Competition & Consumer Protection Laws PDF

WEEK 7 and 8 Competition & Consumer Protection Laws Competition & Consumer Protection Law Class contents 1. Competition Law 2. Consumer Protection Competition and Consumer Protection These 2 bodies of law are closely related Competition Law provides a broader market focused look, with an e...

WEEK 7 and 8 Competition & Consumer Protection Laws Competition & Consumer Protection Law Class contents 1. Competition Law 2. Consumer Protection Competition and Consumer Protection These 2 bodies of law are closely related Competition Law provides a broader market focused look, with an emphasis on competition based liberal economy concepts. It provides a macro level look Consumer protection is focused on protecting individuals’ (consumers) rights in the market place. It seeks to ensure safe and transparent transactions and safe product offerings. Competition Law Competition Law hates monopolies! WHY? Free competition and free market leads to innovation, efficient allocation of resources, and consumer welfare Competition Law Monoply: When one company or entity is the sole provider of a product or service, thereby wielding significant market power. Monopolistic power may come from exclusive access to resources (water, oil, minerals), technology, market success, economies of scale, governmental action (utilities), or collusion between market players. (note: some monopolistic behaviours are tolerated and even promoted for the greater good and innovation such as IP protection and IP based transactions) Results of monopolies: Higher Prices: Monopolies tend to charge higher prices than would be seen in competitive markets because they do not face competitive pressure to lower prices. Reduced Output: To maximize profits, monopolists may produce less than what would be produced in a competitive market, leading to allocative inefficiency. Lower Consumer Choice: The absence of competition often results in less innovation, lower quality, and fewer choices for consumers. Competition Law IN CLASS CASE STUDY: You are launching a new app called SKEMAEATS, allowing people to order take out food from multiple restaurants using a single application. Your business model entails signing up as many restaurants as possible to your app. Your revenue stream is a small percentage of order price from the restaurant + 2 USD from the customer. As you sign restaurants and your app starts gaining some traction, you start worrying that your application is relatively easy to copy and you are concerned that you might face serious competition. You have a business savvy co-foudner who suggests that in the contract you sign with restaurants you include a clause that restaurants will not sign similar service agreements with other companies, effectively protecting from possible copycats that will try to take advantage of the success of your business model. Q: As the CEO, it is up to you to decide. Do you follow your co-founder’s advice? Competition Law U.S. competition law, (or “antitrust law”), aims to promote fair competition in the marketplace, prevent monopolistic behaviour, and protect consumers from anticompetitive practices. The foundational principles of U.S. competition law are rooted in several key statutes and legal doctrines, which collectively aim to ensure that businesses compete on a level playing field. A) The Sherman Antitrust Act (1890): Section 1: Prohibits contracts, combinations, or conspiracies that unreasonably restrain trade. This includes agreements between competitors to fix prices, rig bids, divide markets, or restrict output. Section 2: Prohibits monopolization or attempts to monopolize any part of trade or commerce. This targets conduct that aims to dominate a market unfairly, not the mere possession of monopoly power. B) The Clayton Act (1914): Addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and acquisitions that may substantially lessen competition or tend to create a monopoly. Prohibits certain types of price discrimination, exclusive dealing agreements, and tying arrangements. C) The Federal Trade Commission Act (1914): Created the Federal Trade Commission (FTC) to enforce antitrust laws alongside the Department of Justice (DOJ). Prohibits "unfair or deceptive acts or practices in commerce," which includes anticompetitive practices not specifically covered by the Sherman or Clayton Acts Competition Law A case full of sh**t Amazon v. Quidsi (2010) ( No formal case) Predatory Pricing: Amazon's strategy raised concerns about predatory pricing, where a company sets prices below cost to eliminate competitors, intending to raise prices once the competition is weakened or eliminated. Predatory pricing is considered an antitrust violation if it can be proven that the intent was to monopolize the market. Acquisition of Quidsi: After Amazon's aggressive pricing, Quidsi struggled to compete and eventually agreed to be acquired by Amazon for $545 