What Is Antitrust?

❑ Antitrust laws are regulations that encourage competition by

limiting the market power of any particular firm. This often
involves ensuring that mergers and acquisitions don’t overly
concentrate market power or form monopolies, as well as
breaking up firms that have become monopolies.

❑ Antitrust laws also prevent multiple firms from colluding or

forming a cartel to limit competition through practices such
as price fixing. Due to the complexity of deciding what practices
will limit competition, antitrust law has become a distinct legal
specialization.
 KEY TAKEAWAYS

❑ Antitrust laws were designed to protect and promote

competition within all sectors of the economy.

❑ The Sherman Act, the Federal Trade Commission Act, and the
Clayton Act are the three pivotal laws in the history of
antitrust regulation.

❑ Today, the Federal Trade Commission, sometimes in

conjunction with the U.S. Department of Justice, is tasked
with enforcing federal antitrust laws.
 What are antitrust laws, and are they
necessary?
❑ Antitrust laws were implemented to prevent
companies from getting greedy and abusing their
power. Without these regulations in place, many
politicians fear that big businesses would gobble up the
smaller ones.

❑ This would result in less competition and fewer

choices for consumers, potentially leading to higher
prices, lower quality, and less innovation, among
other things.
 Who enforces antitrust laws?

❑ The Federal Trade Commission (FTC) and the U.S.

Department of Justice (DOJ) are responsible for making sure
that antitrust laws are abided by.

❑ The FTC mainly focuses on segments of the economy

where consumer spending is high;

❑ The DOJ holds sole antitrust jurisdiction in sectors such as

telecommunications, banks, railroads, and airlines and has the
power to impose criminal sanctions.
 Major Example of Antitrust Law

In January 2023, the DOJ and eight states filed an antitrust

lawsuit against Alphabet’s Google, alleging that the search giant
has illegal monopolization of the digital advertising business.

“Today’s complaint alleges that Google has used

anticompetitive, exclusionary, and unlawful conduct to
eliminate or severely diminish any threat to its dominance over
digital advertising technologies,” the government agency said.
Major Example of Antitrust Law
• The filing, which seeks to make Google divest parts of
its advertising business, alleges that the company has
used acquisitions as a strategy for “neutralizing or
eliminating” rivals and forces advertisers to use its
products by making competitors’ products difficult
to use.

• The complaint claims that the company’s monopolistic

practices curtail innovation, raise advertising fees, and
prevent small businesses and publishers from growing.
 Major Example of Antitrust Law

❑ Google’s advertising business has come under fire from

critics who argue that the search giant controls both
the supply and demand sides of the digital advertising market.
The company provides tools that help websites offer ad space
and that assist advertisers in placing online ads.

❑ The suit alleges that Google’s dominance in the market

allows it to pocket 30 cents of each dollar that advertisers
spend using its suite of advertising tools.

❑ https://www.youtube.com/watch?v=RECViR7c5ps
 United States v. Microsoft Corp.

❑One of the most well-known antitrust cases in

recent memory involved Microsoft, which was
found guilty of anti-competitive, monopolizing
actions by forcing its own web browsers upon
computers that had installed the Windows
operating system.
Major Example of Antitrust Law

❑United States v. Apple

• https://www.youtube.com/watch?v=qXAervNNODU
 The Big Three Antitrust Laws
The core of U.S. antitrust legislation was created by
three pieces of legislation:

❑ the Sherman Anti-Trust Act of 1890

❑ the Clayton Antitrust Act
❑ the Federal Trade Commission Act—which also
created the FTC.
 The Sherman Anti-Trust Act
❑ The Sherman Anti-Trust Act intended to prevent unreasonable "contract,
combination or conspiracy in restraint of trade," and "monopolization
attempted monopolization or conspiracy or combination to monopolize."
Violations against the Sherman Anti-Trust Act can have severe
consequences, with fines of up to $100 million for corporations and $1
million for individuals, as well as prison terms of up to 10 years.

❑ The Sherman Antitrust Act refers to a landmark U.S. law that banned
businesses from colluding or merging to form a monopoly. The law
prevented these groups from dictating, controlling, and manipulating prices
in a particular market.

❑ The act aimed to promote economic fairness and competitiveness while

regulating interstate commerce. The Sherman Antitrust Act was the U.S.
Congress' first attempt to address the use of trusts as a tool that enables a
limited number of individuals to control certain key industries.
The Sherman Anti-Trust Act
❑ Sen. John Sherman from Ohio proposed the Sherman Antitrust
Act in 1890. It was the first measure the U.S. Congress passed to
prohibit trusts, monopolies, and cartels from taking over the general
market. It also outlawed contracts, conspiracies, and other business
practices that restrained trade and created monopolies within
industries.

❑ At the time, public hostility was growing toward large

corporations like Standard Oil and the American Railway Union,
which were seen as unfairly monopolizing certain industries.

