Antitrust for Beginners
Objective behind Antitrust Laws
Antitrust laws are intended to protect as well as promote competition. Such laws are not designed to punish larger companies simply because of their size, nor are such laws intended to act as consumer protection laws. Instead, antitrust laws were created to check the potential for abuses that can occur in various markets while promoting healthy competition and market economics. Ultimately, the idea behind antitrust laws was to support robust competition.
Key Factors to Know about Antitrust Laws
Proposed by Sen. John Sherman of Ohio, the Sherman Antitrust Act of 1890 came about after Sherman realized that Standard Oil Company and its Trust Corporations had been allowed to maintain a monopoly over the oil and fuel industry. The goal of the act was to prohibit the formation of subsidiary corporations and trusts for hiding the existence of an industry-spanning monopoly.
Identifying Price-Fixing Activities
Price fixing typically involves an agreement among competitors to manipulate prices or conditions of sale. It must be noted that the fact that all competitors use the same terms of sale or charge the same prices does not necessarily indicate price fixing. Company memoranda or records of price changes are more suitable in identifying price fixing activities.
Identifying Bid-Rigging Activities
Bid rigging usually involves an arrangement or agreement between companies in order to select the successful bidder ahead of time. In order to identify bid-rigging activities, it is typically necessary to screen suspicious bids for a number of practices, including evidence that qualified bidders have failed to bid or when one contractor bids significantly higher on certain bids.
Restraint of Trade
Under Section 1 of the Sherman Act, restraint of trade is declared to be illegal. Over the years, courts have interpreted this to mean that only unreasonable restraints of trade are forbidden. The courts typically consider a variety of factors to determine whether restraint of trade has taken place. Such factors may include the makeup of the subject industry and the purpose of the defendants in adopting the restraint.
Concerted action is also prohibited under Section 1 of the Sherman Act. The courts have defined concerted action as occurring when manufacturers reach an agreement in which only specified manufacturers will supply products to certain retailers and not to other retailers.
Market allocations occur when competitors reach an agreement not to compete with one another in specified markets. For instance, competitors might agree to divide geographic areas or types of customers.
Boycotts occur when at least two companies reach an agreement stating they will not deal with a third party. This type of agreement could be in violation of the Sherman Act because it can result in the reduction of the number of market participants, thus reducing competition.
When a retailer places terms of conditions on the sale of a product based on the purchase of another product, this is known as a tying arrangement. Such arrangements are scrutinized closely because they could result in retailers exploiting market power.
Section 2 of the Sherman Act forbids monopolies, which is a type of market structure under which only a select few companies are able to dominate the sale of a service or product. Although all monopolies are forbidden under the Sherman Act, the courts have found that the act is only applicable to monopolies attained through unfair or abuse of power.
Key Elements That Must Be Proven to Establish a Criminal Violation of Section 1 of the Sherman Act
In order for a criminal violation of Section 1 of the Sherman Act to be established, the government is responsible for establishing three critical elements. Those elements are:
The subject conspiracy was formed knowingly;
The defendant joined the charged conspiracy knowingly; and
The subject conspiracy affected foreign or interstate commerce in a substantial manner or took place within the flow or foreign or interstate commerce.
Clayton Antitrust Act of 1914
Proposed by Sen. Henry de Lamar Clayton of Alabama, the Clayton Antitrust Act of 1914 was prompted by the desire to regulate the balance of power within business and commercial endeavors.
The Robinson-Patman Act of 1936
Under the Robinson-Patman Act of 1936, the Clayton Act was amended to outlaw certain practices whereby manufacturers discriminated in price in order to decrease competition.
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