ANTIMONOPLY LEGISLATION

ANTIMONOPOLY LEGISLATION
• fears of concentrations of economic power
in the hands of a few
• harmful effects of some forms of business
cooperation
• misuse of “monopoly” power

EU COMPETITION USA ANTITRUST

LEGISLATION LEGLISLATION

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 USA ANTITRUST LEGLISLATION

Main: Sherman Act of 1890 that outlaws "every contract,

combination . . . , or conspiracy, in restraint of trade”.

Section 1:
Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or commerce
among the several States, or with foreign nations, is
declared to be illegall.
Section 2:
Every person who shall monopolize, or attempt to
monopolize, or combine or conspire with any other person
or persons, to monopolize any part of the trade or
commerce among the several States, or with foreign
nations, shall be deemed guilty of a felony  3
 A POOL
a voluntary agreement among
companies that set production
quotas and fix prices to divide the
market among themselves

A TRUST

joining of several businesses in the

same industry to control production and
distribution of a product or service,
thereby limiting competition and
monopolising the market
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• Could, by 1890, the Standard Oil Company be considered a
monopoly, in its modern meaning?
• What was the initial response to its monopolisation attempts?
• Why they were able to make their monopoly even bigger by
the 1900s?
• In the case Standard Oil Co. of New Jersey v. United States,
what were the arguments of the Standard Oil?
• In the case Standard Oil Co. of New Jersey v. United States,
what were the arguments of the U.S.?
• What was the organisational effect of the court decision of
the aforementioned case on the Standard Oil?
• What was the harmful effect of the Standard Oil’s monopoly?

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 USA ANTITRUST LEGLISLATION

Important: Clayton Act of 1914 that expands on the provisions

of the Sherman Act.
Following activities became illegal:
•price discrimination between different purchasers, if such
discrimination substantially lessens competition or tends to
create a monopoly in any line of commerce (defind by
Pobinson-Patman act of 1936)
•exclusive dealing agreements
•tying arrangements
•mergers and acquisitions where the effect may substantially
lessen competition
•being a director of two or more competing corporations, if
those corporations would violate the antitrust criteria by
merging 
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 EU COMPETITION LEGLISLATION

Main: Articles 101 and 102 of the Treaty on the Functioning of

the EU (2007) / almost all provisions are taken unchanged from
the previous iteration –the Treaty establishing the European
Community (Treaty of Rome, 1957) + EC Merger Regulation
(2004)
Defines:
•Scope of competition law
•Procedure for Mergers and acquisitions
•Abuse of dominance
•Cartels
•Exemptions
•Horizontal and vertical market-distorting agreements

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 STRATEGIC PROBLEMS FOR BUSINESSES

business competitors that fail to compete

i
with one another (by cooperating illegally)
violate the antitrust laws
BUT
t
businesses that compete too
aggressively also violate the antitrust
laws
o
AND
forms of competition that are not illegal
for one firm (a non-monopolist) may be
illegal for another (a monopolist)
 INFLUENCE ON BUSINESS STRATEGIES

Two basic approaches to interacting with other companies:

• Cooperative strategies, where companies work together to
their mutual advantage.
• Aggressive or competitive strategies, designed to create an
advantage over competitors.
Some competitive strategies which may be illegal include:
• Tying arrangements Exclusive
• dealing contracts
• Improper monopolistic practices
Some cooperative strategies which may be illegal,
include:
• Horizontal agreements
• Vertical agreements
• Mergers and joint ventures
COOPERATIVE
STRATEGIES

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 SCENARIO 1
The small town of Fort William has only two pharmacists.
One pharmacist is Catholic, the other Protestant. One
side of the town is predominantly Catholic; the other
predominantly Protestant. The Catholic pharmacist is
located on the Catholic side of town; the Protestant
pharmacist on the Protestant side of town. But some
Catholics shop at the Protestant pharmacist’s shop, and
some Protestants at the Catholic pharmacist’s shop.
The two pharmacists agree that each will refrain from
advertising their products to customers on the other’s side
of town.
Every Sunday, the two pharmacists meet in the park and
arrange to sell their products at identical prices.
IS THIS IN VIOLATION OF THE ANTIMONOPOLY
LEGISLATION?
 HORIZONTAL MARKET DIVISION
t
Any effort by a group of competitors to divide its
market is a violation of EC Article 81 and the Sherman
Act
a Section 1.
Customer divisions:
•By class (religion)
•Geographically
s (side of town)
Supply divisions:
•We won’t sell X in competition with you, if you don’t sell Y
in competition with us.
•E.g., two hardware stores in a small town agree that one
will not stock plumbing equipment while the other will not
stock electrical equipment
 PRICE-FIXING
m
when competitors agree on the prices at which
they will buy or sell, their price-fixing is a violation
of TFEU and §1 of the Sherman Act

