Antitrust:

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CHAPTER 40
Antitrust Law and Competitive Strategy, Part I
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Quote of the Day

• Is there not a causal connection between the
  development of these huge, indomitable trusts and
  the horrible crimes now under investigation? Is
  it not irony to speak of the equality of
  opportunity in a country cursed with bigness?
• Louis D. Brandeis,
• Supreme Court Justice

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Overview of Antitrust Laws

• Sherman Act prohibits all agreements in
  restraint of trade and bans monopolization.
• The Clayton Act prohibits anticompetitive
  mergers, tying arrangements, and exclusive
  dealing agreements.
• The Robinson-Patman Act bans price discrimination
  that reduces competition.

The text of all antitrust statutes can be seen
online. Click here!
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Competitive Strategies

• For a competitive strategy, managers may consider
  two approaches
• Cooperative strategies, where companies work
  together to their mutual advantage.
• Aggressive strategies, designed to create an
  advantage over competitors.
• Some cooperative strategies which may be illegal,
  include
• Horizontal agreements
• Vertical agreements
• Mergers and joint ventures

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Illegal Horizontal Agreements

• Market Division
• Any effort by a group of competitors to divide
  its market is a per se violation of 1 of the
  Sherman Act.
• Price Fixing and Bid Rigging
• When competitors agree on the prices at which
  they will buy or sell, their price-fixing is a
  per se violation of 1 of the Sherman Act.
  Bid-rigging is also a per se violation.
• Refusals to Deal
• A refusal to deal violates the Sherman Act if it
  harms competition.

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Illegal Vertical Agreements

• Reciprocal Dealing Agreements
• When a buyer refuses to purchase goods from a
  supplier unless the supplier also purchases items
  from the buyer.
• Price Discrimination
• It is illegal to charge different prices to
  different purchasers if
• the items are the same, and
• the price discrimination lessens competition.
• However, it is legal to charge a lower price to a
  particular buyer, if
• the costs of serving this buyer are lower, or
• the seller is simply meeting competition.

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Mergers and Joint Ventures

• The Clayton Act prohibits mergers that are
  anticompetitive.
• Horizontal Mergers
• A horizontal merger involves companies that
  compete in the same market.
• Vertical Mergers
• A vertical merger involves companies at different
  stages of the production process.

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Politics are an important ingredient of
antitrust enforcement.
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