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CHAPTER 46
ANTITRUST LAW
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
DIGITAL UPDATE—CRITICAL THINKING
Which companies in Europe do you think may have pressured the European Union to
lodge its antitrust complaint against Google? Undoubtedly, the numerous comparison
shopping sites throughout Europe that have declined insignificance brought pressure on the
European Union Antitrust Commission. These sites including BizRate, LeGuide, and Nextag. A
few years ago these sites were popular and profitable. They no longer are. And ten years ago,
there were many other similar comparison shopping sites, all of which have gone out of
business
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 46.1—LEGAL REASONING QUESTIONS
1. How did McWane’s Full Support Program harm competition? Explain. McWane,
Inc., is the dominant producer of domestic ductile iron fittings. When Star Pipe Products entered
2. What did the Federal Trade Commission conclude in this case? What “factual and
economic” evidence supported this conclusion? In the McWane case, the Federal Trade
Commission (FTC) identified the relevant product market for domestic pipefittings produced for
domestic-only projects, found that McWane, Inc., the dominant producer of domestic ductile iron
fittings, had monopoly power in that market, and determined that McWane's “Full Support
Program” harmed competition.
McWane adopted its “Full Support Program” when Star Pipe Products entered the
market. McWane told its distributors that unless they bought all of their domestic fittings from
3. Instead of imposing an exclusivity policy, what action might McWane have taken to
benefit its customers and compete with Star? Instead of imposing an exclusivity policy,
McWane, Inc., the dominant producer of domestic ductile iron fittings, could have benefitted its
customers and competed with Star Pipe Products, or almost any other new entrant into the
domestic pipefittings market by simply dropping prices.
CASE 46.2—CRITICAL THINKING
SOCIAL
Do predatory-bidding schemes ever benefit consumers? Explain your answer. Yes. A
predatory-bidding scheme can benefit consumers by leading to lower prices. A predator’s high
ECONOMIC
Why does a plaintiff alleging predatory bidding have to prove that the defendant’s
“bidding on the buy side caused the cost of the relevant output to rise above the
revenues generated in the sale of those outputs”? Because without proof of a likely
CASE 46.3—CRITICAL THINKING
LEGAL ENVIRONMENT
How would TransWeb’s injury have been “shared by all consumers in the relevant
markets” if TransWeb had not sued until after it had been driven out of those markets by
3M’s actions? If TransWeb, LLC had not proceeded with its suit until after 3M Innovative
Products Co.’s actions had excluded TransWeb from the relevant markets, TransWeb’s injury
would have been “shared by all consumers” in those markets by the increased prices charged
by 3M for its products. As the U.S. Court of Appeals for the Federal Circuit noted, “TransWeb
proved at trial that increased prices for fluorinated filter * * * respirators would have resulted
had 3M succeeded in its suit.”
ETHICAL
What does 3M’s conduct suggest about its corporate ethics? The conduct by 3M Innovative
Products Co. in the TransWeb case suggests greed and deception in the firm’s fraudulent use of
the patent system and its abuse of the legal system to obtain an unfair market advantage.
TransWeb, LLC makes respirator filters made of nonwoven fibrous material to be worn at
dirty and polluted worksites. At an industry exposition, the company distributed samples of this
CHAPTER 46: ANTITRUST LAW 5
material. 3M employees obtained some of the samples. At the time, 3M was experimenting with
filter materials.
