Section 1 of Sherman Act Section 1 of Sherman Act regulates “horizontal” and regulates “horizontal” and “vertical” restraints. “vertical” restraints.

Per SePer Se vs. Rule of Reason. vs. Rule of Reason.Per Se violations are blatant and

substantially anticompetitive.Rule of Reason agreements do not

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Rule of Reason—court will Rule of Reason—court will consider several factors:consider several factors:Purpose of the Agreement.Parties’ power to implement.Effect (potential) on competition.

CASE 28.1 American Needle, Inc. v. National Football League (2010). What was the ‘concerted activity’ between the NFL teams and NFLP?© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as

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Horizontal restraints are Horizontal restraints are agreements among Sellers (or agreements among Sellers (or Buyers) that restrain competition Buyers) that restrain competition between rival firms competing in between rival firms competing in the same market.the same market.

BuyerBuyer BuyerBuyer BuyerBuyer

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Price FixingPrice Fixing. Agreement . Agreement between competing firms in between competing firms in the market to set an the market to set an established price for the established price for the goods or services they offer.goods or services they offer.Price fixing is a per se violation of

the Act.

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Group Boycotts. Group Boycotts. Agreement Agreement between two or more sellers between two or more sellers to refuse to deal with a to refuse to deal with a particular person or firm.particular person or firm.Group boycotts are per se

violations of the Act.

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Horizontal Market DivisionsHorizontal Market Divisions. . Occurs when competitors in Occurs when competitors in the same market agree that the same market agree that each will have exclusive rights each will have exclusive rights to operate in a particular to operate in a particular geographic area.geographic area.Horizontal market divisions are per

se violations of the Act.© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7

Trade AssociationsTrade Associations. Industry . Industry specific organizations.specific organizations.Concentrated Industry: small firms

control large percentage of market sales.

Rule of reason is usually applied to determine if a violation of the Act has occurred.

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Per sePer se anticompetitive anticompetitive agreements imposed agreements imposed by Sellers upon Buyers by Sellers upon Buyers (or vice versa) that (or vice versa) that may include affiliates may include affiliates in the entire supply in the entire supply chain of production. chain of production.

BuyerBuyer

BuyerBuyerBuyerBuyer

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May restrain competition May restrain competition among firms that occupy the among firms that occupy the same level in chain.same level in chain.

Vertical restraints that Vertical restraints that significantly affect significantly affect competition may be competition may be per seper se violations.violations.

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Imposed by manufacturers on Imposed by manufacturers on the sellers of the products, to the sellers of the products, to insulate dealers from direct insulate dealers from direct competition with each other.competition with each other.

Territorial and customer Territorial and customer restrictions are judged under restrictions are judged under the rule of reason.the rule of reason.

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Agreements Agreements between a between a manufacturer and a distributor manufacturer and a distributor or retailer in which the or retailer in which the manufacturer specifies the manufacturer specifies the retail price at which retailers retail price at which retailers must sell products furnished by must sell products furnished by the manufacturer or distributor. the manufacturer or distributor.

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This is a type of vertical This is a type of vertical restraint and is normally a per restraint and is normally a per se violation.se violation.CASE 28.2 Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007). Why did the Court apply the rule of reason to this case?

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In contrast to group boycotts, In contrast to group boycotts, manufacturers are free to deal manufacturers are free to deal with whomever they wish, with whomever they wish, rather than in concert.rather than in concert.But in some cases, a refusal to deal

will violate antitrust laws: Firm refusal to deal has, or will have,

monopoly power, and Refusal is likely to be anticompetitive.

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Occurs when a seller charges Occurs when a seller charges different buyers different prices different buyers different prices for identical goods, and may for identical goods, and may violate Section 2 (Robinson-violate Section 2 (Robinson-Patman Act).Patman Act).Customer Preferences.Time and Cost Considerations.

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Exclusive Dealing Contracts: Exclusive Dealing Contracts: seller forbids a buyer to seller forbids a buyer to purchase products from the purchase products from the seller’s competitors, that will seller’s competitors, that will “substantially lessen “substantially lessen competition or tend to create a competition or tend to create a monopoly.” monopoly.”

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Tying Arrangements: Tying Arrangements: sale of a sale of a product is conditioned on product is conditioned on buyer’s agreement to purchase buyer’s agreement to purchase another product produced or another product produced or distributed by the same seller.distributed by the same seller.CASE 28.3 Illinois Tool Works, Inc. v. Independent Ink, Inc. (2006). What factors did the court consider under the rule of reason?

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Horizontal Mergers Horizontal Mergers occur occur between firms at the same between firms at the same level in the production and level in the production and distribution chain.distribution chain.Factors to Determine Legality. The Herfindahl-Hirschman Index:

to determine market concentration.

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Vertical Mergers: Vertical Mergers: occur occur between firms at different levels between firms at different levels in the production and in the production and distribution chain.distribution chain.

Conglomerate Mergers: Conglomerate Mergers: between firms that do not between firms that do not compete with each other compete with each other because they are in different because they are in different markets.markets.

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