❑ STANDARD OIL CO. OF NEW JERSEY V. UNITED STATES (1911)

 Why Was the Sherman Antitrust Act
Passed?
❑ The Sherman Antitrust Act was passed to address concerns by consumers
who felt they were paying high prices on essential goods and by competing
companies who believed they were being shut out of their industries by larger
corporations.

❑ What Are the Penalties for Violating the Sherman Act?

❑ Those found guilty of violating the Sherman Act can face a hefty
punishment. It is also a criminal law, and offenders may serve prison
sentences and also fines (pls see slide #12).
❑ In some cases, heftier fines could also be issued, worth twice the amount
the conspirators gained from the illegal acts or twice the money lost by the
victims.
❑ Illinois Tool Works, Inc. v. Independent Ink, Inc.
 What Is the Clayton Antitrust Act?

❑ The Clayton Antitrust Act is a piece of legislation, passed by the

U.S. Congress and signed into law in 1914, that defines unethical
business practices, such as price fixing and monopolies, and upholds
various rights of labor.

❑ The Federal Trade Commission (FTC) and the Antitrust Division

of the U.S. Department of Justice (DOJ) enforce the provisions of the
Clayton Antitrust Act, which continue to affect American business
practices today.
 The Clayton Act
❑ At the turn of the 20th century, a handful of large U.S.
corporations began to dominate entire industry segments by
engaging in predatory pricing, exclusive dealings, and mergers
designed to destroy competitors.

❑ In 1914, Henry De Lamar Clayton of Alabama introduced

legislation to regulate the behavior of massive entities. The bill
passed the House of Representatives with a vast majority on
June 5, 1914. Then the Senate passed its own version, and a
final version, based on deliberation between House and Senate,
passed the Senate on Oct. 6.
❑ Motion Picture Patents Company v. Universal Film Manufacturing Company et
al
 The Clayton Act
❑ The act is enforced by the FTC and prohibits exclusive sales contracts,
certain types of rebates, discriminatory freight agreements, and local
price-cutting maneuvers. It also forbids certain types of holding
companies.

❑ According to the FTC, the Clayton Act also allows private parties to
take legal action against companies and seek triple damages when they
have been harmed by conduct that violates the Clayton Act. They may
also seek and get a court order against any future anti-competitive
practice.

❑ In addition, the Clayton Act specifies that labor is not an economic

commodity. It upholds issues conducive to organized labor, declaring
peaceful strikes, picketing, boycotts, agricultural cooperatives,
and labor unions as legal under federal law.
Enforcement of the Clayton Antitrust Act
❑ The DOJ's Antitrust Division primarily enforces the Clayton Antitrust Act
of 1914 in the United States. In some cases, the FTC can enforce the law as
well. The FTC and Antitrust Division investigate and prosecute alleged
violations of the Clayton Act and other federal antitrust laws, and
investigators can conduct investigations on their own or respond to complaints
or referrals.

❑ In the event that the Antitrust Division or FTC determines that a Clayton
Act violation has occurred, they can take legal action to stop the
anticompetitive conduct and seek compensation for any harm suffered. Some
remedies include injunctions to stop behavior, divestiture of assets, or
imposition of fines or fees.

❑ As discussed earlier, the Clayton Antitrust Act allows for private parties to
bring about lawsuits to seek damages for harm they have suffered related to
antitrust matters. They may also seek injective relief to stop the behavior from
continuing.
 What Is the Clayton Act’s Overall Goal?
❑ The Clayton Act, in conjunction with other antitrust laws, is responsible
for making sure that companies behave themselves and that there is fair
competition in the marketplace, which, according to economic theory, should
lead to lower prices, better quality, greater innovation, and wider choice.

❑ Is the Clayton Act Necessary?

❑ Most people agree that these types of antitrust laws benefit society. If
companies were given free rein to make profits by any means necessary, it
would likely prove detrimental to everyone other than the company that came
out on top.

There are, however, many people who oppose antitrust laws like the Clayton
Act. In their view, allowing businesses to compete without restraints and to
fully capitalize on their market power would ultimately prove favorable to
consumers and the economy.
 What Are the 4 Main Points of the Clayton
Antitrust Act?

❑The Clayton Antitrust Act targeted four anti-

competitive practices in particular:
✓ mergers,
✓ acquisitions,
✓ interlocking board directorates, and
✓ price discrimination
What Is the Federal Trade Commission (FTC)?

❑ The Federal Trade Commission (FTC) is an independent,

bipartisan agency of the U.S. government tasked with protecting
consumers and ensuring a strong competitive market.

❑ Its principal purpose is to enforce non-criminal antitrust

laws in the United States, preventing and eliminating
anticompetitive business practices, including coercive
monopolies. The FTC also seeks to protect consumers from
predatory or misleading business practices.
 The Federal Trade Commission (FTC)

❑ The Federal Trade Commission (FTC) was established in

1914 by the Federal Trade Commission Act. It was tasked with
enforcing the Clayton Act, which banned monopolistic
practices.

