Trade Practices Common law –Covenant not to compete –Must be reasonable –Society demands laws...
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Transcript of Trade Practices Common law –Covenant not to compete –Must be reasonable –Society demands laws...
Trade Practices
• Common law– Covenant not to compete– Must be reasonable– Society demands laws against predatory
business practices
• Legislation– Laws are vague– Reliance on court interpretation
Antitrust Laws
• Views– Chicago School
• Promote economic efficiency• Large firm size derived from superior competition• Less concern about vertical restraints
– Traditionalists• Promote social goals• Favor more enforcement• Large firms possess economic & political power
Penalties
• Pleas– Guilty, not guilty, nolo contendre
• Nolo contendre same penalty as guilty, but cannot be used in civil cases
• Criminal penalties– Prison– Fines up to $10 million
Penalties
• Civil remedies– Treble damages
– Attorney fees
• Equitable remedies– Injunction
– Dissolution (cease business)
– Divestiture
– Divorcement (separate)
– Contract cancellation
Sherman Act
• Monopoly– Monopoly power
• Relatively inelastic demand curve
• Market share over 50%
– Relevant market
• Geographic market
• Submarket
• Product market
– Purposeful or willful attempt to monopolize
– Attempt does not need to be successful, but to have a dangerous probability of success
– Exception: monopoly acquired through superior skill, foresight & industry
Sherman Act
• “Contract, combination, or Conspiracy”– Joint action– “conscious parallelism” does not prove an
agreement to joint action
• Rule of reason
• Per se violation
Sherman Act
• Horizontal Price-fixing– No defense
– Minimum prices
– Maximum prices
– List prices
– Following a price leader
– Production limitations
– Limitations on competitive bidding
– Credit arrangement agreements
Sherman Act
• Division of Markets– Agreement to divide a market
– Reduces interbrand competition
– Per se violation
• Group Boycotts & Refusals to Deal– Well intentioned
– Per se violation; unless firms do not have market power
– Anti-competitive
Sherman Act
• Joint ventures– Subject to court consideration
• Exceptions– Noerr-Pennington doctrine– Prior approval
Vertical Trade Restraints
• Resale Price Maintenance– Minimums – rule of reason
– Maximums – per se violation
– Inhibits intrabrand competition
– Consignments usually ok
– No enforcement of “suggested retail price”
• Sole Outlets & Exclusive Distributorships– Subject to “rule of reason”
– Amount of interbrand competition
Vertical Trade Restraints
• Customer & Territorial Restrictions– Subject to “rule of reason”– Free-rider problems– Interbrand v. intrabrand competition– Market power of manufacturer– More favorable to new manufacturers
Vertical Trade Restraints
• Tying arrangements– Distort competition– Per se violation
• Market power
• Tie-in affects substantial amount of commerce
– Defenses• New-industry
• Goodwill
Vertical Trade Restraints
• Exclusive Dealing or Requirements Contracts– Inhibit intrabrand competition
– Treated more leniently than tying arrangements
– Generally ok if manufacturer does not have great market power
– Rule of reason• Degree of competition decrease
• Duration of the agreement
• Entry barriers
Vertical Trade Restraints
• Price Discrimination (Robinson-Patman Act)– Purchases must be made at the same time
– Can apply to indirect charges
– Like grade or quality
– Injury to competition
– Defenses• Legitimate cost differences
• Meeting the competition
– Illegal for buyers as well
Horizontal Mergers
• Eliminates competition• May increase market power to distort competition• May increase industry concentration• Supreme Court more lenient since the 70’s• Failing company• Small company• International markets
Vertical Mergers
• May block competitors’ access to market
• May eliminate a potential competitor (firm itself)
• Eliminate benefits of threatened competition
• Courts historically have not examined efficiency arguments
Conglomerate Mergers
• Related businesses
• Geographic extension
Interlocking Directorates
• Illegal under the Clayton Act– Large firms– Anticompetitive agreements would violate
antitrust laws
Exemptions
• State Act– Must be a formal state policy– Must be supervised by the state
• Petitioning the Government– Exempts political activity
• Unions– Monopolies– Group boycotts
• Specific regulated industries– Insurance– Banking– Airlines– Utilities– Financial services
Federal Trade Commission
• Deceptive Advertising– Claims that can be proven false– Implied representations
• Regulates franchising• Cooling off periods• Unsolicited mail• Sweepstakes/contests• Negative option plans• Mail order merchandise• Telephone solicitations
Lanham Act
• Trademark infringement
• Appropriating another’s name of likeness for commercial purposes
• Trade dress infringement
• “palming off” or “passing off”