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Summary chapter 16 BT2109 Business Law
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Summary of chapter 16 of the book Managers and the legal environment: strategies for business. Business Law .
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BUSINESS LAW SUMMARYCh. 16
Antitrust statutes contain very general prohibitions on business conduct. These general
prohibitions often have little content until courts apply them to the particular facts of a case.
A business practice that harms competition in one market setting might not harm competition
in another. The courts and agencies that enforce the antitrust laws must distinguish between
the pernicious and the benign.
Sherman act → existing monopolies
Clayton → creating, manifesting new monopolies
16.1 Jurisdictional Reach of the Sherman Act
The resulting scope of antitrust jurisdiction therefore encompasses more than restraints on
trade that are motivated by a desire to limit interstate commerce or that have their sole impact
on interstate commerce.
The commerce requirement is satisfied when the defendant’s conduct
- (1) directly interferes with the flow of goods in the stream of commerce or
- (2) has a substantial effect on interstate commerce.
16.2 Section 1 of the Sherman Act: Agreements in Restraint of Trade
Section 1 of the Sherman Act provides that “[e]very 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 illegal.”
● For liability to attach under section 1, a plaintiff must demonstrate that
○ (1) there is a contract, combination, or conspiracy among separate entities;
○ (2) it unreasonably restrains trade;
○ (3) it affects interstate or foreign commerce;
○ (4) it causes an antitrust injury
What Constitutes a Contract, Combination, or Conspiracy?
Section 1 does not prohibit unilateral activity in restraint of trade. Acting by itself, an
individual or firm may take any action, no matter how anticompetitive, and not violate
section 1.
Courts are more willing to base liability solely on circumstantial—that is, indirect—evidence
in cases involving horizontal arrangements than they are when vertical restraints are
involved.
● Horizontal agreements are those between firms that compete directly with each
other at the same level of production or distribution, such as retailers selling the same
range of products.
○ Horizontal restrictions are generally considered more inherently
anti-competitive than vertical restraints because they reduce interbrand
competition—that is, competition between companies producing the same
1
, type of product or service. As a result, horizontal restraints are more likely to
result in higher prices or lower quality for a class of goods or services.
● Vertical agreements are those between firms at different levels of production or
distribution, such as an automaker and its dealers or a clothing retailer and its
suppliers.
○ In contrast, vertical restraints reduce intrabrand competition—that is,
competition among firms producing or distributing the same brand; the
restraints may or may not reduce interbrand competition.
Proving a Horizontal Conspiracy
Sometimes, there is direct evidence that competitors expressly agreed to fix prices or divide
markets in violation of section 1.
At the same time, merely showing that ostensibly independent firms consistently set prices at
the same levels and change prices at the same time (known as conscious parallelism) is
insufficient to prove a horizontal conspiracy to fix prices.
- To prevail in a price-fixing suit, a plaintiff must present evidence that “‘tends to
exclude the possibility’ that the alleged conspirators acted independently.”
- Accordingly, the courts will not infer an agreement or conspiracy from parallel
behavior unless the plaintiff shows additional facts or plus factors.
Circumstantial evidence of an agreement, such as a meeting between two
defendants, may be considered a plus factor.
Proving a Vertical Conspiracy
Courts have generally been unwilling to allow proof of vertical conspiracies only by
circumstantial evidence. Unlike competitors, firms in a vertical arrangement have many
legitimate reasons to communicate with each other. Therefore, a plaintiff seeking to prove an
unlawful conspiracy must introduce evidence that tends to exclude the possibility that the
firms acted independently when setting prices.
What Constitutes an Unreasonable Restraint of Trade?
Even if firms agreed to act in concert, their behavior is illegal only if it results in
unreasonable restraint of trade.
1) Per se Violations
a) Per se analysis condemns practices that are considered completely void of
redeeming competitive rationales. Once identified as illegal per se, practice
will not be examined further for its procompetitive justifications. Horizontal
price-fixing, such as an agreement between retailers or service providers to set
a common price for a product or service, is the classic example of a per se
violation of section 1.
2) The Rule of Reason
a) The objective of this rule is to determine whether, on balance, the activity
promotes or restrains competition—or, to put it differently, helps or harms
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