangerous
probability of success– Exception: monopoly acquired through superior skill, foresight & industry
Sherman Act
• “Contract, combination, or Conspiracy”– Joint action– “conscious parallelism” does not prove an
agreement to joint action• Rule of reason• Per se violation
Sherman Act
• Horizontal Price-fixing– No defense– Minimum prices – Maximum prices– List prices– Following a price leader– Production limitations– Limitations on competitive bidding– Credit arrangement agreements
Sherman Act
• Division of Markets– Agreement to divide a market– Reduces interbrand competition– Per se violation
• Group Boycotts & Refusals to Deal– Well intentioned– Per se violation; unless firms do not have market power– Anti-competitive
Sherman Act
• Joint ventures– Subject to court consideration
• Exceptions– Noerr-Pennington doctrine– Prior approval
Vertical Trade Restraints
• Resale Price Maintenance– Minimums – rule of reason– Maximums – per se violation– Inhibits intrabrand competition– Consignments usually ok– No enforcement of “suggested retail price”
• Sole Outlets & Exclusive Distributorships– Subject to “rule of reason”– Amount of interbrand competition
Vertical Trade Restraints
• Customer & Territorial Restrictions– Subject to “rule of reason”– Free-rider problems– Interbrand v. intrabrand competition– Market power of manufacturer– More favorable to new manufacturers
Vertical Trade Restraints
• Tying arrangements– Distort competition– Per se violation
• Market power• Tie-in affects substantial amount of commerce
– Defenses• New-industry• Goodwill
Vertical Trade Restraints
• Exclusive Dealing or Requirements Contracts– Inhibit intrabrand competition– Treated more leniently than tying arrangements– Generally ok if manufacturer does not have great
market power– Rule of reason
• Degree of competition decrease• Duration of the agreement• Entry barriers
Vertical Trade Restraints
• Price Discrimination (Robinson-Patman Act)– Purchases must be made at the same time– Can apply to indirect charges– Like grade or quality– Injury to competition– Defenses
• Legitimate cost differences• Meeting the competition
– Illegal for buyers as well
Horizontal Mergers
• Eliminates competition• May increase market power to distort competition• May increase industry concentration• Supreme Court more lenient since the 70’s• Failing company• Small company• International markets
Vertical Mergers
• May block competitors’ access to market• May eliminate a potential competitor (firm
itself)• Eliminate benefits of threatened
competition• Courts historically have not examined
efficiency arguments
Conglomerate Mergers
• Related businesses• Geographic extension
Interlocking Directorates
• Illegal under the Clayton Act– Large firms– Anticompetitive agreements would violate
antitrust laws
Exemptions• State Act
– Must be a formal state policy– Must be supervised by the state
• Petitioning the Government– Exempts political activity
• Unions– Monopolies– Group boycotts
• Specific regulated industries– Insurance– Banking– Airlines– Utilities– Financial services
Federal Trade Commission• Deceptive Advertising
– Claims that can be proven false– Implied representations
• Regulates franchising• Cooling off periods• Unsolicited mail• Sweepstakes/contests• Negative option plans• Mail order merchandise• Telephone solicitations
Lanham Act
• Trademark infringement• Appropriating another’s name of likeness
for commercial purposes• Trade dress infringement• “palming off” or “passing off”