million in 2010. Critics argued that Amazon's tactics forced Quidsi into this acquisition, effectively eliminating a competitor. The FTC ultimately closed the investigation in 2013 without taking formal action against Amazon. The decision suggested that the evidence at the time did not conclusively demonstrate that Amazon's actions were illegal under antitrust laws. Proving predatory pricing is notoriously difficult because it requires showing not just that prices were below cost, but also that there was a dangerous probability of the company recouping its losses through higher prices after eliminating competition Read: https://www.theverge.com/2019/5/13/18563379/amazon-predatory-pricing-antitrust-law Competition Law Prohibited Conduct: 1. Anticompetitive agreement and practices: Horizontal Agreements: Price-fixing, market allocation, bid-rigging, and other collusion between competitors. (parties on the same level of supply chain) Vertical Agreements: Resale price maintenance, exclusive dealing, and tying arrangements. Note, licensing agreements usually exempt, under “safe harbor” protection Competition Law Prohibited Conduct: 2. Monopolies and abuse of dominant position: Prohibited Conduct: Predatory pricing, refusal to deal, exclusive agreements, tying, bundling, and leveraging market power. Legal tests and standards for determining abuse of dominance, such as the "rule of reason" and "per se" violations. Competition Law Prohibited Conduct: 2. Monopolies and abuse of dominant position: Market Power A firm has market power when it can set prices above the competitive level or reduce output, quality, or innovation without losing significant sales to competitors. Market power is a key indicator of dominance, and the greater the market power, the more dominant the firm is considered. Barriers to Entry: Dominance is often characterized by high barriers to entry, which can prevent or deter new competitors from entering the market. These barriers can be legal (such as patents), economic (such as high capital costs), or strategic (such as exclusive access to key resources or distribution channels). Market Share: High market share is a common indicator of dominance, but it is not solely determinative. A firm with a significant market share, usually above 50%, may be considered dominant, especially if it is sustained over time. However, other factors such as the ability of competitors to challenge the firm’s position also play a role. Control Over Market Conditions: A dominant firm can influence the overall conditions of the market, such as setting industry standards or terms of trade that other firms must follow. Competition Law Prohibited Conduct: 2. Monopolies and abuse of dominant position: Why then we have Amazon, Google, Apple, Microsoft? Monopoly Power vs. Dominance: While “monopoly power” and “dominance” are often used interchangeably, monopoly power is a legal standard under U.S. law that requires proof of both market power and the use of exclusionary or anticompetitive conduct. Simply having a dominant market position is not illegal unless it is accompanied by such conduct Competition Law Competition Law Prohibited Conduct: 3. Merger Control and Acquisitions Merger Review Processes: Regulatory requirements for notifying and obtaining approval for mergers and acquisitions. Horizontal, Vertical, and Conglomerate Mergers: Analysis of competitive effects and potential anti-competitive concerns. Key Considerations: Market definition, market concentration, potential anti-competitive effects, and efficiencies. Competition Law Prohibited Conduct: 4. Cartels and Collusions Cartels are considered one of the most egregious violations of competition law, as they directly undermine the principles of free and fair competition. U.S. law treats cartels with zero tolerance, reflecting the serious harm they cause to consumers and the economy Note: How Whistleblower laws can help unmask collusion Competition Law Prohibited Conduct: 4. Cartels and Collusions Exceptionally certain cartels are legal: 1. Professional sports associations; This exemption allows some coordination that might otherwise be considered anticompetitive, recognizing the need for teams to collaborate to maintain a competitive league. 