❑ The FTC continues to discourage anticompetitive behavior

through the Bureau of Competition, which reviews
proposed mergers together with the Department of Justice
(DOJ).

❑ The FTC's regular activities include investigating fraud or

false advertising from consumers, businesses, and the media,
congressional inquiries, and pre-merger notification filings.
 The Federal Trade Commission (FTC)

❑ The FTC may investigate a single company or an entire industry.

If a FTC investigation reveals unlawful activities on the part of one
or more companies within an industry, it can seek voluntary
compliances via consent order, initiate federal litigation, or file an
administrative complaint. Traditionally, such a complaint would be
heard in front of an administrative law judge (ALJ) and may be
appealed to the U.S. Court of Appeals and then the Supreme Court.

❑ The FTC also deals with complaints of unfair business practices,

such as scams and deceptive advertising. The FTC also administers
and enforces the Telemarketing Sales Rule, the Pay-Per-Call Rule,
and the Equal Credit Opportunity Act.
 The Federal Trade Commission (FTC)

What Is the Federal Trade Commission Act of 1914?

❑ The Federal Trade Commissions Act of 1914 created the
Federal Trade Commission (FTC) and bestowed full power to the
U.S. government to address unscrupulous acts among businesses.

What Does the FTC Regulate?

❑ The FTC can regulate trade by outlining deceptive and unfair
practices in the marketplace. It also enforces antitrust and
consumer protection laws.
❑ LEEGIN CREATIVE LEATHER PRODUCTS, INC. V. PSKS, INC.
 Monopolies
❑ Usually, when most people hear the term "antitrust" they
think of monopolies. Monopolies refer to the dominance of
an industry or sector by one company or firm while cutting
out the competition.

❑ Regulators must also ensure monopolies are not borne

out of a naturally competitive environment and gained
market share simply through business acumen and
innovation. It’s only acquiring market share through
exclusionary or predatory practices that is illegal.
Types of monopolistic behavior that can be grounds for
legal action:

❑ Exclusive Supply Agreements: These occur when a

supplier is prevented from selling to different buyers. This
stifles competition against the monopolist as the company
will be able to buy supplies at potentially lower costs and
prevent competitors from manufacturing similar products.

❑ Tying the Sale of Two Products: When a monopolist has

dominance in the market shares of one product but wishes
to gain market shares in another product, it can tie sales of
the dominant product to the second product. This forces
customers for the second product to buy something they
may not need or want and is a violation of antitrust laws.
Types of monopolistic behavior that can
be grounds for legal action:
❑ Predatory Pricing: Often hard to prove, and requiring a
careful examination on the part of the FTC, predatory
pricing can be considered monopolistic if the price cutting
firm can cut prices far into the future and has enough
market share to recoup its losses down the line.

❑ Refusal to Deal: Like any other company, monopolies can

choose who they wish to conduct business with. However,
if they use their market dominance to prevent competition,
this can be considered a violation of antitrust laws.
 Mergers and Acquisitions
❑ Unilateral Effects. The FTC will often challenge mergers between rival firms that
offer close substitutes, on the grounds that the merger will eliminate beneficial
competition and innovation. In 2004, the FTC did just that, by challenging a merger
between General Electric and a rival firm, as the rival firm manufactured competitive
non-destructive testing equipment. In order to go forward with the merger, GE agreed
to divest its non-destructive testing equipment business.
❑ Vertical Mergers. Mergers between buyers and sellers can improve cost savings
and business synergies, which can translate to competitive prices for consumers. But
when the vertical merger can have a negative effect on competition due to a
competitor’s inability to access supplies, the FTC may require certain provisions prior
to the completion of the merger. For example, Valero Energy had to divest certain
businesses and form an informational firewall when it acquired an ethanol terminator
operator.
❑ Potential Competition Mergers. Over the years, the FTC has challenged rampant
preemptive merger activity in the pharmaceutical industry between dominant firms and
would-be or new market entrants to facilitate competition and entry into the industry.
 Mergers and Acquisitions
❑ No introduction to antitrust legislation would be complete without addressing
mergers and acquisitions. We can divide these into horizontal, vertical, and potential
competition mergers.

❑ Horizontal Mergers: When firms with dominant market shares prepare to enter a
merger, the FTC must decide whether the new entity will be able to exert monopolistic
and anti-competitive pressures on the remaining firms. For example, the company that
makes Malibu Rum and had an 8% market share of total rum sales, proposed buying
the company that makes Captain Morgan’s rums, which had a 33% of total sales to
form a new company holding 41% market share.

❑ Meanwhile, the incumbent dominant firm held over 54% of sales. This would
mean the premium rum market would be composed of two competitors together
responsible for over 95% of sales in total. The FTC challenged the merger on the
grounds that the two remaining companies could collude to raise prices and forced
Malibu to divest its rum business.
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