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Per se v. rule of reason
Because ICANN is at a higher level of the distribution process than Verisign, it is imposing a
2A. Horizontal v. vertical restraint
Because ICANN and Verisign are firms at different levels in the distribution of top-level domain
3A. Directors
If ICANN’s directors were chosen by those with a commercial interest in the Internet, the
4A. Best defense
ICANN’s best defense is to assert that a standardized set of registry services is efficient and has
6 UNIT NINE: GOVERNMENT REGULATION
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
The Internet and the rise of e-commerce have rendered our current antitrust
concepts and laws obsolete. When our antitrust laws were written, the possibility of intense
nationwide and even global competition was not possible. Today, in contrast, the Internet has
increased competition to such a degree that few, if any, sellers of most products can maintain
prices that are significantly higher than prices offered by other sellers anywhere in the
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Under what circumstances would Pop’s Market, a small store in a small, isolated
town, be considered a monopolist? If Pop’s is a monopolist, is it in violation of Section 2
of the Sherman Act? Why or why not? Size alone does not determine whether a firm is a
2A. Maple Corporation conditions the sale of its syrup on the buyer’s agreement to buy
Maple’s pancake mix. What factors would a court consider to decide whether this
arrangement violates the Clayton Act? Why or why not? This agreement is a tying ar-
CHAPTER 46: ANTITRUST LAW 7
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
46-1A. Group boycott
This is a classic case of an anticompetitive group boycott in violation of the Sherman Act,
Section 1. No-Glow Department Store and the manufacturers have reached an agreement
46–2A. Antitrust laws
Yes. The major antitrust law being violated is the Sherman Act, Section 1. Allitron and
Donovan are engaged in interstate commerce, and the agreement to divide marketing territories
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
46–3A. Section 2 of the Sherman Act
No. DVRC’s action does not represent an attempt to monopolize in violation of the Sherman Act.
DVRC merely returned to a position that it had a right to from the beginning. In their contract
DVRC had expressly informed Christy that their relationship could change at any time. Thus
46-4A. Price fixing
The participants in Music Net appear to have engaged in a conspiracy to fix the prices (and
terms) under which their music would be sold online. This may have violated the Sherman Act.
The antitrust laws, including the Sherman Act, are intended to limit restraints of trade—
46–5A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Price discrimination
Spa Steel satisfies most of the requirements for a price discrimination claim under Section 2 of
the Clayton Act. Dayton Superior is engaged in interstate commerce, and it sells goods of like
grade and quality to at least three purchasers. Moreover, Spa Steel can show that, because it
46-6A. Section 1 of the Sherman Act
No, the standard set by the National Collegiate Athletic Association (NCAA) and the National
Federation of State High School Associations (NFHS) for non-wood baseball bats did not violate
Section 1 of the Sherman Act. Underlying this section is the assumption that society is harmed if
rival firms join in an agreement that restrains competition. Under the rule of reason, the courts
46-7A. Mergers
Yes, the affiliation between St. Luke’s and Saltzer violated antitrust law. Under Section 7 of the
Clayton Act, a merger violates antitrust law “where the effect * * * may be to substantially
lessen competition.” This can occur when a merger results in a combination’s obtaining
monopoly power in the relevant market. An important consideration is market concentration.
46–8A. Section 1 of the Sherman Act
The agreement between Manitou North America Inc. and Gehi Co., both makers of telehandlers
(a type of forklift), to allocate territories within Michigan among certain dealers for each
manufacturer and to limit the dealers’ selection of competitive products to certain models is a
horizontal trade restraint. A territorial or market division such as this agreement is a violation of
10 UNIT NINE: GOVERNMENT REGULATION
46–9A. A QUESTION OF ETHICS—Section 1 of the Sherman Act
(a) In his appeal, Rose contended in part that the price-fixing and market-allocating
conspiracy among the competitors had expired before he had become the president of DuCoa,
citing the increase in competitive activity among the companies at the time that he assumed the
presidency. The U.S. Court of Appeals fro the Fifth Circuit affirmed the lower court’s sentence.
The district court did not clearly err by . . . apply[ing] the . . . manager enhancement.”
(b) Rose’s participation in the price-fixing and market-allocating conspiracy among the
chlorine chloride competitors could be perceived as unethical in part because his activities were
illegal. Section 1 of the Sherman Act (and other statutes not at issue in this case) prohibit price-
fixing and market allocation. If ethics is defined as morally correct behavior, and compliance with
CHAPTER 46: ANTITRUST LAW 11
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
46–10A. Antitrust violations
(a) The plaintiffs could base a claim for damages and an injunction on an allegation
(b) The defendants might contend that they could not be held liable for anticompetitive
actions or agreements voluntarily undertaken by private entities can qualify for antitrust
