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Chapter 16 - Regulating Competition—Antitrust Laws
16-19
Table 16.6—“American Airlines Merges with a Rival”
Case for Discussion:
1. American Stores, the fourth largest supermarket chain in California, acquired all of the
stock of the largest chain. The state filed suit to stop the acquisition under Section 7 of
the Clayton Act.
Issue: Can litigants other than the federal government obtain divestitures?
Company, 110 S.Ct. 1853 (1990).
Additional Matters for Discussion:
The “incipiency” rule and the importance of the potential entrant doctrine.
The failing-company doctrine. Note that it is being used more and more to justify
mergers and that it is being used before companies actually fail. Also, the doctrine has
been applied to failing divisions and failing subsidiaries.
That enforcement seems to be relaxed with respect to mergers within the defense
industry, the communications industry, and the healthcare industries.
Examples of mergers that were disallowed; i.e., General Mills and RJR Nabisco,
Microsoft, Intuit, Office Depot and Staples.
V. The Federal Trade Commission Act—Unfair Competition (LO 16-7)
Emphasize:
That the Wheeler-Lea amendment in 1938 added that “unfair or deceptive acts or practices
in commerce” also unlawful under section 5.
What the original Section 5 of the Federal Trade Commission Act states and explain its
purpose.
That the primary function of the FTC is to prevent illegal business practices rather than
punish violations.
A. International Antitrust Enforcement
Chapter 16 - Regulating Competition—Antitrust Laws
16-20
Emphasize:
The U.S. antitrust laws described earlier apply to companies outside the United States.
So long as their activities have a substantial impact on U.S. commerce, foreign
companies must comply with U.S. antitrust law.
The U.S. antitrust laws apply to companies outside the United States. So long as their
activities have a substantial impact on U.S. commerce, foreign companies must comply
with U.S. antitrust law.
Additional Matter for Discussion:
The case of FTC v. Brown Shoe Co., 384 U.S. 316 (1966). This case sets forth the
Supreme Court’s view that § 5 of the FTC Act stands apart from the provisions of the
Sherman and Clayton Acts.
Case for Discussion:
1. Toys “R” Us created an express policy to encourage toy manufacturers to limit
distribution of toys sold by Toys “R” Us. In particular, this policy restricted sales to
warehouse clubs. The FTC brought action and found that the policy violated § 5 of the
FTC Act in that the policy was an unfair method of competition.
Issue: Does Toys “R” Us violate § 5 of the FTC Act through negotiating with
manufacturers to abide by the new distribution policy?
2. The Indiana Federation of Dentists promulgated a “work rule” forbidding its members to
submit x rays to dental insurers in conjunction with claim forms. The Federation’s
membership was small, numbering less than 100, its members highly concentrated in
and around three Indiana communities.
Issue: Is this an unfair method of competition?
Chapter 16 - Regulating Competition—Antitrust Laws
16-21
access to x-rays in the desired manner. A rule of reason decision. F.T.C. v. Indiana
Federation of Dentists, 106 S.Ct. 2009 (1986).
Answers to Review Questions and Problems
Introduction
1. Historical Development
a. The Sherman Act declares illegal restraints of trades and monopolies or attempts to
monopolize as being illegal.
2. Restraint of Trade
3. Analysis in Antitrust Law
a. The actual language of the Sherman Act makes every agreement that restrains trade
illegal. The rule-of-reason analysis clarifies that only unreasonable restraints are to be
challenged.
b. When an activity is per se illegal it is presumed to be so anticompetitive that it has to
be unreasonable and therefore it may not be necessary to prove an intent.
Types of Cases
4. Horizontal Price Fixing
5. Vertical Price Fixing
Chapter 16 - Regulating Competition—Antitrust Laws
16-22
a. Vertical minimum-price fixing is permissible under the Colgate Doctrine. The supplier
must announce the minimum price its customers can charge, and the supplier must
directly enforce this pricing policy. The use of any intermediary in the enforcing
program likely will result in a finding of an illegal price fixing arrangements.
b. The courts will use the rule-of-reason analysis when determining the legality of
vertical price fixing. This analysis is appropriate since vertical price fixing is not
inherently anticompetitive. Such practices might actually increase interbrand
competition.
6. Indirect Price Fixing
7. Territorial Agreements
a. No. The granting of exclusive territories to franchisees may reasonably enhance
8. Concerted Activities
9. Monopoly
accredited central station service meet the interchangeability test. The market power was
achieved by unlawful and exclusionary practices that establish the violation. United States v.
Grinnell Corporation, 86 S.Ct. 1698 (1966).
10. Sanctions
Chapter 16 - Regulating Competition—Antitrust Laws
16-23
a. A Sherman Act violation is subject to: individuals—10 years imprisonment and/or up
c. The nolo contendere plea does not establish guilt in the criminal case and hence does
not offer proof of an antitrust violation in a civil case.
11. Exemptions
12. Introduction
a. Injunctions and triple damage suits are the sanctions provided under the Clayton Act.
13. Price Discrimination
a. Perhaps, giving a discount to only one customer violates the Robinson-Patman
14. Special Arrangements
a. No. This exclusive supply contract likely could be justified as a reasonable means of
15. Mergers and Acquisitions
16-24
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The government’s best argument is that P&G is a potential entrant in the liquid bleach
market. As a potential competitor, P&G should not be allowed to purchase this product
position through the acquisition of Clorox.
The Federal Trade Commission Act—Unfair Competition
16. Enforcement
Yes. The outcome of this case turns on the application of various exemptions from the
17. Prevention
a. Any actions that violate the Sherman or Clayton Acts likely could be analyzed as a § 5
violation. Advertising campaigns also may be declared unfair or deceptive. Other
activities challenged by the FTC do not have to violate the Sherman and Clayton Acts.
Predatory pricing, price fixing and tying agreements are activities the FTC has declared
unlawful.
b. No. Section 5 of the FTC Act is independent from both the Sherman and Clayton Acts.
Business Discussion
1. What legal worries do you have about each of these situations?
With respect to the customer requesting a more favorable pricing program, one needs to
focus on how to provide any resulting favorable treatment to all customers.
2. What type of information should a training/education program for your sales force include?
3. What are the ramifications if you decide to ignore these situations as you try to return to
Chapter 16 - Regulating Competition—Antitrust Laws
16-25
your “happy” state of mind?
