““Market power” is the power of Market power” is the power of company to control the market for company to control the market for its product.its product.The law does allow for market

monopolies when a patent is issued. During the “monopoly” the patent owner is protected from competition in the market to manufacture and sell its patented product or service.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

Market power Market power per seper se is not is not “bad.” “bad.” What is bad or illegal is how the

market power is acquired and what firms do once they have that power.

Antitrust laws regulate the market power of companies to promote competition.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

Competitive Behavior.Competitive Behavior. Goals of Antitrust Law.Goals of Antitrust Law.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4

Socially beneficial business Socially beneficial business activity involves cooperation activity involves cooperation and competition.and competition.

Public Policy and Contracts.Public Policy and Contracts.The law presumes freedom of

contract, except when a contract is contrary to public policy, like price fixing and restraint of trade.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5

Public Policy and Contracts.Public Policy and Contracts.Economic Efficiency: public policy

encourages competition and freedom of contract.

Restraints of Trade. Some agreements may reduce competition and may be illegal under the common law.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6

Interference with Free Trade.Interference with Free Trade.Restraint (or antitrust law) is the

means the government uses to promote competition and choice in the market place.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7

Trend Towards Monopoly.Trend Towards Monopoly.In the late 1800’s, companies like

Standard Oil (Rockefeller) became “trusts” which began to control the entire market.

The common law was impotent to deal with the industrial age.

Thus Congress dealt with expansion with “anti-trust” legislation.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

Congress responded with the Congress responded with the following federal statutes:following federal statutes:Interstate Commerce Act of 1887

and the Sherman Act of 1890. The Clayton Act.The Federal Trade Commission

Act, authorized to prevent and correct unfair trade practices.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

The Sherman Act:The Sherman Act:Section 1. Requires two or more persons,

as a person cannot contract, combine, or conspire alone. Concerned with finding an agreement.

Section 2. Applies both to an individual person and to several people, because it refers to every person. Deals with the structure of monopolies in the marketplace.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10

The Sherman Act:The Sherman Act:Restraint of trade is any agreement

between firms that has the effect of reducing competition in the marketplace.

Jurisdictional Requirements: only applies to restraints that have a significant impact on interstate commerce.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11

In contrast to the Sherman Act, In contrast to the Sherman Act, the Clayton Act deals with very the Clayton Act deals with very specific practices:specific practices:Price Discrimination: When sellers

charge different buyers different prices for the same goods.

Exclusionary Practices: no exclusive-dealing or “tie-in” sales agreements.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

Corporate Mergers: forbidden if it substantially lessens competition.

Interlocking Directorates: director on company “X” sitting on board of company “Y” of competing companies is forbidden.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13

The FTC’ sole substantive The FTC’ sole substantive area is “unfair methods of area is “unfair methods of competition” or “deceptive competition” or “deceptive acts or practices” affecting acts or practices” affecting commerce.commerce.

The FTC Act is a “catchall.”The FTC Act is a “catchall.”

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

Agency Actions.Agency Actions.The DOJ enforces the Sherman

Act.DOJ or FTC can ask the courts to

impose various remedies, including divestiture.

FTC has sole authority to enforce violations of Section 5 of the FTC Act.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15

Under the Under the Clayton ActClayton Act a a private party can sue for private party can sue for treble damages (3 times the treble damages (3 times the damages she has suffered) damages she has suffered) plus attorney’s fees.plus attorney’s fees.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16

Under the Under the Sherman ActSherman Act, the , the Plaintiff must show:Plaintiff must show:Defendant’s antitrust

violations directly or indirectly caused injury; and

Defendant’s actions affected protected interests of the Plaintiff.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17

Treble Damages. Treble Damages. Private plaintiffs may recover

up to three times damages for violations.

In price-fixing arrangements, defendants are jointly and severally liable.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

Exemptions from Antitrust.Exemptions from Antitrust.CASE 27.1 Clarett v. National Football League (2004). Why did the plaintiff claim the eligibility rules were an unreasonable restraint of trade?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19

Extraterritorial Application of Extraterritorial Application of U.S. Antitrust Laws.U.S. Antitrust Laws.Any foreign business conspiracy

that has a substantial effect on U.S. commerce is within reach of the Sherman Act.

U.S. jurisdiction is automatically invoked when a per se violation occurs.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20

Application of Foreign Application of Foreign Antitrust Laws. U.S. firms may Antitrust Laws. U.S. firms may be subject to antitrust laws of be subject to antitrust laws of other nations if the firm has a other nations if the firm has a substantial effect.substantial effect.European Union Enforcement.Increased Enforcement in Asia

and Latin America.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21

Section 2 of the Sherman Section 2 of the Sherman Antitrust Act deals with:Antitrust Act deals with:Monopolization or attempts to

monopolize; andPredatory pricing which is an attempt

by a firm to drive its competitor from the market by selling its product at prices substantially below the normal costs of production.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22

The U.S. Supreme Court has The U.S. Supreme Court has defined “monopolization” as: defined “monopolization” as: the possession of the possession of monopoly monopoly powerpower; ; and tand the willful he willful acquisition and maintenance acquisition and maintenance of the power. of the power.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23

Monopoly Power:Monopoly Power:Refers to control of a specific

market by a single entity.But a firm may be monopolistic

even though it is not the only entity.

May be proved by direct and indirect evidence.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24

Relevant Product Market.Relevant Product Market.CASE 27.2 Newcal Industries, Inc. v. IKON Office Solutions (2008). What factors did the court consider in finding a relevant market existed?

Relevant Geographic Market.Relevant Geographic Market.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25

Intent Requirement:Intent Requirement: Anticompetitive behavior must Anticompetitive behavior must

be “willful acquisition of power.” be “willful acquisition of power.”

Intent may be inferred from Intent may be inferred from evidence that the firm had evidence that the firm had monopoly power and engaged monopoly power and engaged in anticompetitive behavior.in anticompetitive behavior.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

Unilateral Refusals to Deal.Unilateral Refusals to Deal.Joint refusals to deal (group

boycotts) are given close scrutiny.Unilateral refusals to deal violate the

Sherman Act if: the firm refusing to deal has (or is likely to acquire) monopoly power, AND the refusal is likely to have an anticompetitive effect on a particular market.

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27

Acts intended to exclude Acts intended to exclude competitors and garner competitors and garner monopoly power, and had a monopoly power, and had a “dangerous” probability of “dangerous” probability of success.success.CASE 27.3 Weyerhaeuser Co. v.

Ross-Simmons Hardwood Lumber Co. (2007). What does predatory pricing have to do with this case?

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28