2. Agricultural cooperatives: This exemption recognizes the need for small farmers to band together to improve their market power against larger buyers and processors 3. Insurance Industry: This exemption is based on the idea that insurance markets function more effectively with some level of coordination and shared information 4. Labor Unions: The exemption recognizes that individual workers lack the bargaining power of employers, and collective action is necessary to achieve fair wages and working conditions 5. JVs and Standard Setting Organizations: As long as FRAND principles are respected following a Rule of Reason Analysis Competition Law Per Se Violations: Certain actions, such as price-fixing or market division, are inherently illegal without needing to prove their harm to competition. (Quidsi may disagree) Rule of Reason: Courts assess whether the restraint has a substantial adverse effect on competition by considering the facts, the market context, and the justification for the conduct. Monopolization: Having a monopoly is not illegal unless it is obtained or maintained through improper conduct, such as exclusionary tactics or predatory pricing. Competition Law Enforcement Agencies: Department of Justice (DOJ) Antitrust Division: Enforces antitrust laws through criminal and civil litigation. Federal Trade Commission (FTC): Enforces antitrust laws through civil actions and also addresses unfair business practices. Enforcement and Penalties: Antitrust violations can result in severe penalties, including fines, injunctions, divestitures, and in the case of individuals, imprisonment. Companies and individuals harmed by antitrust violations can file private lawsuits and seek treble damages. Exercises SHERMAN ACT Matching Game I am a leading word processing software company. In order to use my software, you need to agree to use my CLAYTON ACT Internet search engine I am a Chinese cell phone producer. I collect US personal users Data and export it to China I am a Chinese EV manufacturer and benefit from large Chinese government subsidies allowing me to sell my cars at 20% cheaper FTC than US manufacturers I am FoMoCo, in order to better compete in the global Market, I plan a complete merger with GM Movie Recommendation THE INFORMANT Consumer Protection Law Consumer protection laws are regulations and statutes designed to safeguard buyers of goods and services against unfair, deceptive, or fraudulent practices in the marketplace. These laws ensure that businesses operate fairly, provide accurate information, and uphold safety standards. Purpose: Ensure Fair Trade Practices: Promote honest competition and prevent deceptive business tactics. Protect Consumers from Harm: Safeguard against unsafe products and hazardous practices. Provide Accurate Information: Ensure that consumers have truthful and transparent information for making informed decisions. Offer Legal Remedies: Provide consumers with ways to seek compensation or recourse if their rights are violated Consumer Protection Law Consumer Protection Law Consumers: Demand Safety and Fair Practices: Expect products to be safe and as advertised. Report Violations: Inform authorities if there is a breach of consumer rights. Exercise Rights and File Complaints: Seek legal recourse when their rights are violated. Government: Creates and Enforces Regulations: Develops laws to protect consumers and ensures businesses comply. Investigates Violations and Imposes Penalties: Acts against companies that break the law. Provides Consumer Resources and Education: Educates consumers on their rights and helps resolve disputes. Businesses: Comply with Laws and Regulations: Follow rules that ensure fair treatment of consumers. Provide Accurate Information and Disclosures: Give honest details about products and services. Address Consumer Complaints: Respond to and resolve customer issues Consumer Protection Law Major U.S. Consumer Protection Laws Federal Trade Commission Act: Fair Debt Collection Practices Act Consumer Product Safety Act In addition, each U.S. state has its own set of consumer protection laws in addition to federal regulations. These state laws are designed to address specific issues that may arise within the state and often provide additional protections beyond what is offered at the federal levels Ex: California's CCPA: Protects residents' digital privacy rights and allows them to request information about their personal data collected by companies. Florida's Deceptive and Unfair Trade Practices Act (FDUTPA): Prohibits unfair competition and deceptive business practices in the state. New York's General Business Law § 349: Allows individuals to sue for deceptive practices that harm consumers. Consumer Protection Law Major U.S. Consumer Protection Laws Federal Trade Commission Act: The Federal Trade Commission Act (1914) established the Federal Trade Commission (FTC) to protect consumers and promote fair competition. The Act prohibits unfair or deceptive business practices, including false advertising, and gives the FTC the authority to investigate and take action against companies that violate consumer rights. It serves as a foundation for U.S. consumer protection, aiming to ensure honest trade practices across industries Enforced by FTC (a regulatory body) Consumer Protection Law Major U.S. Consumer Protection Laws Consumer Product Safety Act The Consumer Product Safety Act (CPSA) is a federal law enacted to protect the public from unreasonable risks of injury associated with consumer products. It established the Consumer Product Safety Commission (CPSC), which sets safety standards, conducts research, and