REFUSAL TO DEAL (HORIZONTAL)

when competitors agree to stop dealing with
consumers/companies that they deem “each-
others” it is a violation of TFEU and §1 of the
Sherman Act
 SCENARIO 2

Acme, the world’s largest producer of auto parts, has a

new Wood Products division that manufactures saws and
other woodworking tools.
Acme has no retail outlets of its own, but sells its
products to several major retail chains, who make the
retail sales.
Acme has worked very hard to produce products that
are price-competitive with Black and Decker and other
major manufacturers.
To gain market share, Acme requires buyers of its auto
parts to (1) also purchase for resale Acme’s new
wood products, and (2) agree to limit the markup
(retail price – wholesale price) to 10% of the wholesale
price.
IS THIS IN VIOLATION OF THE ANTIMONOPOLY
LEGISLATION?
 VERTICAL ARRANGEMENTS

RESALE PRICE MAINTENANCE

e
Resale price maintenance (RPM) means that the
manufacturer sets minimum prices that retailers may
charge, eliminating discounting of certain products.

Manufacturers may want to set minimum prices to build

loyalty with distributors or to maintain an upscale image
or to reduce competition among its distributors.

Resale Price Maintenance is a violation of the law. A

manufacturer may not enter into an agreement with
distributors to fix prices.
 VERTICAL MAXIMUM PRICE-FIXING
Vertical maximum price fixing (manufacturer setting
maximum retail price) is only illegal if it has an adverse
n on competition.
effect

EXCLUSIVE DEALINGS
h
Contract in which buyer agrees not to buy from seller’s
competitors; usually occur between manufacturer/supplier
and retailer. Illegal if the effect is “to substantially lessen
competition”

UT-EMBA Mexico City 2004

 SCENARIO 3
Acme, the world’s largest producer of auto parts,
controls 65% of the American auto part market, and
25% of the world market.
A British firm, UKAuto, controls 40% of the world market,
but only 10% of the American market. UKAuto wants
to increase their market share in the U.S.
When UKAuto begins to erode Acme’s American market
share, the two firms begin merger negotiations, and
ultimately decide that Acme will purchase UKAuto.

IS THIS IN VIOLATION OF THE ANTIMONOPOLY

LEGISLATION?

VIOLATION OF ANTITRUST LAWS?

 MERGERS AND JOINT VENTURES
t
HORIZONTAL MERGERS

• A horizontal merger involves companies that compete

in the same market.
• FTC and European Commission halt/approve mergers,
based on likely impact on competition:
• HHI as measure of market concentration: too much
concentration creates rebuttable presumption of
violation
Herfindahl-Hirschman Index Calculator

VERTICAL MERGERS
• Between two firms that have a buyer-seller relationship
AGGRESIVE
STRATEGIES

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 PREDATORY PRICING
predatory pricing occurs when a company lowers
its prices below cost to drive competitors out of
business

HOW TO PROVE

• The defendant is selling its products below cost.

• The defendant intends that the plaintiff goes out of
business,
• If the plaintiff does go out of business, the defendant will
be able to earn sufficient profits to recoup its prior
losses.
 ABUSE OF DOMINANCE
• directly or indirectly imposing unfair purchase or selling
prices or other unfair trading conditions
• limiting production, markets or technical development to
the prejudice of consumers
• applying dissimilar conditions to equivalent transactions
with other trading parties, thereby placing them at a
competitive disadvantage
• making the conclusion of contracts subject to
acceptance by the other parties of supplementary
obligations which, by their nature or according to
commercial usage, have no connection with the subject
of such contracts

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 TYING AND EXCLUSIVE DEALING
ARRANGEMENTS

• tying arrangements are the practice of

selling a product to a buyer with
their agreement to buy another product
from the same seller
• exclusive dealing arrangements occur
when buyer is prohibited from dealing with
competitors of the seller

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 MONOPOLISATION
/
Under §2 of the Sherman Act, it is illegal to monopolize or
attempt to monopolize.
EC Art. 102 outlaws “abuse” of a “dominant Position in the
market”
o

o HOW TO PROVE
•define the market
•assess the level of market control – no matter what your
market shares, you do not have a monopoly unless you
can exclude competitors or control prices.
u • Possessing a monopoly used to be illegal; de
facto – rarely now
• using “bad acts” to acquire or maintain one is
for illegal for sure.
What kind of bad acts? Anticompetitive behavior
a • Other antitrust violations
• Predatory pricing
• Tying arrangements
• Exclusive dealing/refusals to deal
KEY: did/will behavior “diminish
g competition”