ch 20 Antitrust Law Overview and Enforcement

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Questions and Answers

Under what conditions can the failing firm defense be applied?

The firm being acquired has no alternative buyers. (correct)

The firm is the market leader in its segment.

The acquiring firm operates in a different market.

The firm being acquired has a history of profitability.

Which of the following best describes Horizontal Restraint of Trade?

Regulating pricing practices at retail outlets.

Trade restrictions based on geographic locations.

Price setting between different levels of distribution.

Agreements among firms at the same level of production. (correct)

What does the Robinson-Patman Act specifically prohibit?

Offering discounts for bulk purchases.

Vertical price fixing arrangements.

Merger-related market efficiencies.

Predatory pricing strategies affecting competitors. (correct)

Which factor is NOT considered to determine if pricing strategy is predatory?

Defendant's pricing affected a competitor's supply chain. Signup and view all the answers

What is a characteristic of Vertical Restraint of Trade?

Relates to price fixing between different levels of the supply chain. Signup and view all the answers

What was the primary purpose of the Sherman Antitrust Act of 1890?

To break up monopolistic organizations like the Standard Oil Trust. Signup and view all the answers

Which of the following actions is not explicitly mentioned as a potential outcome of violating antitrust laws?

Loss of business licenses. Signup and view all the answers

Under the Clayton Act, which business practice is explicitly illegal?

Practices that create a monopoly. Signup and view all the answers

What is the role of the Federal Trade Commission (FTC) as established in 1914?

To investigate and enforce antitrust laws. Signup and view all the answers

Which of the following is a requirement for firms before merging if the transaction exceeds $70 million?

Notify the Antitrust Division at least one month prior. Signup and view all the answers

What legal concept is applied to judge certain business practices as conclusively presumed illegal?

Per se illegal doctrine. Signup and view all the answers

What is one possible court-ordered action beyond monetary damages in antitrust cases?

Breaking up a company into parts. Signup and view all the answers

In the context of antitrust laws, what does the term 'rule of reason' refer to?

An analysis determining if a practice harms competition. Signup and view all the answers

Study Notes

Antitrust Law Overview

Large corporations rose in the late 19th and early 20th centuries, often suppressing competition harming consumers.
The Sherman Antitrust Act (1890) outlawed monopolization and restraint of trade, targeting practices like those of Standard Oil (which controlled 90% of US oil sales).
A monopoly occurs when one or a few firms dominate a market.
The Clayton Act (1914) prohibits acts lessening competition or creating monopolies.
Congress created the FTC (Federal Trade Commission) in 1914 to monitor and implement antitrust laws.

Sherman Act Provisions & Enforcement

Monopolization is a felony under the Sherman Act.
Activities restraining trade are also illegal.
Violations can result in criminal charges, fines, and triple damages.
The DOJ can prevent further violations through cease and desist orders.

Clayton Act Enforcement

The DOJ can issue cease and desist orders to uphold the Clayton Act.
Private parties can sue and courts can implement remedies like: restraining conduct, breaking up companies, forcing licensing to competitors, and changing contracts.

Per Se vs. Rule of Reason

Some anti-competitive practices are inherently illegal (per se).
Other practices depend on specifics (rule of reason); courts examine facts and potential harm.
Examples are found in antitrust cases (e.g., U.S. v. Joyce).

Merger Regulations

Premerger notification is required for mergers above $70 million.
The notification goes to the Antitrust Division of the DOJ or FTC.
Mergers may be challenged based on market share.
Mergers are acceptable if they improve market efficiency or benefit consumers or if one of the firms is facing bankruptcy.
The "failing firm defense" applies when an acquisition is necessary for survival, there are no other buyers, and alternatives failed.

Restraint of Trade Types

Horizontal Restraints occur among competitors (e.g., mergers, price-fixing, information sharing).
Vertical Restraints happen among different parts of the supply chain (e.g., vertical price fixing, exclusionary practices, tying arrangements).

Robinson-Patman Act

This act prohibits price discrimination (charging different prices to different buyers for the same product).
It especially targets predatory pricing (underpricing in one market to harm competitors).

Predatory Pricing Analysis

Courts use factors to assess if a pricing strategy is predatory:
- Pricing below cost
- Creating a real chance to monopolize the market
- Enjoying a monopoly long enough to offset losses.

Defenses Against Antitrust Charges

Cost Justification: Differences in costs (e.g., transportation, bulk sales) can justify price variations.
Meeting Competition: Good-faith price cuts in response to competitor price drops are allowed.

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Description

Explore the evolution and enforcement of antitrust laws in the U.S., focusing on the Sherman Antitrust Act and the Clayton Act. Learn about the implications of monopolization, the role of the Federal Trade Commission, and enforcement mechanisms against anti-competitive practices. This quiz will enhance your understanding of how these laws protect consumer interests.