oversees product recalls to reduce harm from hazardous products. The CPSA aims to promote safer products and provide consumers with important safety information. Consumer Protection Law Major U.S. Consumer Protection Laws Fair Debt Collection Practices Act The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers from abusive, deceptive, and unfair debt collection practices. It regulates how debt collectors can interact with consumers, prohibiting behaviours like harassment, making false statements, and contacting consumers at unreasonable hours. The FDCPA also grants consumers the right to dispute and request verification of the debt. Consumer Protection Law Key Agencies: Federal Trade Commission (FTC): The FTC is a federal agency that protects consumers and promotes fair competition. It enforces laws against deceptive advertising, unfair business practices, and fraud. The FTC also oversees antitrust laws to prevent monopolies and ensure a competitive marketplace. Consumer Financial Protection Bureau (CFPB): The CFPB is a regulatory agency focused on protecting consumers in the financial sector. It oversees financial products and services, such as mortgages, credit cards, and loans, to ensure they are fair and transparent. The CFPB enforces laws against predatory lending and provides resources for consumers to understand their financial rights. Food and Drug Administration (FDA): The FDA is a federal agency responsible for protecting public health by regulating the safety, efficacy, and security of food, drugs, medical devices, cosmetics, and other consumer products. It ensures that products meet safety standards and provides guidance on proper labeling and marketing practices. Consumer Protection Law CASE STUDY: A popular toy manufacturer releases a new line of action figures aimed at children aged 3 and up. Shortly after the product hits the market, reports emerge that the small detachable parts on the toy pose a choking hazard. Several children have been hospitalized after swallowing these pieces. Who are the stakeholders and involved parties? What are the legal and regulatory liabilities of the toy company? Your 4 years old son, Jason, is hospitalized for several weeks after suffering injuries to his esophagus after swallowing a piece of the toy. What can you do? Consumer Protection Law Consumer Protection, Product Safety and Torts liabilities can be closely related: Defective Toy Case: If a toy is found to be hazardous (e.g., choking hazard), the CPSC may order a recall under the CPSA. If the company marketed the toy without proper warnings, it could face penalties under consumer protection laws for misleading advertising. If a child is injured by the toy, the family could file a product liability lawsuit under tort law to seek damages. Consumer Protection Law Unfair or deceptive practice is an act by a business or individual that misleads, harms, or disadvantages consumers. Here's a brief explanation of each term: Unfair Practices: These involve actions that cause substantial consumer harm, cannot be reasonably avoided, and are not outweighed by benefits to consumers or competition. For example, hidden fees in a service contract could be considered unfair. Deceptive Practices: These occur when a representation, omission, or practice misleads or is likely to mislead a consumer, and the misleading information is significant enough to influence a consumer's decision-making. For instance, false advertising about a product's capabilities would be considered deceptive. Ex: VW Diesel gate Danon, Activa Yogurt Case How about, Pepsi where is my jet? case Consumer Protection Law Product Safety Product safety refers to the standards and regulations that manufacturers must follow to ensure their products are safe for use. These standards may vary by country and product category but typically cover: Chemical Safety: Ensuring that materials used do not contain harmful substances. Mechanical Safety: Avoiding sharp edges, choking hazards, or other physical dangers. Electrical Safety: Preventing risks such as shocks or fires. Fire Safety: Using flame-resistant materials where applicable. Regulatory agencies: U.S. Consumer Product Safety Commission (CPSC) Example: Samsung Galaxy Note 7 Consumer Protection Law Online Privacy and Data Protection Overview: Consumer privacy rights concerning personal data The Federal Trade Commission (FTC): The FTC serves as the primary federal agency responsible for protecting consumer privacy, often enforcing actions against unfair or deceptive practices in data handling. However, it doesn't have a comprehensive data privacy framework. Sector-specific Regulations: Health Insurance Portability and Accountability Act (HIPAA): Governs the protection of health information. Children's Online Privacy Protection Act (COPPA): Regulates the collection of personal information from children under 13. Gramm-Leach-Bliley Act (GLBA): Covers financial institutions, requiring the protection of consumer financial information. Consumer Protection Law Online Privacy and Data Protection Privacy Principles and Consumer Rights Right to Access: Individuals can request access to the personal data that companies have collected about them. Right to Deletion: Consumers can request the deletion of personal information, with some exceptions. Right to Opt-Out: Consumers can opt out of the sale of their personal data. Right to Correction: Some state laws, such as in California, allow consumers to request correction of inaccurate personal data. Consumer Protection Law Financial consumer protections aim to safeguard individuals from unfair, deceptive, or abusive practices in financial services. Here’s a breakdown of the key focus areas: 1.Credit Cards Disclosure Requirements: Credit card companies must provide clear terms about interest rates, fees, and repayment schedules. The Truth in Lending Act (TILA) mandates this disclosure. Interest Rate Caps: Regulations, such as the CARD Act of 2009, limit sudden interest rate hikes and over-limit fees, offering protections against unexpected changes. Fraud Protections: Under the Fair Credit Billing Act, consumers are liable for a maximum of $50 in unauthorized charges if a card is lost or stolen. 2. Loans Predatory Lending Protections: Laws like the Dodd-Frank Act prohibit predatory lending practices, including excessive fees and hidden terms. Disclosure Standards: Lenders must clearly disclose the total cost of a loan, including interest rates and any associated fees. Fair Lending Practices: The Equal Credit Opportunity Act ensures that lenders cannot discriminate based on race, religion, gender, or age when issuing loans. Consumer Protection Law 3. Mortgages Qualified Mortgage Standards: The Dodd-Frank Act established rules for mortgages to ensure that lenders verify a borrower’s ability to repay before issuing a loan. Foreclosure Protections: The Homeowner Bill of Rights and other regulations protect consumers from unfair foreclosure practices, requiring proper documentation and giving homeowners options to avoid foreclosure. Mortgage Disclosure Requirements: The TILA-RESPA Integrated Disclosure (TRID) rule mandates that mortgage lenders provide a clear breakdown of closing costs and loan terms to consumers. 4. Debt Collection Fair Debt Collection Practices Act (FDCPA): This law prohibits abusive, deceptive, and unfair debt collection practices. It limits how and when debt collectors can contact consumers. Verification of Debt: Consumers have the right to request verification of any debt, and collectors must provide this information before taking further action. Debt Settlement Protections: Regulations ensure that consumers are not misled by companies offering debt settlement services, requiring clear disclosure of terms and fees. These protections aim to ensure transparency, prevent abusive practices, and empower consumers to make informed financial decisions. Consumer Protection Law CASE STUDY-DISCUSSION Jane Doe purchases a new smartphone from TechStore, a well-known electronics retailer, for $800. The smartphone comes with a one-year manufacturer’s warranty covering defects in materials and workmanship. Jane experiences problems with the phone's battery life within three months of purchase. She contacts TechStore, and they refer her to the manufacturer, who then offers to repair the phone at no cost. However, the phone is returned to Jane with the same issue persisting. Jane reaches out to TechStore again, explaining that the problem remains unresolved. This time, TechStore offers to send the phone back for repair but informs Jane that she will be responsible for shipping costs. Additionally, TechStore claims they are not obligated to offer a refund or replacement because the warranty only covers repairs. Frustrated, Jane argues that her consumer rights have been violated, as she has not received a functional product despite multiple attempts to resolve the issue. She believes she is entitled to either a refund or a replacement under consumer protection laws. TechStore disagrees, stating that their only obligation is to repair the device per the manufacturer's warranty terms. Consumer Protection Law Legal Issues to Consider: 1.Breach of Warranty: 1. Has the warranty been breached by failing to repair the phone effectively? 2. Does the "repair or replace" clause limit Jane's options for recourse? 2.Consumer Protection Rights: 1. What are Jane's rights under applicable consumer protection laws? (Consider laws that protect against defective products and unfair business practices.) 2. Do consumer protection laws mandate that TechStore provide a replacement or refund in addition to repair? 3.Unfair Business Practices: 1. Is TechStore’s requirement for Jane to pay for shipping reasonable? 2. Does Jane’s experience amount to deceptive or unfair business practices? Movie Recommendation THE RAINMAKER